VIATEL INC, S-3/A, 1999-06-23

VIATEL INC
S-3/A, 1999-06-23
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1999

REGISTRATION NO. 333-78855
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

FORM S-3/A-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

VIATEL, INC.

(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C>
DELAWARE 13-3787366
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>

685 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 350-9200
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)

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

SHELDON M. GOLDMAN, ESQ.
SENIOR VICE PRESIDENT,
BUSINESS AFFAIRS AND GENERAL COUNSEL
VIATEL, INC.
685 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 350-9200
(Name, Address, Including Zip Code,
and Telephone
Number, Including Area Code, of Agent
For Service)

COPIES OF ALL COMMUNICATIONS TO:

<TABLE>
<S> <C>
JAMES P. PRENETTA, ESQ. JAMES S. SCOTT, SR., ESQ.
KELLEY DRYE & WARREN LLP SHEARMAN & STERLING
101 PARK AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10178 NEW YORK, NEW YORK 10022
(212) 808-7800 (212) 848-4000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

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

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering of Viatel, Inc.'s Common Stock, par value $.01
per share, in the United States and Canada and one to be used in a concurrent
offering of Viatel, Inc.'s common stock outside the United States and Canada.
The prospectuses are identical except for the front cover page. The U.S.
prospectus is included in this Registration Statement and is followed by the
front cover page to be used in the international prospectus. The front cover
page for the international prospectus included in this Registration Statement
has been labeled "Alternate Page For International Prospectus." Final forms of
each prospectus will be filed with the Securities and Exchange Commission under
Rule 424(b) of the General Rules and Regulations under the Securities Act of
1933, as amended.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)

ISSUED JUNE 23, 1999

4,700,000 SHARES

[LOGO]

COMMON STOCK
-----------------
VIATEL, INC. IS OFFERING 4,000,000 SHARES AND THE SELLING STOCKHOLDERS ARE
OFFERING 700,000 SHARES.
-------------------

VIATEL, INC.'S COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "VYTL." ON JUNE 21, 1999, THE REPORTED LAST SALE PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET WAS $46 PER SHARE.

-------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
-------------------
PRICE $ A SHARE
-------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS VIATEL STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE..................... $ $ $ $
TOTAL......................... $ $ $ $
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

VIATEL AND ONE OF THE SELLING STOCKHOLDERS HAVE JOINTLY AND SEVERALLY GRANTED
THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL 705,000 SHARES TO
COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO. INCORPORATED EXPECTS TO DELIVER THE
SHARES TO PURCHASERS ON , 1999.

-------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY
ING BARING FURMAN SELZ LLC

, 1999
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[GRAPHIC ON INSIDE FRONT COVER
DEPICTING MAP OF THE VIATEL NETWORK]
<PAGE>
TABLE OF CONTENTS

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PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 7
Special Note Regarding Forward-Looking Statements.......................................................... 18
Use of Proceeds............................................................................................ 19
Dilution................................................................................................... 20
Price Range of Our Common Stock............................................................................ 21
Dividend Policy............................................................................................ 21
Capitalization............................................................................................. 22
Selected Consolidated Financial Data....................................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 25
Business................................................................................................... 37
Management................................................................................................. 57
Certain Transactions....................................................................................... 66
Principal and Selling Stockholders......................................................................... 67
Description of Capital Stock............................................................................... 68
Certain United States Tax Consequences for Non-U.S. Investors.............................................. 71
Underwriters............................................................................................... 73
Legal Matters.............................................................................................. 76
Experts.................................................................................................... 76
Where You Can Find More Information About Us............................................................... 76
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>

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

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell the common
stock and it is not soliciting an offer to buy common stock in any state where
the offer or sale is not permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.

Our principal executive offices are located at 685 Third Avenue, New York,
New York 10017. Our telephone number at this location is (212) 350-9200.

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

VIACALL, VIACALL Plus, VIACALL Express, VIAPN, VIAISDN, VIAGLOBE and
VIAWORLDFAX are marketed under a number of service marks; VIADIRECT, VIADIRECT
Plus, VIALINK and VIA0800 are marketed under a number of pending service marks;
and Viatel uses various registered logos including "Viatel," a federally
registered service mark in the United States.

i
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY
NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
UNDERSTANDING OF VIATEL AND THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE CONSOLIDATED
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES, AND THE RISK FACTORS.

THE COMPANY

OVERVIEW

We are a rapidly growing international communications company providing high
quality, competitively priced, long distance communication and data services to
end users, carriers and resellers. Our revenue has grown from $32.3 million in
1995 to $135.2 million in 1998, and today we have direct sales forces in twelve
Western European cities and an indirect sales force in more than 180 locations
in Western Europe.

To capitalize on the opportunities presented by deregulation of the
telecommunications industry in Western Europe, we established an early presence
and sought aggressively to acquire licenses, interconnection and infrastructure.
Today, we have licenses in Belgium, France, Germany, Italy, The Netherlands and
the United Kingdom and interconnection agreements with the incumbent
telecommunications operator in each of these countries. We also have licenses in
Spain and Switzerland and expect to obtain interconnection agreements in these
countries during the fourth quarter of 1999.

We currently operate one of Europe's largest pan-European networks, with
points of presence in 45 cities. We believe that control of network
infrastructure is critical to becoming a high quality, low-cost provider of
communications services because it will enable us to better manage service
offerings, quality of transmission and costs. Accordingly, we are currently in
the process of migrating from a network composed of international and domestic
leased circuits to a network composed primarily of owned circuits. To facilitate
this transition, in 1998 we commenced construction of a five-ring fiber optic
network in the largest telecommunications markets in Europe. These five rings,
which are expected to consist of approximately 8,700 route kilometers, comprise
the "Circe Network." In March 1999, we completed construction of phase one of
the Circe Network, which connects four European countries and includes London,
Paris, Amiens, Brussels, Antwerp, Rotterdam and Amsterdam, and have begun
construction of phases two and three. We plan to begin construction of phases
four and five in the second half of 1999.

We believe, and our experience to date has indicated, that demand from end
users, carriers and other communications companies for high quality transmission
capacity in Europe will increase over the next several years due to fundamental
changes in the communications industry brought about by regulatory and technical
improvements. We also believe that cost effective transmission capacity in
Europe will allow new capacity intensive applications to be created which will,
in turn, fuel the need for capacity. Our network should allow us to meet this
increased demand by providing abundant transmission capacity for these
applications as well as for the continued growth in our existing voice service
business.

As part of our strategy to capture a share of the rapidly growing data
market, in the first quarter of 1999 we entered into an arrangement with Lucent
Technologies, Inc. pursuant to which Lucent is installing asynchronous transfer
mode backbone network equipment on our Circe Network. This backbone equipment is
designed to enable us to provide packet switched voice, video conferencing,
private intranets and dedicated Internet protocol transport over an integrated
platform and offer end users high capacity, speed and reliability. Lucent has
agreed to cooperate with us in developing marketing strategies to promote our
data services, to train our personnel and to assist us in achieving
network-to-network interfaces with certain specified carriers. We expect our
data network to be commercially operable in the fourth quarter of 1999.

1
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THE CIRCE NETWORK

The Circe Network is a series of state-of-the-art, high quality, high
capacity, self-healing rings, utilizing advanced synchronous digital hierarchy,
the current international standard for digital transmission, and dense wave
division multiplexing technology.

As currently planned, the Circe Network will be comprised of five
interlocking, bi-directional rings, consisting of approximately 8,700 route
kilometers of fiber optic cable. The first phase of the Circe Network,
consisting of approximately 1,850 route kilometers (including 312 route
kilometers of undersea fiber optic cable), was placed into operation during the
first half of March. The second phase, which will extend through northern
France, The Netherlands and into western Germany, is scheduled to be placed into
service during the third quarter of 1999. The third phase, which will extend
through eastern Germany, is scheduled to be placed into service during the first
quarter of 2000. We currently anticipate that the fourth and fifth phases of the
Circe Network, which will extend into southern France and Switzerland, will be
completed during the second quarter of 2000.

The Circe Network offers incumbent telecommunications operators and new
entrants a compelling, cost-effective, high quality alternative for the
transport of European cross-border telecommunications traffic. Under the
traditional system of carrying cross-border telecommunications traffic in
Europe, the incumbent telecommunications operators did not develop end-to-end
cross-border circuits, but rather connected their national networks with other
carriers at the border. The Circe Network's cross-border transport will offer
consistently high transmission quality at reduced cost.

Key characteristics of the Circe Network include:

- STATE-OF-THE-ART TECHNOLOGY. The Circe Network uses a laser-generated
light to transmit information bi-directionally over fiber optic glass
strands at an initial capacity of 20 gigabits per second. In addition, the
Circe Network employs dense wave division multiplexing technology. This
technology allows more discrete wavelengths of light to be transmitted
through fiber, thereby permitting the transfer of greater amounts of
information at a lower cost than was achievable with prior fiber optic
technology.

- UNIFORM NETWORK ARCHITECTURE. The entire Circe Network will consist of a
single uniform configuration of Nortel Telecom's optronics and Lucent's
fiber optic cable, thereby enhancing service quality while improving
efficiency and lowering costs.

- SECURE AND RELIABLE. The Circe Network is being designed to provide high
security and reliability by employing such features as two redundant
network operating centers and a self-healing architecture to allow for
instantaneous restoration in the event of a single fiber cut.

- SCALABLE AND FLEXIBLE. The Circe Network's high density network
architecture may be upgraded, without service interruptions, to at least
320 gigabits per second per fiber pair through the use of dense wave
division multiplexing technology, to support demand for bandwidth
intensive data applications. We anticipate that each ring of the Circe
Network will contain at least 48 fibers.

BUSINESS STRATEGY

Our goal is to become a fully integrated communications company that is well
positioned to take advantage of growth opportunities in the European
communications industry. We believe that we can accomplish this goal by becoming
a low-cost provider of services through the ownership of network infrastructure.
The key elements of our strategy include:

2
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minutes of use. According to industry sources, Europe's volume of
international minutes grew approximately 12% from 1996 to 1997. Industry
sources estimate the European wholesale and retail market for all Internet
services was $1.9 billion in revenue for 1997.

- FOCUS ON END USERS. We have established a customer base of small and
medium-sized businesses to which we currently sell long distance voice
services. The Circe Network allows us to provide high quality services to
these end users at competitive prices, particularly businesses with
multiple offices and those requiring significant capacity. Carrier
preselection, scheduled for the year 2000 for most countries in the
European Union, will enable us to capture a larger portion of our
customers' telecommunications spending by enabling end-users to pre-select
us, as opposed to the incumbent telecommunications operator, as their long
distance provider.

- LEVERAGE NETWORK THROUGH RESELLERS AND CARRIERS. To efficiently use
capacity on our network, we sell switched minutes to wholesale customers
and other resellers. While we are constructing the Circe Network primarily
for our own use, we also intend to sell switched minutes and to
opportunistically sell excess capacity on the Circe Network, thus
enhancing its utilization and reducing our construction costs.

- OFFER A COMPREHENSIVE RANGE OF COMMUNICATION SERVICES. Historically, we
have only offered voice and value-added services such as facsimile
transmission. The Circe Network will significantly expand our ability to
meet the growing demand for data services and to offer a comprehensive
range of such services including Internet access and transmission, frame
relay, asynchronous transfer mode and Internet protocol services, as well
as private line and data center co-location services. All of these
services are extremely capacity intensive, and the high cost of leased
transmission capacity made it uneconomical to offer such services without
owning our own network.

- BECOME A LOW COST PROVIDER OF COMMUNICATIONS SERVICES. We believe that
ownership of our network is critical to becoming a low-cost provider of
bundled communications services. In addition, network ownership will
enable us to manage service offerings and transmission quality. To achieve
this objective, we (1) have invested in points of presence and switches,
(2) are in the process of constructing the Circe Network, and (3) have
purchased and swapped for capacity on fiber optic cable systems in and
between Western Europe and the U.S.

- PURSUE ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES. In addition to
systematically expanding through internal growth, in the future we intend
to expand our services and network capabilities through acquisitions,
investments and strategic alliances in order to lower termination costs
and achieve desired economies of scale.

3
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THE OFFERING

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<S> <C> <C>
Common stock offered by:
Viatel........................ 4,000,000 shares
Selling stockholders.......... 700,000 shares
----------------
Total....................... 4,700,000 shares
----------------
----------------
Common stock offered in:
U.S. offering................. 3,760,000 shares
International offering........ 940,000 shares
----------------
Total....................... 4,700,000 shares
----------------
----------------
Common Stock to be outstanding 32,038,510
after the offering............ shares

Over-allotment option........... 705,000 shares

Use of proceeds................. To further develop and enhance our network and for working
capital and general corporate purposes. See "Use of
Proceeds."

Dividend Policy................. We have not paid any dividends on our common stock and do
not intend to pay dividends on our common stock in the
foreseeable future. See "Dividend Policy."

Nasdaq National Market symbol... VYTL
</TABLE>

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

As of June 1, 1999, we had 28,008,510 shares of common stock outstanding.

The total shares to be outstanding after this offering do not include (1)
shares of common stock to be issued in the event the underwriters'
over-allotment option is exercised, (2) outstanding options at June 1, 1999 to
purchase a total of approximately 3.2 million shares of common stock at prices
ranging from $3.74 to $43.00, with a weighted average exercise price of $11.62
per share, and (3) an additional 0.2 million shares reserved for future grants
under our stock incentive plan.

4
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SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth our summary consolidated financial data. The
data does not present all of our financial information. You should read this
information together with the consolidated financial statements and the notes to
those statements appearing elsewhere in this prospectus and the information
under "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The as adjusted
balance sheet information gives effect to the issuance and sale of 4,000,000
shares of common stock offered by us hereby at an assumed initial offering price
of $48.38 per share, the exercise of 30,000 options by selling stockholders for
an aggregate purchase price of approximately $152,000 and the conversion of our
outstanding shares of Series A preferred stock and subordinated convertible
debentures as if the conversion had occurred as of March 31, 1999. Net loss per
share is computed on the basis described in the notes to our consolidated
financial statements. EBITDA consists of earnings before interest, income taxes,
extraordinary loss, dividends on preferred stock and depreciation and
amortization. Capital additions for each period consist of capital expenditures,
the net increase in payables for property and equipment purchases, assets
acquired under capital lease obligations and capitalized interest during the
period. Restricted securities represents government obligations purchased by us
which secure the payment of certain interest payments on our outstanding senior
notes.

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<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
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(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Communication services revenue.............................. $ 50,419 $ 73,018 $ 131,938 $ 21,239 $ 48,395
Capacity sales.............................................. -- -- 3,250 -- 13,246
--------- --------- --------- --------- ---------
Total revenue........................................... 50,419 73,018 135,188 21,239 61,641
Operating expenses:
Cost of services and sales.................................. 42,130 63,504 122,109 19,105 51,048
Selling, general and administrative......................... 32,866 36,077 44,893 8,955 18,763
Depreciation and amortization............................... 4,802 7,717 16,268 2,911 9,603
--------- --------- --------- --------- ---------
Total operating expenses................................ 79,798 107,298 183,270 30,971 79,414
--------- --------- --------- --------- ---------
Operating loss................................................ (29,379) (34,280) (48,082) (9,732) (17,773)
Interest income............................................... 1,852 3,686 28,259 510 6,828
Interest expense.............................................. (10,848) (12,450) (79,177) (3,781) (26,166)
--------- --------- --------- --------- ---------
Loss before extraordinary loss................................ (38,375) (43,044) (99,000) (13,003) (37,111)
Extraordinary loss on debt prepayment......................... -- -- (28,304) -- --
--------- --------- --------- --------- ---------
Net loss...................................................... (38,375) (43,044) (127,304) (13,003) (37,111)
Dividends on redeemable convertible preferred stock........... -- -- (3,301) -- (1,177)
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders................ $ (38,375) $ (43,044) $(130,605) $ (13,003) $ (38,288)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Loss per common share, basic and diluted:
Before extraordinary item................................... $ (2.47) $ (1.90) $ (4.44) $ (0.57) $ (1.65)
From extraordinary item..................................... -- -- (1.23) -- --
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders................ $ (2.47) $ (1.90) $ (5.67) $ (0.57) $ (1.65)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares used in per share calculation:
Basic and diluted........................................... 15,514 22,620 23,054 22,783 23,186
</TABLE>

5
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OTHER FINANCIAL DATA:
EBITDA........................................................ $ (24,577) $ (26,563) $ (31,814) $ (6,821) $ (8,170)
Net cash used in operating activities......................... (26,331) (22,525) (60,318) (10,771) (21,578)
Net cash provided by (used in) investing activities........... (1,592) (43,164) (349,992) 16,455 (200,424)
Net cash provided by (used in) financing activities........... 94,772 11,286 729,035 (209) 351,655
Capital additions............................................. 9,800 40,214 220,903 2,412 161,590

OTHER OPERATING DATA:
Billable minutes (000s)....................................... 62,249 140,918 383,875 52,418 270,808
Switches...................................................... 13 14 15 14 15
Points of presence............................................ 13 33 34 33 45
Route kilometers of owned intra-European fiber optic cable in
operation................................................... -- -- -- -- 1,850
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............................................ $ 498,755 $ 682,384
Restricted cash equivalents and restricted marketable securities............................ 229,796 229,796
Cash securing letters of credit for network construction.................................... 121,239 121,239
Working capital............................................................................. 427,217 610,846
Property and equipment, net................................................................. 409,909 409,909
Intangible assets, net...................................................................... 70,579 70,116
Total assets................................................................................ 1,411,990 1,595,156
Long-term debt, excluding current installments.............................................. 1,292,482 1,280,001
Redeemable convertible preferred stock...................................................... 48,298 --
Stockholders' (deficiency) equity........................................................... (184,370) 59,575
</TABLE>

6
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RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS, WHICH ARE NOT LISTED IN
ORDER OF PRIORITY, BEFORE MAKING AN INVESTMENT DECISION. THE RISKS DESCRIBED
BELOW ARE NOT THE ONLY ONES THAT WE FACE. OUR BUSINESS, OPERATING RESULTS OR
FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED BY THESE RISKS. THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND
YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS.

OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO RUN OUR BUSINESS

We have now and will continue to have a significant amount of indebtedness.
As of March 31, 1999, we had $1.3 billion of indebtedness and a stockholders
deficit of $124.1 million (as adjusted for the conversion of certain securities
into common stock). Furthermore, our senior discount notes will accrete in value
(i.e., effectively increase in principal amount) by $241.8 million before they
begin to pay interest in cash. Our substantial indebtedness could have important
consequences to you. For example, it could:

- limit our ability to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate purposes,

- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the funds
available to us for other purposes, including working capital, capital
expenditures, acquisitions and general corporate purposes,

- make us more vulnerable to economic downturns, limiting our ability to
withstand competitive pressures and reduce our flexibility in responding
to changing business and economic conditions,

- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate,

- place us at a competitive disadvantage compared to our competitors that
have less debt, and

- limit our ability to borrow additional funds.

Any of the foregoing could have a material adverse effect on the price of
our common stock.

TO DATE, WE HAVE INCURRED SUBSTANTIAL NET LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS, AND IF THIS CONTINUES, WE WILL BE UNABLE TO MEET OUR WORKING CAPITAL
AND FUTURE DEBT SERVICE REQUIREMENTS

Our operating loss, negative EBITDA and net loss have increased for each of
the last four years. In 1998, we had an operating loss of $48.1 million,
negative EBITDA of $31.8 million and a net loss of $127.3 million. We also had
interest expense of $79.2 million and capitalized interest of $3.3 million in
1998. Interest expense will increase substantially as a result of the high yield
offering which we completed in March 1999. These losses and our high interest
expense present a significant risk for investors. We need to increase traffic on
our network to reduce our per minute costs and reverse these trends.

Our negative EBITDA and negative cash flow are likely to continue beyond the
year 2000 if:

- we extend our expansion plans,

- prices charged to end users decline faster than we anticipate,

- interconnection rates and wholesale prices paid by us do not decline as
quickly as we anticipate, or

- any of the other risks described in this prospectus materialize.

Accordingly, we cannot assure you that we will achieve or sustain profitability
or positive cash flows from operating activities in the future. If we cannot
achieve profitability or positive cash flows from operating activities, we may
be unable to meet our working capital and future debt service requirements which
would

7
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have a material adverse effect on our business, financial condition, results of
operations and the price of our common stock.

OUR CASH FLOW MAY NOT BE SUFFICIENT TO PERMIT REPAYMENT OF OUR INDEBTEDNESS WHEN
DUE

Our ability to make payments on and to refinance our indebtedness will
depend on our ability to generate cash in the future. We cannot assure you that
our business will generate sufficient cash flow from operations to meet our debt
service requirements. We may need to refinance all or a portion of our
indebtedness. Based on our current level of operation, we anticipate that cash
flow from operations may be insufficient to repay our indebtedness at scheduled
maturity and that some or all of such indebtedness may need to be refinanced. If
we are unable to refinance our debt or if additional financing is not available,
we could be forced to dispose of assets under circumstances that might not be
favorable to realizing the highest price for the assets or to default on our
obligations with respect to our indebtedness, either of which could have a
material adverse effect on the price of our common stock.

DUE TO RESTRICTIONS IN OUR INDENTURES, WE MAY NOT BE ABLE TO OPERATE OUR
BUSINESS AS WE DESIRE

The indentures under which our long-term debt was issued contain a number of
conditions and/or limitations on the way in which we can operate our business.
These limitations may force us to pursue less than optimal business strategies
or forego business arrangements which could have been financially advantageous
to us and our stockholders. The indentures restrict, and in some cases
significantly limit or prohibit, among other things, our ability and the ability
of our subsidiaries to:

- incur additional indebtedness,

- make prepayments of certain indebtedness,

- pay dividends,

- make investments,

- engage in transactions with stockholders and affiliates,

- issue capital stock,

- create liens,

- sell assets, and

- engage in mergers and consolidations.

Any of these limitations could have a material adverse effect on the price
of our common stock.

OUR FUTURE GROWTH WILL REQUIRE SUBSTANTIAL ADDITIONAL CAPITAL WHICH COULD EXCEED
BUDGETED AMOUNTS AND CAUSE US TO DELAY OR ABANDON EXPANSION PROJECTS

Our future growth will require substantial additional capital which may
exceed budgeted amounts. If we do not have sufficient cash to fund our growth as
planned, we may be required to delay or abandon some or all of our development
and expansion plans or we may have to seek additional money earlier than we
currently anticipate. We cannot assure you that additional financing
arrangements will be available to us on acceptable terms or at all. Moreover,
the amount of our outstanding indebtedness may adversely affect our ability to
raise additional financing. Our inability to obtain additional financing when
required on acceptable terms could have a material adverse effect on the price
of our common stock.

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FAILURE TO IMPLEMENT OUR STRATEGY OF OWNING FACILITIES COULD SIGNIFICANTLY
IMPACT OUR FINANCIAL PERFORMANCE

If we are unable to successfully implement our strategy of owning, rather
than leasing, telecommunications facilities, we could experience a significant
decrease in the margin which we make on long distance calls. This decrease,
absent a significant increase in the number of billable minutes which we carry
or the amount we can charge for additional services, would have a material
adverse effect on our business, financial condition, results of operations and
on the price of our common stock.

WE MAY NOT BE ABLE TO PROVIDE DATA TRANSMISSION SERVICES EFFECTIVELY

We have no direct experience in providing data transmission services and,
consequently, we can provide no assurance that we will be successful in the data
transmission business. Our ability to successfully enter the data transmission
business will depend upon, among other things our ability to:

- select new equipment and software and integrate these into our network,

- hire and train qualified personnel, and

- enhance our billing, back-office and information systems to accommodate
data transmission services and customer acceptance of our service
offerings.

If we are not successful, there may be a material adverse effect on our
business, financial condition, results of operations and the price of our common
stock.

The data transmission business is also extremely competitive and prices have
declined substantially in recent years and are expected to continue to decline.
In providing these services, we will be dependent upon vendors for assistance in
the planning and deployment of our data product offerings, as well as ongoing
training and support. Our provider for asynchronous transfer mode equipment is
Lucent. We believe that Lucent does not have extensive experience providing this
equipment, or configuring data networks, in Europe. In addition, this Lucent
equipment will need to be integrated with our existing Nortel Telecom-based
platforms. In Europe, there are a number of different protocols for data
transmission. Our network will need to be able to handle all of these protocols,
which will pose technical difficulties.

The asynchronous transfer mode network equipment we are installing is
designed to enable us to carry voice calls using Internet Protocol as well as
using traditional circuit switched technology. While we do not anticipate a
wholesale conversion to voice over Internet Protocol in the near future, we may
use this protocol to carry some portion of our voice traffic. Traditionally,
voice calls have been transmitted by keeping a circuit or line open between the
calling parties for the duration of the call. This method to transmit voice
calls is inefficient because during conversations there are pauses and periods
of silence when the capacity of the circuit is not being used. Voice
communications carried over data transmission technologies are designed to
eliminate this inefficiency. This technology breaks the voice conversation into
"packets" of information and sends those packets over transmission lines
individually. The packets are then re-assembled at or near their destination, so
the parties are able to have a conversation. When the parties on the call pause
or are silent, there are no packets transmitted and the transmission lines can
be used for other purposes. This technology promises to substantially improve
the efficiency of carrying voice conversations, reducing their cost.

Some telecommunications companies, including ICG Communications, Inc., IDT
Corporation and RSL Communications Ltd., are carrying calls over similar
technologies today and many others, including Sprint Corporation, are developing
this technology. However, carrying voice communications over Internet Protocol
is still under development, is extremely complex and has not, in our judgement,
been developed to quality levels equal to those of traditional voice
transmission methods. We do not currently carry voice communications over
Internet Protocol on our network. Accordingly, there is a risk that we will not
be able to develop this technology well enough to be able to use it for voice
traffic and, therefore, will not be able

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to enjoy the cost reductions it promises. Furthermore, it is not clear today
which of the emerging versions of this technology will prevail. We believe the
asynchronous transfer mode technology we are implementing is adaptable to future
developments of voice over Internet Protocol technology. Many telecommunications
companies have far more experience with these types of issues than we do. Our
failure to successfully carry voice communications using data transmission
technologies could have a material adverse effect on the price of our common
stock.

OUR OPERATING RESULTS MAY BE SUBJECT TO SUBSTANTIAL FLUCTUATIONS

Any significant shortfall in demand for our services in relation to
expectations, or the occurrence of any other factors which cause revenue to fall
significantly short of expectations, would have a material adverse effect on our
business, financial condition, results of operations and the price of our common
stock. Additional factors which may cause our operating results to fluctuate in
the future include:

- pricing changes in the industry,

- changes in the mix of services which we sell or channels through which
those services are sold,

- timing and amount of capacity sales,

- changes in user demand and customer terminations of service,

- changes in capital expenditure requirements and other costs relating to
the expansion of our network,

- the start-up and ready-for service dates of each phase of our network
expansion,

- the timing and costs of any acquisitions of customer bases, businesses,
services or technologies,

- the timing and costs of marketing and advertising efforts,

- the effects of government regulation and regulatory changes, and

- specific economic conditions in the telecommunications industry.

OUR ABILITY TO USE NET OPERATING LOSS CARRYFORWARDS MAY BE LIMITED IN THE FUTURE

As of December 31, 1998, we had federal income tax net operating loss
carryforwards of $218.8 million which begin to expire in 2007. A tax asset
related to this loss carryforward does not appear on our balance sheet because
it is unclear if we will generate taxable income prior to the expiration of the
net operating loss carryforwards. Our ability to use net operating loss
carryforwards, to reduce our future tax payments would be limited if there were
to occur a more than fifty percent ownership change over a three-year period. As
a result of an ownership change in October 1996, certain of our net operating
loss carryforwards from before such time are subject to this limitation. It is
possible that this offering, when combined with prior or subsequent direct or
indirect changes in the ownership of our common stock within the relevant
three-year period, could trigger this limitation.

OUR INDUSTRY IS HIGHLY COMPETITIVE WITH PARTICIPANTS THAT HAVE GREATER RESOURCES
THAN WE DO, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY

Our success depends upon our ability to compete with other
telecommunications providers in each of our markets, many of which have
substantially greater financial, marketing and other resources than we do. If
our competitors devote significant additional resources to the provision of
international or national long distance telecommunications services to our
target customer base, this action could have a material adverse effect on our
business, financial condition, results of operations and the price of our common
stock. We cannot assure you that we will be able to compete successfully.

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Our competitors include the incumbent telecommunications operator in each
country in which we operate, global alliances among some of the world's largest
telecommunications carriers, such as British Telecom and AT&T, Global One
(Sprint, France Telecom and Deutsche Telekom), MCI Worldcom and Telefonica de
Espana, and new entrants, such as alternative carriers, Internet backbone
networks and other service providers. In addition, Colt Telecom Group and Level
3 Communications are sharing the costs of constructing two networks -- one to
link the German cities of Berlin, Koln, Dusseldorf, Frankfurt, Hamburg, Munich
and Stuttgart and the other linking Paris, Frankfurt, Amsterdam, Brussels and
London. Other potential competitors include:

- cable communications companies,

- wireless telephone companies,

- electric and other utilities with rights-of-way,

- railways,

- microwave carriers, and

- large end-users which have private networks.

The intensity of competition and price declines in both billable minutes and
capacity have increased over the past several years and we believe that
competition and price declines will continue to intensify, particularly in
Western Europe, as other providers obtain operative connectivity.

We are aware that certain long distance carriers are expanding their
capacity and believe that other long distance carriers and data service
providers, as well as potential new entrants to the industry, are considering
the construction of new fiber optic and other long distance transmission
networks. Since the cost of the actual fiber is a relatively small portion of
building new transmission lines, persons building such lines are likely to
install fiber that provides substantially more transmission capacity than will
be needed over the short or medium term. Further, recent technological advances
have shown the potential to greatly expand the capacity of existing and new
fiber optic cable. In addition, our sales or leases of capacity on the Circe
Network to other carriers may result in competitors having capacity on our
routes along the Circe Network, which may in turn result in pricing pressures
with respect to traffic carried along these routes. If capacity expansion in the
telecommunications industry results in capacity that exceeds overall demand in
general or along any of our routes, severe additional pricing pressure could
develop. In addition, strategic alliances or similar transactions could result
in additional pricing pressure on long distance carriers. Such pricing pressure
could have a material adverse effect on us and the value of our common stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING BUSINESSES COULD IMPEDE
OUR FUTURE GROWTH AND ADVERSELY AFFECT OUR COMPETITIVENESS

We continuously evaluate and discuss potential acquisitions. We may seek to
acquire customer bases and businesses from, make investments in, or enter into
strategic alliances with, other companies, which may expose us to the following
risks:

- the difficulty of identifying appropriate acquisition candidates in the
countries in which we do business,

- the difficulty of assimilating the operations and personnel of the
acquired entities,

- the potential disruption to our ongoing business caused by senior
management's focus on the acquisition transactions,

- our failure to successfully incorporate licensed or acquired technology
into our network and service offerings,

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- the failure to maintain uniform standards, controls, procedures and
policies, and

- the impairment of relationships with employees as a result of changes in
management and ownership.

Additionally, in connection with an acquisition, we may experience rates of
customer attrition that are significantly higher than the rate of customer
attrition which we generally experience and will generally record goodwill that
must be amortized and which would reduce our earnings per share. Further, to the
extent that any transaction involves customer bases or businesses located
outside the United States, the transaction would involve the risks associated
with international operations. We cannot assure you that we would be successful
in overcoming these risks and our failure to overcome these risks could have a
material adverse effect on our business, financial condition, results of
operations and the price of our common stock.

NETWORK CONSTRUCTION DELAYS AND SYSTEM DISRUPTIONS OR FAILURES COULD ADVERSELY
AFFECT OUR BUSINESS

Our success is dependent, in part, on our ability to continue to expand our
network and on our ability to provide seamless technical operation of this
network. Furthermore, as we continue to expand our network to increase its
capacity and reach, we will face increasing demands and challenges including:

- effectively managing the construction of new fiber routes, obtaining any
necessary rights-of-way and required licenses for such construction, and
completing any such construction on budget and on time,

- increasing traffic volume on our network, and

- selling capacity on our network.

If the costs of construction projects significantly exceed our budget for
those projects, we may be required to obtain additional financing or to abandon
or curtail portions of those projects. If we encounter construction delays, we
will not be able to route our traffic over our owned facilities as soon as we
hope, which will, for some period of time, have a detrimental effect on our
ability to increase traffic volumes and gross margins. In addition, construction
delays could negatively affect our ability to sell indefeasible rights-of-use or
capacity to other carriers. Our network is also subject to several risks which
are outside of our control, such as:

- the risk of damage to software and hardware resulting from fire,

- power loss,

- natural disasters, and

- general transmission failures caused by a number of additional factors.

Any failure of our network or other systems or hardware that causes
significant interruptions to our operations could have a material adverse effect
on our business, financial condition, results of operations and on the price of
our common stock.

Our operations are also dependent on our ability to successfully integrate
new and emerging technologies and equipment into the network, which could
increase the risk of system failure and result in further strains upon our
network. We attempt to minimize customer inconvenience in the event of a system
disruption by routing traffic to other circuits and switches which may be owned
by other carriers. However, prolonged or significant system failures, or
difficulties for customers in accessing and maintaining connection with our
network, could seriously damage our reputation and result in customer attrition,
reduced margins and financial losses and, as a result, have a material adverse
effect on the price of our common stock. Additionally, any damage to our
switching centers in New York, New York; Somerset, New Jersey; London, England;
or Egham, England could have a material adverse effect on our ability to

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manage our network operations and generate accurate call detail reports and, in
the case of our switching centers in Somerset and Egham, to monitor our system.

The expansion and development of our network will require the significant
expenditure of resources in projecting growth in traffic volume and routing
preferences and determining the most cost effective means of growing the
network, for example, through variable or fixed lease arrangements, the purchase
of capacity or minimum investment units on digital fiber optic cables or digital
microwave equipment, or the further construction of transmission infrastructure.
Failure to project traffic volume and route preferences correctly or to
determine the optimal means of expanding our network would result in less than
optimal utilization of our network and could have a material adverse effect on
our business, financial condition, results of operations and on the price of our
common stock.

FOREIGN CURRENCY EXCHANGE RATES COULD HAVE ADVERSE EFFECTS ON OUR BUSINESS

Our payment obligations with respect to our outstanding indebtedness are
denominated in U.S. Dollars and the Euro, but certain of our revenues are
denominated in Pound Sterling. Any appreciation in the value of the U.S. Dollar
or the Euro relative to the Pound Sterling could have a material adverse effect
on our ability to make payments on such obligations.

In the future we may elect to manage exchange rate exposure presented by our
euro denominated obligations through the use of hedging transactions. We cannot
provide any assurance that exchange rate fluctuations will not have a material
adverse effect on our ability to make payments on our outstanding indebtedness.

In addition, we cannot assure you that the laws or administrative practices
relating to taxation, foreign exchange or other matters in countries within
which we operate will not change. Any such change could have a material adverse
effect on our business, financial condition, results of operations and the price
of our common stock.

WE COULD EXPERIENCE SYSTEM FAILURES AND SERVICE DISRUPTIONS AS A RESULT OF THE
YEAR 2000 ISSUE

We face certain risks arising from the Year 2000 issue which could have a
material adverse affect on our business, financial condition, results of
operations and the price of our common stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."

OUR DEPENDENCE UPON THIRD PARTIES FOR LEASED CAPACITY AND INTERCONNECTION
ARRANGEMENTS MAY RESULT IN SUBOPTIMAL UTILIZATION OF OUR NETWORK

We currently lease capacity for point-to-point circuits with fixed monthly
payments and buy minutes of use under agreements with maximum twelve-month terms
and are vulnerable to changes in our lease arrangements, capacity limitations
and service cancellations. These lease arrangements present us with high fixed
costs, while revenues generated by the utilization of these leases will vary
based on traffic volume and pricing. Accordingly, if we are unable to generate
sufficient traffic volume over particular routes or are unable to charge
appropriate rates, we could fail to generate revenue sufficient to meet the
fixed costs associated with the lease and may incur negative gross margins with
respect to those routes. A deterioration of our relationship with one or more
carriers could have a material adverse effect on our cost structure, service
quality, network coverage, financial condition, results of operations and the
price of our common stock.

Our ability to access customers and to effectively utilize our network is
dependent upon our ability to secure operative interconnection agreements,
providing access to and an exit from the public switched telephone network, with
the respective incumbent telecommunications operator in each market in which we
operate. Difficulties or delays in obtaining necessary operative
interconnections in a satisfactory or

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timely manner may significantly delay or prevent the maximum utilization of our
network which could have a material adverse effect on us and the price of our
common stock.

LOSS OF SIGNIFICANT CARRIER CUSTOMERS WOULD RESULT IN A SIGNIFICANT LOSS OF
REVENUES

We currently derive a significant portion of our revenues from a relatively
small number of carrier customers. During the three months ended March 31, 1999
and the year ended December 31, 1998, carrier customers accounted for 34.2% and
58.3% of our total revenue, respectively, with one carrier customer accounting
for 10.6% of total revenue for the year ended December 31, 1998. Accordingly,
the loss of revenue from more than one significant carrier customer would have a
material adverse effect upon our business, financial condition, results of
operations and the price of our common stock.

OUR BUSINESS WILL SUFFER IF WE LOSE CERTAIN KEY PERSONNEL OR FAIL TO ATTRACT AND
RETAIN OTHER QUALIFIED PERSONNEL

The success of our business is dependent, to a significant extent, upon the
abilities and continued efforts of our senior management, and particularly upon
the abilities and efforts of Michael J. Mahoney, our Chairman, Chief Executive
Officer and President. We do not currently have employment agreements with any
employee other than Mr. Mahoney, Allan L. Shaw, our Senior Vice President of
Finance and Chief Financial Officer, and Sheldon M. Goldman, our Senior Vice
President, Business Affairs and General Counsel, nor do we intend to enter into
any employment agreements with any employee other than Lawrence G. Malone, our
Senior Vice President, Global Sales and Marketing, and Francis J. Mount, our
Senior Vice President, Engineering and Network Operations. See
"Management--Employment Agreements." Except for a $3.0 million key-man life
insurance policy on the life of Mr. Mahoney, we do not maintain and do not
contemplate obtaining such life insurance policies on any of our employees.

The success of our business also depends on our ability to attract, retain
and motivate qualified management, marketing, technical and sales executives and
other personnel who are in high demand and who often have multiple employment
options. In addition, the labor market for software engineers and central office
technicians has been extremely competitive recently and we may lose key
employees or be forced to increase their compensation. The loss of the services
of key personnel, or the inability to attract, retain and motivate qualified
personnel, could have a material adverse effect on our business, financial
condition, results of operations and the price of our common stock.

CERTAIN PROVISIONS OF OUR CORPORATE DOCUMENTS AND OUR EMPLOYMENT CONTRACTS MAY
MAKE A TAKEOVER MORE DIFFICULT EVEN IF THE TAKEOVER WOULD BENEFIT STOCKHOLDERS

Our certificate of incorporation and by-laws include certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of our board of directors. These provisions may render the removal
of our directors and management more difficult. In addition, our certificate of
incorporation authorizes the issuance of "blank check" preferred stock. These
provisions may have the effect of delaying, deterring or preventing a future
takeover or change in control of Viatel, unless such takeover or change in
control is approved by our board of directors, even though such a transaction
might offer holders of our common stock an opportunity to sell their shares at a
price above the current market price.

Section 203 of the Delaware General Corporation Law (the "DGCL") also
imposes certain restrictions on mergers and other business combinations between
us and any holder of 15% or more of our common stock.

In addition, the employment agreements between Viatel and each of Messrs.
Mahoney, Shaw and Goldman contain, and the employment agreements to be executed
by each of Messrs. Malone and Mount will contain, provisions which require us to
make certain payments to those officers in certain instances if their employment
is terminated following certain specified events.

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Certain provisions of the DGCL and some of our employment agreements may
delay, deter or prevent someone from acquiring us in a transaction that results
in stockholders receiving a premium over the market price for the shares of
common stock. See "Management--Employment Agreements" and "Description of
Capital Stock--Certificate of Incorporation and By-laws." Such requirements may
delay, prevent or deter a change in control of our company.

In addition to the foregoing, under our indentures, in the event of a change
of control we must offer to purchase all our outstanding indebtedness at a
purchase price equal to 101% of the principal amount or the accreted value of
such notes. This requirement may deter third parties from entering into a merger
transaction with us and may have an adverse effect on the price of our common
stock.

WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION WHICH MAY AFFECT OUR ABILITY
TO OFFER CERTAIN SERVICES AND WHICH MAY BE CHANGED IN A MANNER ADVERSE TO VIATEL

OVERVIEW. National and local laws and regulations governing the provision
of telecommunications services differ significantly among the countries in which
we currently operate and intend to operate. The interpretation and enforcement
of such laws and regulations varies and could limit our ability to provide
certain communications services in certain markets. We cannot assure you that:

- future regulatory, judicial and legislative changes will not have a
material adverse effect on us,

- domestic or international regulators or third parties will not raise
material issues with regard to our compliance with applicable laws and
regulations, or

- other regulatory activities will not have a material adverse effect on our
business, financial condition and results of operations.

INTERNATIONAL TRAFFIC. Under the World Trade Organization Basic Telecom
Agreement, concluded on February 15, 1997, 69 countries comprising 95% of the
global market for basic telecommunications services agreed to permit competition
from foreign carriers. In addition, 59 of these countries have subscribed to
specific pro-competitive regulatory principles. The WTO Agreement became
effective on February 5, 1998 and has been implemented, to varying degrees, by
the signatory countries.

On November 26, 1997, the FCC adopted the Foreign Participation Order to
implement the U.S. obligations under the WTO Agreement. In this order, the FCC
adopted an open entry standard for carriers from World Trade Organization member
countries, generally facilitating market entry for such applicants by
eliminating certain existing tests. These tests remain in effect, however, for
carriers from non-World Trade Organization member countries.

International carriers serving the United States, including us, are subject
to the FCC's international settlements policy. The international accounting rate
system allows a U.S. facilities-based carrier to negotiate an accounting rate
with a foreign carrier for handling each minute of international telephone
service. Each carrier's portion of the accounting rate, usually one-half, is
referred to as the settlement rate. Historically, international settlement rates
have vastly exceeded the cost of terminating telecommunications traffic. The
FCC's international settlements policy requires: (1) the equal division of the
accounting rate between the U.S. and foreign carrier, (2) nondiscriminatory
treatment of U.S. carriers, and (3) proportionate return of inbound traffic. To
enforce the international settlements policy, the FCC has required carriers to
file publicly available copies of their international settlement arrangements.

The FCC adopted rules regarding specific rate levels for international
settlements which became effective on January 1, 1998 and which were
substantially affirmed by the FCC on reconsideration on June 11, 1999. The
International Settlement Rates Order generally requires U.S. facilities-based
carriers to negotiate settlement rates with their foreign correspondent at no
greater than FCC-established benchmark prices. In addition, the International
Settlement Rates Order imposed new conditions upon certain carriers, including
us. First, as amended on reconsideration, the FCC conditioned facilities-based

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authorizations for service on a route on which a carrier has a foreign affiliate
with market power upon the foreign affiliate offering all other U.S. carriers a
settlement rate at or below the relevant benchmark. None of our foreign
affiliates have market power. Second, the FCC conditioned any authorization to
provide switched services over either facilities-based or resold international
private lines upon the condition that at least half of the facilities based
international message telephone service traffic on the subject route is settled
at or below the relevant benchmark rate. This condition applies whether or not
the licensee has a foreign affiliate on the route in question.

In the Foreign Participation Order described above, if the subject WTO route
does not comply with the benchmark requirement, a carrier can demonstrate that
the foreign country provides equivalent resale opportunities. Accordingly, since
the February 9, 1998 effective date of the Foreign Participation Order, we have
been permitted to resell private lines for the provision of switched services,
also known as international simple resale, to any WTO country that either has
been found by the FCC to comply with the benchmarks or has been determined to be
equivalent. We, however, remain subject to prior FCC approval in order to
provide resold private lines to any country in which we have an affiliated
carrier that has not been found by the FCC to lack market power.

Many parties appealed the International Settlement Rates Order to the U.S.
Court of Appeals for the D.C. Circuit. On January 12, 1999, the U.S. Court of
Appeals for the D.C. Circuit issued an order resolving this appeal, upholding
the International Settlement Rates Order in all respects.

In new rules released on May 6, 1999, but not yet effective, the FCC has
removed the international settlements policy for: (1) all settlement
arrangements between U.S. carriers and foreign carriers that lack market power,
and (2) all settlement arrangements on routes where U.S. carriers are able to
terminate at least 50 percent of their traffic in the foreign market at rates
that are at least 25 percent below the applicable benchmark settlement rate. In
this international settlements policy order, the FCC also eliminated the
requirement that carriers file the settlement arrangements where the
international settlement policy has been eliminated. Finally, the international
settlements policy order expanded its rules to permit carriers to provide
international simple resale on any route where the resale carrier exchanges
switched traffic with a foreign carrier that lacks market power. Accordingly,
upon the effectiveness of these new rules, we will have more flexibility in
negotiating settlement arrangements with many carriers on many routes, which we
expect will lower our costs of terminating international traffic, although our
competitors will benefit from these new rules in the same way.

Increasing regulatory liberalization in many countries' telecommunications
markets now permits more flexibility in the way we can route calls. Certain FCC
rules limit the way in which some international calls can be routed.
Accordingly, it is possible that the FCC could find that our network
configuration violates these rules. If we were found to be in violation of these
routing restrictions, and if the violation was sufficiently severe, it is
possible that the FCC could impose sanctions and penalties upon us.

CALL REORIGINATION. In addition, outside the European Union we provide a
small number of customers with access to services through the use of call
reorigination. A substantial number of countries have prohibited certain forms
of call reorigination. We cannot assure you that certain of our services and
transmission methods will not be or not become prohibited in certain
jurisdictions and, depending on the jurisdictions, services and transmission
methods affected, there could be a material adverse effect on our business,
financial condition and results of operations.

UNSETTLED NATURE OF REGULATORY ENVIRONMENT. We have pursued and expect to
continue to pursue a strategy of providing our services to the maximum extent we
believe permissible under applicable laws and regulations. Our provision of
services in Western Europe may also be affected if any European Union member
state imposes greater restrictions on non-European Union international service
than on such service within the European Union. We cannot assure you that the
United States or foreign jurisdictions will not adopt laws or regulatory
requirements that will adversely affect us.

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Additionally, we cannot assure you that future United States or foreign
regulatory, judicial or legislative changes will not have a material adverse
effect on us or that regulators or third parties will not raise material issues
with regard to our compliance with applicable laws or regulations. If we are
unable to provide the services we are presently providing or intend to provide
or to use our existing or contemplated transmission methods, due to:

- our inability to receive or retain formal or informal approvals for such
services or transmission methods, or

- for any other reason related to regulatory compliance or the lack of such
compliance,

such events could have a material adverse effect on our business, financial
condition and results of operations.

Since January 1, 1998, we, as well as our U.S. competitors, have been
required by the FCC to make contributions to a universal service fund to
subsidize telecommunications services for low-income persons, schools and
libraries, and rural health care providers. These contributions are based upon
our gross revenues. There can be no assurance that we will be able fully to pass
the cost of these contributions on to our customers or that doing so will not
result in a loss of customers.

EUROPEAN IMPLEMENTATION. The national governments of the European Union
member states were required to pass legislation to liberalize the
telecommunications markets within their countries to implement European
Commission directives. Most of the member states have now implemented the
required legislation. In certain cases this has been done on an inconsistent,
and sometimes unclear, basis.

In addition, the legislation and/or its implementation have, in certain
circumstances, imposed significant obstacles on the ability of carriers to
proceed with the necessary licensing process. Such barriers include requirements
that carriers:

- post significant bonds or make significant capital commitments to build
infrastructure,

- complete extensive application documentation, and

- pay significant license fees.

Implementation has also been slow in certain member states as a result of
such member state's failure to dedicate the resources necessary to have a
functioning regulatory body in place. The above factors and other obstacles
which could develop in connection with deregulation of telecommunications
services could have a material adverse effect on our operations by slowing down
the rate of our intended expansion, as well as a material adverse effect on our
business, financial condition, results of operations and the price of our common
stock.

THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE

The market price of our common stock has been and can be expected to be
significantly affected by factors such as:

- quarterly variations in our results of operations,

- the announcement of new services or service enhancements by us or our
competitors,

- technological innovations by us or our competitors,

- changes in earnings estimates or buy/sell recommendations by analysts,

- the operating and stock price performance of other comparable companies,
and

- general market conditions or market conditions specific to particular
industries.

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<PAGE>
In particular, the stock prices for many companies in the telecommunications
sector have experienced wide fluctuations which have often been unrelated to the
operating performance of such companies. We have been, and are likely to
continue to be, subject to such fluctuations.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "should," "will" and "would" or similar words. You should read statements
that contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
position or state other "forward-looking" information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
control. The factors listed above in the section captioned "Risk Factors," as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, results of operations, financial
position and the price of our common stock.

18
<PAGE>
USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock we are offering will be approximately $183.5 million at an assumed
public offering price of $48.38 per share and after deducting estimated offering
expenses of $1,800,000 and underwriting discounts and commissions payable by us.
We will not receive any of the proceeds from the sale of shares of our common
stock by the selling stockholders. We intend to use the net proceeds from this
offering principally to fund the further development of our network as well as
for working capital and general corporate purposes. We continuously evaluate and
discuss acquisitions. The net proceeds from this offering may be used, in part,
to fund such acquisitions. Pending utilization of the net proceeds, we intend to
invest such proceeds in short-term, interest-bearing, high quality securities.

We believe that the net proceeds from this offering, together with cash and
marketable securities on hand and the proceeds from the sale of capacity on the
Circe Network, will provide sufficient funds for us to expand our business as
planned and to fund losses for at least the next 12 to 18 months. However, the
amount of our future capital requirements and losses will depend on a number of
factors, including the success of our business, the start-up dates of the
unfinished rings of the Circe Network, the rate at which we further expand our
network, the types of services that we offer, staffing levels, acquisitions and
customer growth, as well as other factors that are not within our control,
including competitive conditions, government regulatory developments and capital
costs. In the event that our plans or assumptions change or prove to be
inaccurate, or the net proceeds of this offering and the sale of capacity on the
Circe Network prove to be insufficient to fund our capital expenditures and
losses in the manner and at the rate currently anticipated, we may be required
to delay or abandon some or all of our development and expansion plans or we may
be required to seek additional sources of financing earlier than currently
anticipated. See "Risk Factors--Our Cash Flow May Not Be Sufficient to Permit
Repayment of Our Indebtedness When Due" and "Risk Factors--Our Future Growth
Will Require Substantial Additional Capital Which Could Exceed Budgeted Amounts
and Cause Us to Delay or Abandon Expansion Projects."

19
<PAGE>
DILUTION

Our net tangible book value at March 31, 1999, as adjusted for the
conversion of our Series A preferred stock and subordinated convertible
debentures, was $(194.2) million, or $(6.98) per share of our common stock. Our
as adjusted net tangible book value per share represents the amount of our total
tangible assets less our total liabilities, divided by the number of shares of
common stock outstanding. After giving effect to the receipt of the net proceeds
from the sale of the 4,000,000 shares of our common stock offered by us hereby,
at an estimated offering price of $48.38 per share, after deducting underwriting
discounts and commissions and estimated offering expenses, and the proceeds from
the exercise of 30,000 options by selling stockholders for an aggregate purchase
price of approximately $152,000, our pro forma as adjusted net tangible book
value at March 31, 1999, would have been $(10.5) million, or $(0.33) per share.
This represents an immediate increase in net tangible book value of $6.65 per
share to existing stockholders and an immediate dilution of $48.71 per share to
the new investors purchasing our common stock at the public offering price. The
following illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Estimated public offering price per share........................... $ 48.38
As adjusted net tangible book value per share as of March 31, 1999
before this offering.............................................. $ (6.98)
Increase per share attributable to new investors.................... 6.65
---------
Pro forma, as adjusted net tangible book value per share at March
31, 1999 after this offering...................................... (0.33)
---------
Dilution per share to new investors................................. $ 48.71
---------
---------
</TABLE>

The foregoing table does not include (1) shares of common stock to be issued
in the event the underwriters' over-allotment option is exercised, (2)
outstanding options at June 1, 1999 to purchase a total of approximately 3.2
million shares of common stock at prices ranging from $3.74 to $43.00, with a
weighted average exercise price of $11.62 per share, and (3) an additional 0.2
million shares reserved for future grants under our stock incentive plan.

20
<PAGE>
PRICE RANGE OF OUR COMMON STOCK

Our common stock is quoted on the Nasdaq Stock Market under the symbol
"VYTL." The following table sets forth, for each of the periods indicated, the
high and low sales prices per share of common stock as reported on the Nasdaq
National Market.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997
First Quarter..... 9 1/2 6 5/8
Second Quarter.... 7 6
Third Quarter..... 6 5/8 4 1/4
Fourth Quarter.... 7 5

1998
First Quarter..... 13 3/4 5
Second Quarter.... 17 7
Third Quarter..... 20 3/4 8 1/8
Fourth Quarter.... 23 1/2 7 1/4
1999
First Quarter..... 28 5/8 17
Second Quarter
(through June 22,
1999)............. 52 7/8 28 1/8
</TABLE>

On June 21, 1999, the reported last sale price of our common stock on the
Nasdaq National Market was $46 per share.

DIVIDEND POLICY

We have not paid any dividends on our common stock and do not intend to pay
any dividends on our common stock in the foreseeable future. We currently intend
to retain future earnings, if any, to finance the future growth of our business.
In addition, our ability to pay cash dividends is currently restricted under the
terms of the indentures related to our existing senior indebtedness. Future
dividends, if any, will be determined by our Board of Directors.

21
<PAGE>
CAPITALIZATION

The following table sets forth the cash and cash equivalents, various other
assets and the capitalization of Viatel as of March 31, 1999 on an actual basis,
on an as adjusted basis to give effect to the conversion of our Series A
redeemable convertible preferred stock and subordinated convertible debentures,
and on a pro forma as adjusted basis to reflect the application of the net
proceeds from the sale of the 4,000,000 shares of common stock offered by us
hereby, at an estimated public offering price of $48.38 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses, and the proceeds from the exercise of 30,000 options by selling
stockholders for an aggregate purchase price of approximately $152,000. You
should read the information in this table in conjunction with "Use of Proceeds,"
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
related notes thereto included elsewhere in this prospectus.

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
---------------------------------------
AS ADJUSTED PRO FORMA
FOR AS ADJUSTED
ACTUAL CONVERSION FOR OFFERING
--------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents........................................... $ 442,042 $ 442,042 $ 625,671
--------- ------------- -------------
--------- ------------- -------------
Restricted cash equivalents......................................... $ 23,530 $ 23,530 $ 23,530
--------- ------------- -------------
--------- ------------- -------------
Cash securing letters of credit on network construction............. $ 121,239 $ 121,239 $ 121,239
--------- ------------- -------------
--------- ------------- -------------
Marketable securities, current...................................... $ 56,713 $ 56,713 $ 56,713
--------- ------------- -------------
--------- ------------- -------------
Restricted marketable securities, current and non-current........... $ 206,266 $ 206,266 $ 206,266
--------- ------------- -------------
--------- ------------- -------------
Long-term liabilities, excluding current installments:
Long-term debt.................................................. $1,256,196 $ 1,243,715 $ 1,243,715
Notes payable and obligations under capital leases.............. 36,286 36,286 36,286
--------- ------------- -------------
Total long-term debt.......................................... 1,292,482 1,280,001 1,280,001
--------- ------------- -------------
Series A Redeemable Convertible Preferred Stock, $.01 par value;
718,042 shares authorized; 472,791 shares issued and outstanding
actual, 0 shares issued and outstanding pro forma for the
conversion and 0, pro forma, as adjusted for this offering........ 48,298 -- --
--------- ------------- -------------
Stockholders' (deficiency) equity:
Common stock, $.01 par value; 50,000,000 shares authorized;
23,193,265 shares issued and outstanding, actual, 27,798,615
shares issued and outstanding, pro forma for the conversion
and 31,828,615, shares issued and outstanding pro forma as
adjusted for this offering.................................... 232 278 318
Additional paid-in capital...................................... 128,403 188,673 372,262
Accumulated other comprehensive loss............................ (15,082) (15,082) (15,082)
Accumulated deficit............................................. (297,923) (297,923) (297,923)
--------- ------------- -------------
Total stockholders' (deficiency) equity....................... (184,370) (124,054) 59,575
--------- ------------- -------------
Total capitalization........................................ $1,156,410 $ 1,155,947 $ 1,339,576
--------- ------------- -------------
--------- ------------- -------------
</TABLE>

22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our consolidated financial statements, including the
notes thereto, and the other financial data included elsewhere in this
prospectus. The statement of operations data, other financial data and balance
sheet data as of and for the years ended December 31, 1994, 1995, 1996, 1997 and
1998 are derived from the consolidated financial statements of Viatel and the
notes related thereto, which were audited by KPMG LLP, independent certified
public accountants. The consolidated financial statements as of December 31,
1997 and 1998 and for each of the years in the three-year period ended December
31, 1998 and the report of KPMG LLP thereon, are included elsewhere in this
prospectus. The selected consolidated statement of operations data, other
financial data and balance sheet data as of and for the three-month periods
ended March 31, 1998 and 1999 are derived from the unaudited consolidated
financial statements of Viatel included elsewhere in this prospectus, which, in
the opinion of management, include all adjustments necessary for a fair
presentation of the financial condition and results of operations of Viatel for
such periods. The results of operations for interim periods are not necessarily
indicative of a full year's operations. Net loss per share is computed on the
basis described in the notes to our consolidated financial statements. EBITDA
consists of earnings before interest, income taxes, extraordinary loss,
dividends on preferred stock and depreciation and amortization. Capital
additions for each period consist of capital expenditures, the net increase in
payables for property and equipment purchases, assets acquired under capital
lease obligations and capitalized interest during the period. Restricted
securities represents government obligations purchased by us which secure the
payment of certain interest payments on our outstanding senior notes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------

<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Communication services revenue.............. $ 26,268 $ 32,313 $ 50,419 $ 73,018 $ 131,938 $ 21,239 $ 48,395
Capacity sales.............................. -- -- -- -- 3,250 -- 13,246
--------- --------- --------- --------- --------- --------- ---------
Total revenue............................. 26,268 32,313 50,419 73,018 135,188 21,239 61,641
Operating expenses:
Cost of services and sales.................. 22,953 27,648 42,130 63,504 122,109 19,105 51,048
Selling, general and administrative......... 14,463 24,370 32,866 36,077 44,893 8,955 18,763
Depreciation and amortization............... 789 2,637 4,802 7,717 16,268 2,911 9,603
Equipment impairment loss................... -- 560 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................. 38,205 55,215 79,798 107,298 183,270 30,971 79,414
--------- --------- --------- --------- --------- --------- ---------
Operating loss................................ (11,937) (22,902) (29,379) (34,280) (48,082) (9,732) (17,773)
Interest income............................... 214 3,282 1,852 3,686 28,259 510 6,828
Interest expense.............................. (772) (8,856) (10,848) (12,450) (79,177) (3,781) (26,166)
--------- --------- --------- --------- --------- --------- ---------
Loss before extraordinary loss................ (12,495) (28,476) (38,375) (43,044) (99,000) (13,003) (37,111)
Extraordinary loss on debt prepayment......... -- -- -- -- (28,304) -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss...................................... (12,495) (28,476) (38,375) (43,044) (127,304) (13,003) (37,111)
Dividends on redeemable convertible preferred
stock....................................... -- -- -- -- (3,301) -- (1,177)
--------- --------- --------- --------- --------- --------- ---------
Net loss attributable to common
stockholders.............................. $ (12,495) $ (28,476) $ (38,375) $ (43,044) $(130,605) $ (13,003) $ (38,288)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Loss per common share, basic and diluted:
Before extraordinary item................... $ (1.22) $ (2.09) $ (2.47) $ (1.90) $ (4.44) $ (0.57) $ (1.65)
From extraordinary item..................... -- -- -- -- (1.23) -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss attributable to common
stockholders.............................. $ (1.22) $ (2.09) $ (2.47) $ (1.90) $ (5.67) $ (0.57) $ (1.65)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares used in per share
calculation:
Basic and diluted........................... 10,252 13,641 15,514 22,620 23,054 22,783 23,186
</TABLE>

23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA........................................ $ (11,148) $ (20,265) $ (24,577) $ (26,563) $ (31,814) $ (6,821) $ (8,170)
Net cash used in operating activities......... (11,571) (18,489) (26,331) (22,525) (60,318) (10,771) (21,578)
Net cash provided (used in) by investing
activities.................................. (4,996) (37,057) (1,592) (43,164) (349,992) 16,455 (200,424)
Net cash provided by (used in) financing
activities.................................. 80,984 (2,306) 94,772 11,286 729,035 (209) 351,655
Capital additions............................. 4,267 11,887 9,800 40,214 220,903 2,412 161,590

OTHER OPERATING DATA:
Billable minutes (000s)....................... 14,981 25,932 62,249 140,918 383,875 52,418 270,808
Switches...................................... 2 10 13 14 15 14 15
Points of presence............................ 3 11 13 33 34 33 45
Route kilometers of owned intra-European fiber
optic cable in operation.................... -- -- -- -- -- -- 1,850
<CAPTION>

AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>

BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.................................. $66,762 $ 35,066 $ 92,982 $ 47,143 $ 501,282 $ 28,150 $ 498,755
Restricted cash equivalents and restricted
marketable securities....................... -- -- -- -- 144,523 -- 229,796
Cash securing letters of credit for network
construction................................ -- -- -- -- -- -- 121,239
Working capital............................... 58,549 26,214 79,434 7,666 428,657 12,729 427,217
Property and equipment, net................... 6,933 15,715 21,074 54,094 266,256 56,997 409,909
Intangible assets, net........................ 5,225 5,502 5,021 4,339 46,968 12,567 70,579
Total assets.................................. 83,923 65,613 134,664 126,809 1,009,111 121,894 1,411,990
Long-term debt, excluding current
installments................................ 59,955 67,283 77,904 99,610 921,139 102,360 1,292,482
Redeemable convertible preferred stock........ -- -- -- -- 47,121 -- 48,298
Stockholders' equity (deficiency)............. 10,985 (17,618) 38,483 (8,564) (137,292) (18,271) (184,370)
</TABLE>

24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS, THE NOTES THERETO, AND THE OTHER FINANCIAL DATA INCLUDED LATER IN
THIS PROSPECTUS. THE FOLLOWING DISCUSSION INCLUDES CERTAIN FORWARD-LOOKING
STATEMENTS. FOR A DISCUSSION OF IMPORTANT FACTORS, INCLUDING, BUT NOT LIMITED
TO, THE CONTINUED DEVELOPMENT OF OUR BUSINESS, ACTIONS OF REGULATORY AUTHORITIES
AND COMPETITORS, PRICE DECLINES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE RESULTS REFERRED TO IN THE FORWARD-LOOKING
STATEMENTS, SEE "RISK FACTORS."

OVERVIEW

Since our inception in 1991, we have invested heavily in developing our
ability to provide international communications services within Western Europe
and to expand our market presence. During the past seven years, we have made
substantial investments in software and back office operations, administrative
infrastructure and a direct sales organization in Western Europe. Furthermore,
we have created an extensive commercial telecommunications network in Western
Europe which we believe is necessary to economically render the voice and data
services we offer and intend to offer. We have also expanded our ability to
generate revenues in North America during 1998. Historically, our revenues were
derived from wholesale sales and retail sales (which is composed of sales to end
users). Currently, our revenues also include revenues from the sale of capacity
on our network. Each revenue source has a different impact on our results of
operations. The sale of capacity on the Circe Network will vary substantially
from period to period and will result in fluctuations in our operating results.
For a discussion of the effects of the Circe Network on communication services
revenue and other line items, see "--The Circe Network."

REVENUE

Our revenue is derived from communication services and capacity sales. Our
communications services revenue is currently based primarily on the number of
minutes of use billed ("billable minutes") and, to a lesser extent, on the
additional services and products provided through our network. We currently
derive our communication services revenue principally from long distance
telecommunications services.

During recent years, the following key trends have affected the composition
of our communication services revenue:

- A growing proportion of our customers, particularly in Western Europe, now
access our network using either "indirect access" or "dedicated access"
rather than call re-origination or international toll-free access (See
"Business--The Viatel Network").

- We have continued to expand our wholesale business. Our acquisition of
Flat Rate Communications, Inc. during 1998 resulted in a significant
increase in our wholesale business, and also increased our North American
revenues. We believe that the revenues generated in North America will
continue to increase.

- The Western European market has increased in importance for us. In
contrast, revenue from Latin America and Asia/Pacific Rim has declined,
and is expected to continue to decline, as a percentage of total
communications revenue as we continue to grow our business in Western
Europe.

25
<PAGE>
The table set forth below presents our communication services revenue, as a
percentage of total revenue, from different regions (based on where calls
originated on the network):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
Western Europe................................................ 39.5% 44.7% 46.6% 52.9% 67.2%
North America................................................. 18.9 21.9 41.6 26.9 28.0
Latin America................................................. 28.6 22.2 10.8 17.3 4.7
Asia/Pacific Rim and Other.................................... 13.0 11.2 1.0 2.9 0.1
</TABLE>

We have experienced, and expect to continue to experience, declining revenue
per minute in all of our markets, in part as a result of increasing worldwide
competition within the telecommunications industry. See "Risk Factors--Our
Industry is Highly Competitive With Participants That Have Greater Resources
Than We Do, and We May Not Be Able to Compete Successfully." We believe,
however, that the impact on our results of operations from price decreases will
be at least partially offset by (1) continuing decreases in our cost of
providing telecommunications services, particularly those decreases resulting
from our continued efforts to convert from leased to owned infrastructure and
reduce interconnection costs through the use of the Circe Network as it is
expanded, (2) the introduction of new products and services, and (3) our ability
to enter into additional interconnection agreements. There can be no assurance,
however, that the results referred to in the foregoing forward looking
statements, including a decline in our cost of communication services, can be
achieved.

COST OF SERVICES AND SALES

Our cost of services and sales can be classified into four general
categories: access costs, network costs, termination costs and cost of capacity
sold. Access costs generally represent the costs associated with transporting
the traffic from a customer's premises to the closest access point on our
network. Access costs vary depending upon the distance from our network to the
customer's premises and from country to country. We currently expect that our
effective per minute access costs will be reduced as deregulation continues and
competition accelerates, certain European Union directives requiring
cost-oriented pricing (i.e., costs that an effectively competitive market would
yield) by incumbent telecommunications operators are enforced and as we are able
to obtain cost effective interconnection agreements. However, we can provide no
assurance regarding the extent or timing of such cost decreases. In the event
that such access costs do not fall as fast as we expect or at all, our gross
margins could be adversely impacted.

Network costs represent the costs of transporting calls over our network
from its point of entry to its point of exit. Network costs generally consist of
leased line rental costs, facility/network management costs and costs associated
with interconnection with facilities of incumbent telecommunications operators.
These costs will decrease substantially as each ring of the Circe Network is
placed into service and we secure infrastructure ownership on other routes,
which will enhance gross margins. However, there will be an associated increase
in depreciation and amortization expense (which is not included in network
costs). In order to succeed, we will need our per minute network costs to
decline substantially compared to our per minute revenue. See "--Depreciation
and Amortization."

We utilize least cost routing designed to terminate traffic in the most cost
effective manner. We believe that local termination costs should decrease as we
(1) add additional switches and points of presence, (2) interconnect with
additional incumbent telecommunications operators and other infrastructure
providers and (3) construct or purchase additional transmission facilities.
Local termination costs should also decrease as new telecommunications service
providers emerge and, in Western Europe, as European Union member states
implement and enforce regulations requiring incumbent telecommunications
operators to establish rates which are set at the forward-looking, long run
economic costs that would be incurred by an efficient provider using
state-of-the-art technology. We cannot provide

26
<PAGE>
any assurance regarding the results referred to in the foregoing forward-looking
statements, including the extent or timing of cost decreases. See "Risk Factors"
and "Business--Competition" and "Business-- Government Regulation."

Termination costs currently represent the costs which we are required to pay
to other carriers from the point of exit from our network to the point of
destination. Termination costs are generally variable with traffic volume and
traffic mix. If a call is terminated in a city in which we have a switch or
point of presence, the call is usually transferred to the public switched
telephone network for local termination. If the call is to a location in which
we do not have a switch or point of presence, then the call must be transferred
to another carrier with which we are interconnected.

For a description of cost of capacity sold, see " -- The Circle Network."

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Our selling, general and administrative expenses include commissions paid to
independent sales representatives and overhead costs associated with our
headquarters, back office and network operations centers and sales offices. Our
selling, general and administrative expenses have continued to increase since
our inception as we developed and expanded our business, although these expenses
have fallen as a percentage of communications revenue. We anticipate that these
expenses will continue to increase as our business is expanded in the future,
however, we cannot provide any assurance that this will be the case. We
anticipate that these expenses will continue to be incurred in advance of
anticipated related communication services revenue.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense includes charges relating to
depreciation of property and equipment, which consist principally of
telecommunications-related equipment such as switches and points of presence,
indefeasible rights of use and minimum investment units, furniture and
equipment, leasehold improvements, and amortization of intangibles assets,
including goodwill and costs associated with acquired employee bases and sales
forces. We depreciate our network over periods ranging from five to 15 years and
amortize our intangible assets over periods ranging from three to 25 years. We
expect depreciation and amortization expense to increase as we further expand
our network, particularly as each ring of the Circe Network is placed into
service, at least until significant portions of the Circe Network are sold.

THE CIRCE NETWORK

The Circe Network is expected to have significant effects on our results of
operations. The sale of capacity on the Circe Network will vary substantially
from period to period and, as a result, may result in fluctuations in our
operating results. During the first quarter of 1999, we began selling capacity
on the Circe Network. These sales substantially increase our gross profit (I.E.,
total revenue less cost of services and sales) because our cost of communication
services as a percentage of communications service revenue is currently higher
than the cost of capacity as a percentage of capacity sales. Due to the timing
of capacity sales and higher margin associated with such sales, our gross
profits and gross margin may also fluctuate substantially in the future, in ways
that will not necessarily reflect the trends in our communications services
business. We capitalize all of the costs associated with designing, building,
funding and placing each ring of the Circe Network into service.

Revenue from capacity sales that qualify under generally accepted accounting
principles to be treated as sales are recognized under a line item titled
"Capacity sales." Capacity sales are recognized as revenue when the purchaser
obtains the right to use the capacity. The related cost of capacity is reported
in the same period. With respect to each sale of capacity, the related cost of
capacity sales is equal to a proportionate amount of the total capitalized cost
of the related network. Revenue from operating leases

27
<PAGE>
of private line circuits will be included in communications services revenue and
will be recognized on a straight line basis over the life of the lease. The
portion of the total capitalized cost of the Circe Network used to provide
communication services is included in property and equipment and is being
charged to depreciation and amortization over its useful life.

We expect to trade capacity on the Circe Network for capacity on other cable
systems. Depending upon structure, these trades of capacity may have a material
affect on our statement of operations. We will continue to incur sales and
marketing and related expenses that will not be capitalized and will affect our
results of operations, particularly while the Circe Network is being designed,
built and placed into service. In addition, we will continue to incur additional
operating and maintenance expense as the remaining Circe phases become
operational. As a result of financing the Circe Network with debt, we are
capitalizing a portion of the interest incurred that relates to the construction
of the Circe Network until it is placed in service and will incur increases in
interest expense thereafter.

The Circe Network will have a beneficial effect on our costs of services and
sales as well as net income (loss). This will occur as we bring traffic
"on-net," to facilities we own, as opposed to facilities that we lease from
other carriers. A large portion of the expenses associated with facilities we
own is accounted as depreciation and amortization, while leased capacity is
accounted for as a cost of services and sales. As a result, we expect that our
gross margins and profit will be improved as we bring traffic "on-net." However,
our net income (loss) will not improve to the same extent. The effect of
bringing traffic "on-net" will be somewhat delayed, because our leased line
agreements require minimum notification to terminate our obligations.

RESULTS OF OPERATIONS

The following table summarizes the breakdown of our results of operations as
a percentage of total revenue. Our total revenue, and therefore these
percentages, could fluctuate substantially from period to period due to capacity
sales, which have a substantially different impact on margins than
communications services.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
Cost of services and sales........................... 83.6% 87.0% 90.3% 90.0% 82.8%
Selling, general and administrative expenses......... 65.2% 49.4% 33.2% 42.2% 30.4%
Depreciation and amortization........................ 9.5% 10.6% 12.0% 13.7% 15.6%
EBITDA loss(1)....................................... (48.7%) (36.4%) (23.5%) (32.1%) (13.3%)
</TABLE>

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

(1) As used herein "EBITDA" consists of earnings before interest, income taxes,
extraordinary loss, dividends on convertible preferred stock and
depreciation and amortization. EBITDA is a measure commonly used in the
telecommunications industry to analyze companies on the basis of operating
performance. EBITDA is not a measure of financial performance under
generally accepted accounting principles, is not necessarily comparable to
similarly titled measures of other companies and should not be considered as
an alternative to net income as a measure of performance nor as an
alternative to cash flow as a measure of liquidity.

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998

TOTAL REVENUE. Total revenue increased by 190.2% to $61.6 million for the
three months ended March 31, 1999 from $21.2 million for the three months ended
March 31, 1998. Within this growth was a 127.9% increase in communication
services revenue to $48.4 on 270.8 million billable minutes for the first
quarter of 1999 from $21.2 million on 52.4 million billable minutes for the
first quarter of 1998. Capacity sales were $13.2 million for the first quarter
of 1999. We had no capacity sales during the first quarter of

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<PAGE>
1998, because the Circe Network did not exist. Revenue growth for the first
quarter of 1999 was generated primarily by growth from European end user
revenues and new capacity sales.

A substantial increase in billable minutes from the first quarter of 1998 to
the first quarter of 1999 was partially offset by a substantial decline in
revenue per billable minute primarily because of (1) a higher percentage of
lower-priced intra-European and national long distance traffic on our network
and (2) reductions in prices in response to price reductions by incumbent
telecommunications operators and other competitors in many of our markets.

Communication services revenue per billable minute from the sale of services
to retail customers, which represented 44.3% of total revenue for the three
months ended March 31, 1999, compared to 55.2% for the three months ended March
31, 1998, decreased 72.5% to $.14 in the first quarter of 1999 from $.51 in the
first quarter of 1998. Communication services revenue per billable minute from
the sale of services to carriers and other resellers remained constant at $.29
for the first quarter of 1999 and in the first quarter of 1998.

During the first quarter of 1999 as compared to the first quarter of 1998,
we increased our carrier business (through which we provide switched minutes,
private lines and ports to carriers, Internet Service Providers and other
resellers) on an absolute basis. However, our carrier business declined as a
percentage of communications service revenue, because our retail services grew
at a faster rate. The carrier business represented approximately 34.2% of total
revenue and approximately 27.1% of billable minutes for the three months ended
March 31, 1999 as compared to approximately 44.6% of total revenue and
approximately 56.2% of billable minutes for the three months ended March 31,
1998.

COST OF SERVICES AND SALES. Cost of services and sales increased to $51.0
million in the first quarter of 1999 from $19.1 million in the first quarter of
1998. As a percentage of total revenue, however, cost of services and sales
decreased to approximately 82.8% from approximately 90.0% for the three months
ended March 31, 1999 and 1998, respectively. Cost of services and sales for the
three months ended March 31, 1999 includes costs associated with the sale of
capacity on the Circe Network. These costs did not occur in the first quarter of
1998. The cost of the sold capacity represented non-cash charges of the pro rata
cost of the network asset and is determined based upon the ratio of total
capacity sold to total estimated capacity multiplied by the total capitalized
costs of the related network. Our gross margin increased, as a result of
capacity sales to 17.2% for the three months ended March 31, 1999 as compared to
10.0% for the three months ended March 31, 1998.

Cost of services and sales continued to increase in the three months ended
March 31, 1999 in part because of the relatively high cost of leased
infrastructure and the increase in minutes. These costs are expected to decrease
as a percentage of revenue as we migrate from leased infrastructure to the Circe
Network and other owned capacity. The effect of bringing traffic "on-net" will
be somewhat delayed, because our leased line agreements require minimum
notification to terminate our obligations.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $18.8 million in the three months ended
March 31, 1999 from $9.0 million in the three months ended March 31, 1998 and,
as a percentage of total revenue, decreased to approximately 30.4% in the three
months ended March 31, 1999 from approximately 42.2% in the corresponding period
in 1998. Much of these expenses are attributable to overhead costs associated
with our headquarters, back office and operations as well as maintaining a
physical presence in seventeen different jurisdictions. We expect to incur
additional expenses as we continue to invest in operating infrastructure and
actively market our products and services. Salaries and commissions, as a
percentage of total selling, general and administrative expenses, were
approximately 47.5% and 52.3% for the three months ended March 31, 1999 and
1998, respectively. Advertising and promotion expenses, as a percentage of total
selling, general and administrative expenses, were approximately 5.1% and 1.1%
for the three months ended March 31, 1999 and 1998, respectively.

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<PAGE>
EBITDA LOSS. EBITDA loss increased to $8.2 million for the three months
ended March 31, 1999 from $6.8 million for the three months ended March 31,
1998. As a percentage of total revenue, EBITDA loss decreased to approximately
13.3% in the first quarter of 1999 from approximately 32.1% in the first quarter
of 1998. We expect EBITDA margin to improve as we migrate traffic from leased
lines to our own network.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of the network, increased to approximately $9.6 million in
the three months ended March 31, 1999 from approximately $2.9 million in the
three months ended March 31, 1998. The increase was due primarily to the
increase in gross property and equipment from $72.2 million at March 31, 1998 to
$440.0 million at March 31, 1999. Depreciation expense will increase
substantially as each additional ring of the Circe Network becomes operational.

INTEREST. Interest expense increased from approximately $3.8 million in the
three months ended March 31, 1998 to approximately $26.2 million in the three
months ended March 31, 1999 primarily as a result of our aggregate debt, which
includes notes and capital lease obligations, increasing from $104.2 million at
March 31, 1998 to $1.3 billion at March 31, 1999. During the three months ended
March 31, 1999, we capitalized $2.3 million of interest costs. Interest income
increased from approximately $510,000 in the three months ended March 31, 1998
to approximately $6.8 million in the three months ended March 31, 1999 primarily
as a result of the interim investment of the net proceeds from our April 1998
high yield offering.

1998 COMPARED TO 1997

TOTAL REVENUE. Total revenue increased by 85.1% from $73.0 million on 140.9
million billable minutes for 1997 to $135.2 million on 383.9 million billable
minutes for 1998. Total revenue growth for 1998 was generated primarily from
increased European retail traffic and growth in our carrier business in Western
Europe and in North America which was partially offset by decreased revenue from
our Pacific Rim and Latin American operations. Total revenue for 1998 also
included $3.3 million of transatlantic capacity sales.

The overall increase of 172.4% in billable minutes from 1997 to 1998 was
partially offset by declining revenue per billable minute, primarily because of
(1) a higher percentage of lower-priced intra-European and national long
distance traffic on our network as compared to intercontinental traffic, (2) a
higher percentage of lower-priced carrier traffic as compared to retail traffic
and (3) reductions in certain rates charged to retail customers in response to
pricing reductions enacted by incumbent telecommunications operators and other
carriers in many of our markets. See "--Cost of Communication Services and
Capacity."

Communication services revenue per billable minute from the sale of services
to retail customers, which represented 72.1% of total revenue for 1997, compared
to 41.7% for 1998, decreased 43.5% from $.69 in 1997 to $.39 in 1998. Total
revenue per billable minute from the sale of services to carriers and other
resellers increased by 3.3% from $.30 in 1997 to $.31 in 1998 due primarily to
changes in traffic mix. The number of contracted customers billed declined 30.2%
from 21,515 at December 31, 1997 to 15,010 at December 31, 1998. This decline in
contracted customers billed is primarily attributable to our Pacific Rim
operations where the number of customers billed declined 93.2% from 5,424 at
December 31, 1997 to 369 at December 31, 1998, representing a net loss of 5,055
customers, as a result of currency fluctuations caused by the Asian economic
crisis, which made our rates noncompetitive.

During 1998 as compared to 1997, we significantly increased our carrier
business through which we sell switched minutes, private lines and ports to
carriers, Internet service providers and other resellers. The carrier business
has enabled us to recover partially the costs associated with increased capacity
in advance of demand from retail customers. The resulting economies of scale
have allowed us to use our network more profitably for network originations and
terminations within Europe. The carrier business represented

30
<PAGE>
approximately 27.9% of total revenue and approximately 46.1% of billable minutes
for 1997 as compared to approximately 58.3% of total revenue and approximately
62.0% of billable minutes for 1998. The increase in total revenue derived from
carriers and other resellers is partially attributable to the acquisition of
Flat Rate Communications, a long distance telecommunications reseller, on
February 27, 1998 which also significantly increased our North American
revenues.

COST OF SERVICES. Cost of services increased from $63.5 million in 1997 to
$122.1 million in 1998 and, as a percentage of total revenue, increased from
approximately 87.0% to approximately 90.3%. Our gross margin decreased, as a
percentage of total revenue, from 13.0% for 1997 to 9.7% for 1998. This decrease
was primarily due to (1) decreased revenue per minute resulting from price
competition and foreign currency fluctuations which was not offset by
corresponding decreases in infrastructure costs, (2) increased sales to carrier
customers which generate substantially lower margins and (3) an increase in
intra-European and national long distance traffic compared to higher margin
international traffic. This decrease in gross margin, as a percentage of
revenue, is one of the principal reasons we initiated a strategy to own key
elements of our network infrastructure.

Cost of services increased in 1998 in part because of the relatively high
cost of leased infrastructure. These costs are expected to decrease as a
percentage of total revenue as we continue to migrate from leased infrastructure
to owned infrastructure. From 1997 to 1998, we increased our private line
circuits capacity and, as a result, costs for private line circuits increased
from approximately $9.6 million for 1997 (approximately 13.1% of total revenue)
to approximately $17.1 million for 1998 (approximately 12.6% of total revenue).

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $36.1 million in 1997 to $44.9 million in
1998 and, as a percentage of total revenue, decreased from approximately 49.4%
in 1997 to approximately 33.2% in 1998. Much of these expenses are attributable
to overhead costs associated with our headquarters, back office and network
operations as well as maintaining sales offices. Salaries and commissions, as a
percentage of total selling, general and administrative expenses, were
approximately 51.6% and 49.3% for 1997 and 1998, respectively. Advertising and
promotion expenses, as a percentage of total selling, general and administrative
expenses, were approximately 1.2% and 3.6% for 1997 and 1998, respectively. We
expect to incur additional expenses as we continue to invest in our sales and
marketing infrastructure and actively market our products and services.

EBITDA LOSS. EBITDA loss increased from $26.6 million for 1997 to $31.8
million for 1998. As a percentage of total revenue, EBITDA loss decreased from
approximately 36.4% in 1997 to approximately 23.5% in 1998. These losses
resulted from lower gross margins as a percentage of total revenue due to the
relatively high cost of intra-European leased lines which was compounded by the
impact on revenue of aggressive price reductions implemented by incumbent
telecommunications operators.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of our network, increased from approximately $7.7 million
in 1997 to approximately $16.3 million in 1998. The increase was due primarily
to (1) the depreciation of equipment related to network expansion and fiber
optic cable systems placed in service during 1997 and (2) the amortization of
goodwill associated with the acquisition of Flat Rate Communications, Inc. in
February 1998. Depreciation expense will increase substantially as each ring of
the Circe Network becomes operational.

INTEREST. Interest expense increased from approximately $12.5 million in
1997 to approximately $79.2 million in 1998 primarily as a result of our 1998
high yield offering. Interest income increased from approximately $3.7 million
in 1997 to approximately $28.3 million for 1998 primarily as a result of the
interim investment of the net proceeds from our 1998 high yield offering. During
1998, we capitalized $3.3 million of interest costs.

31
<PAGE>
1997 COMPARED TO 1996

TOTAL REVENUE. Total revenue increased by 44.8% from $50.4 million on 62.2
million billable minutes for 1996 to $73.0 million on 140.9 million billable
minutes for 1997. Total revenue growth for 1997 was generated primarily from
increased traffic volume on our network, from growth in our carrier business
and, to a lesser extent, increased traffic volume in Latin America and the
Pacific Rim.

The overall increase of 126.4% in billable minutes from 1996 to 1997 was
partially offset by declining revenue per billable minute primarily because of
(1) a higher percentage of lower-priced intra-European and national long
distance traffic from our network as compared to intercontinental traffic, (2) a
higher percentage of lower-priced carrier traffic as compared to retail traffic,
(3) reductions in certain rates charged to retail customers in response to
pricing reductions enacted by certain incumbent telecommunications operators and
other carriers in many of our markets, (4) changes in customer access methods
and (5) foreign currency fluctuations. See "--Cost of Communication Services and
Capacity."

Total revenue per billable minute from the sale of services to retail
customers, which represented 83.5% of total revenue in 1996, compared to 72.1%
in 1997, decreased from $1.04 in 1996 to $.69 in 1997. Total revenue per
billable minute from the sale of services to carriers and other resellers
decreased from $.38 in 1996 to $.30 in 1997, primarily as a result of price
competition. The number of customers billed rose 18.4% from 18,172 at December
31, 1996 to 21,515 at December 31, 1997.

The carrier business represented approximately 16.5% of total revenue and
approximately 35.2% of billable minutes for 1996 as compared to approximately
27.9% of total revenue and approximately 46.1% of billable minutes for 1997.
This increase in carrier revenue represents an increase of approximately 147.0%
over 1996.

COST OF SERVICES. Cost of services increased from $42.1 million in 1996 to
$63.5 million in 1997 and, as a percentage of total revenue, increased from
approximately 83.6% to approximately 87.0% for 1996 and 1997, respectively. Our
gross margin decreased from 16.4% for 1996 to 13.0% for 1997. This decrease was
primarily due to (1) decreased revenue per minute resulting from price
competition and foreign currency fluctuations which were not offset by
corresponding decreases in infrastructure costs, (2) increased sales to carrier
customers which generate substantially lower margins, and (3) an increase in
intra-European and national long distance traffic compared to higher margin
intercontinental traffic.

Cost of services increased in 1997 because of the relatively high cost of
leased infrastructure and the accelerated rollout of European points of
presence. These costs are expected to decrease as a percentage of total revenue
as we continue our efforts to convert from leased to owned capacity. We
increased our private line circuits capacity by 311%, and as a result the fixed
costs associated with our network, costs for private line circuits increased
from approximately $4.1 million for 1996 (approximately 8.2% of total revenue)
to approximately $6.0 million for 1997 (approximately 8.2% of total revenue).

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $32.9 million in 1996 to $36.1 million in
1997 and, as a percentage of total revenue, decreased from approximately 65.2%
in 1996 to approximately 49.4% in 1997. Much of these expenses are attributable
to overhead costs associated with our headquarters, back office and network
operations as well as maintaining a physical presence in seventeen different
jurisdictions. Salaries and commissions, as a percentage of total selling,
general and administrative expenses, were approximately 49.0% and 51.6% for 1996
and 1997, respectively.

EBITDA LOSS. EBITDA loss increased from $24.6 million for 1996 to $26.6
million for 1997. As a percentage of total revenue, EBITDA loss decreased from
approximately 48.7% in 1996 to approximately 36.4% in 1997. These losses
resulted from lower gross margins as a percentage of total revenue due to the
relatively high cost of intra-European leased lines which was compounded by the
impact on revenue of aggressive price reductions implemented by certain
incumbent telecommunications operators.

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<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of our network, increased from approximately $4.8 million
in 1996 to approximately $7.7 million in 1997. The increase was due primarily to
the depreciation of equipment related to network expansion and fiber optic cable
systems placed in service during 1997.

INTEREST. Interest expense increased from approximately $10.8 million in
1996 to approximately $12.5 million in 1997 due to the accretion of non-cash
interest on the notes we issued in 1994. Interest income increased from
approximately $1.9 million for 1996 to approximately $3.7 million in 1997,
primarily as a result of the investment of the net proceeds from our initial
public offering.

LIQUIDITY AND CAPITAL RESOURCES

We have incurred losses from operating activities in each year of operations
since our inception and expect to continue to incur operating and net losses for
the next several years. Since inception, we have utilized cash provided by
financing activities to fund operating losses, interest expense and capital
expenditures. The sources of this cash have primarily been through private and
public equity and debt financings and, to a lesser extent, equipment-based
financing. As of March 31, 1999, we had $620.0 million of cash, cash
equivalents, cash securing letters of credit for network construction and
marketable securities and $229.8 million of restricted cash equivalents and
other restricted marketable securities, which secure interest payments on our
notes through April 2001.

On March 19, 1999 we completed a high yield offering through which we raised
approximately $365.5 million of gross proceeds in a combination of senior dollar
notes and senior Euro notes.

On April 8, 1998, we completed a high yield offering through which we raised
approximately $889.6 million of gross proceeds ($856.6 million of net proceeds).
A portion of the proceeds from this high yield offering were utilized by us to
retire our 15% senior discount notes due 2005 pursuant to a tender offer.

We believe that the net proceeds from this offering and the 1999 high yield
offering, together with cash and marketable securities on hand and future sales
of capacity on the Circe Network, will provide sufficient funds for us to expand
our business as planned and to fund operating losses for at least the next 12 to
18 months. However, the amount of our future capital requirements will depend on
a number of factors, including the success of our business, the start-up dates
of each ring of the Circe Network, the dates at which we further expand our
network, the types of services we offer, staffing levels, acquisitions and
customer growth as well as other factors that are not within our control,
including competitive conditions, government regulatory developments and capital
costs. In addition, we continuously discuss and evaluate potential acquisitions.
In the event that (1) our plan or assumptions change or prove to be inaccurate,
(2) we consumate an acquisition, (3) we are unable to convert from leased to
owned infrastructure in accordance with our current plans or (4) the net
proceeds of this offering, cash and investments on hand, equity offerings and
the proceeds from the sale of capacity on the Circe Network prove to be
insufficient to fund our growth in the manner and at the rate currently
anticipated, we may be required to delay or abandon some or all of our
development and expansion plans or we may be required to seek additional sources
of financing earlier than currently anticipated. In the event we are required to
seek additional financing, there can be no assurance that such financing will be
available on acceptable terms or at all.

CAPITAL ADDITIONS; COMMITMENTS

The development of our business has required substantial capital. Capital
additions for each period consist of capital expenditures, the net increase in
property and equipment purchases payable, assets acquired under capital lease
obligations and capitalized interest during the period. During 1998, capital
additions totalled $220.9 million and consisted of capital expenditures of
approximately $94.7 million, a net increase of $92.5 million in property and
equipment purchases payable, $30.4 million of assets acquired

33
<PAGE>
under capital lease obligations and capitalized interest of $3.3 million. During
the three months ended March 31, 1999, we had capital additions of $161.6
million, which consisted of capital expenditures of approximately $101.7
million, a net increase of $44.1 million in property and equipment purchases
payable, $13.6 million of assets acquired under capital lease obligations and
capitalized interest of $2.3 million. We have also entered into certain
agreements associated with the Circe Network, purchase commitments for network
expansion and other items aggregating in excess of $225.0 million at March 31,
1999. Additionally, we have minimum volume commitments to purchase transmission
capacity from various domestic and foreign carriers aggregating approximately
$13.2 million for all of 1999.

Based upon certain key operating performance targets which were met during
the period ended March 31, 1999, we recognized our obligation to pay contingent
consideration for our 1998 Flat Rate Communications acquisition.

On May 13, 1999, our Series A preferred stock and our subordinated
debentures converted into shares of our common stock. The conversion was based
upon maintenance of our common stock above a certain per share price for a
specified time period. The Series A preferred stock and the subordinated
debentures converted at a conversion price equal to $13.20 and DM24.473,
respectively, at the then applicable exchange rate. Accordingly, we issued
approximately 4.6 million shares of our common stock and will pay cash for any
fractional shares due upon conversion.

FOREIGN CURRENCY

We have exposure to fluctuations in foreign currencies relative to the U.S.
Dollar as a result of billing portions of our communication services revenue in
the local European currency in countries where the local currency is relatively
stable while many of our obligations, including a substantial portion of our
transmission costs, are denominated in U.S. Dollars. In countries with less
stable currencies, such as Brazil, we bill in U.S. Dollars. Debt service on
certain of the notes issued by us are currently payable in Euros. A substantial
portion of our capital expenditures are and will continue to be denominated in
various European currencies, including the Euro. Most of the European currencies
in which we do business converged effective January 1, 1999, with the exception
of the British Pound Sterling.

With the continued expansion of our network, a substantial portion of the
costs associated with the network, such as local access and termination charges
and a portion of the leased line costs, as well as a majority of local selling
expenses and debt service related to the Euro denominated notes, will be charged
to us in the same currencies as revenue is billed. These developments create a
natural hedge against a portion of our foreign exchange exposure. To date, much
of the funding necessary to establish the local direct sales organizations has
been derived from communication services revenue that was billed in local
currencies. Consequently, our financial position as of March 31, 1999 and our
results of operations for the three months ended March 31, 1999 were not
significantly impacted by fluctuations in the U.S. Dollar in relation to foreign
currencies.

YEAR 2000

The Year 2000 problem is the result of computer programs, microprocessors
and embedded date reliant systems using two digits rather than four to define
the applicable year. If these programs are not corrected, such date sensitive
computer programs, microprocessors and embedded systems may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculation causing disruptions in operations.

In an effort to assess our Year 2000 state of readiness, during 1997 we
began performing a complete inventory assessment of all of our internal systems,
which we have divided into two categories, business essential, or mission
critical, and support systems, or non-mission critical. As part of our Year 2000
program and as part of our overall procurement plan, we have sought to ensure
that fixed assets acquired were Year 2000 compliant. At December 31, 1997 gross
property and equipment was $67.0 million

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<PAGE>
compared to $440.0 million at March 31, 1999, an increase of 556.7% in gross
property and equipment. As part of this process, we have inventoried, tested,
and ensured Year 2000 compliance of our mission critical systems. The inventory
and testing of these mission critical systems is complete. The backbone of our
communications network is primarily composed of Nortel switches which are Year
2000 compliant. Our message processing and billing systems, which are used to
record and process millions of call detail records, and our transmission
equipment, which are our only other mission critical systems, are also Year 2000
compliant. The majority of our non-mission critical systems are Year 2000
compliant. We anticipate our non-mission critical systems being Year 2000
compliant during the third quarter of 1999. The total estimated cost of ensuring
our preparation for Year 2000 is approximately $200,000, a portion of which has
already been incurred and expensed.

We have initiated formal communications with the key carriers and other
vendors on which our operations and infrastructure are dependent to determine
the extent to which we are susceptible to a failure resulting from such third
parties' inability to remediate their own Year 2000 problems. Accordingly,
during the procurement process, we have taken steps to ensure that our vending,
carriers and products purchased are Year 2000 compliant or are adequately
addressing the Year 2000 issues. We can provide no assurance that the carriers
and other vendors on which our operations and infrastructure rely are or will be
Year 2000 compliant in a timely manner. Interruptions in the services provided
to us by these third parties could result in disruptions in our services.
Depending upon the extent and duration of any such disruptions and the specific
services affected, such disruptions could have a material adverse affect on our
business, financial condition and results of operations. As a contingency
against any possible disruptions in services provided by vendors, we have sought
to diversify our vendor base. We believe that the diversity of our vendor base
is sufficient to mitigate Year 2000 related disruptions in service to our
customers. In addition, we believe that the fact that we conduct business in,
and derive revenue from, multiple Western European countries helps to mitigate
the potential impact of Year 2000 related disruptions.

In addition, disruptions in the economy generally resulting from the Year
2000 problems could also have a material adverse effect on us. We could be
subject to litigation resulting from any disruption in our services. The amount
of potential liability or lost revenue which would result from these disruptions
in service could have a material adverse effect on our business, financial
condition, results of operations and the price of our common stock.

EURO

On January 1, 1999, eleven of the fifteen member countries of the European
Union established irrevocable fixed conversion rates between their existing
sovereign currencies and a single currency called the Euro. The sovereign
currencies are scheduled to remain legal tender as denominations of the Euro
during a transition period from January 1, 1999 to January 1, 2002.

We have completed an internal analysis regarding business and systems issues
related to the Euro conversion and, as a result, made necessary modifications to
our business processes and software applications. We are now able to conduct
business in both Euro and sovereign currencies on a parallel basis, as required
by the European Union.

We believe that the Euro conversion has not and will not have a significant
impact on our business strategy in Europe. The costs to convert all systems to
be Euro compliant did not have a significant impact on our results of
operations.

INFLATION

We do not believe that inflation has had a significant effect on our
operations to date.

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<PAGE>
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was issued in
June 1998. SFAS 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring recognition of those instruments as assets and liabilities and to
measure them at fair value. While scheduled to be effective in the year 2000,
there is a proposal to delay the implementation of the statement for one year.
We have not completed our analysis of the impact of this statement on our
financial statements.

MARKET RISK EXPOSURE

We are subject to foreign currency exchange rate risk relating to receipts
from customers, payments to suppliers and interest and principal payments on the
outstanding Euro denominated senior notes, senior discount notes and
subordinated convertible debentures in foreign currencies. We do not consider
the market risk exposure relating to foreign currency exchange to be material.
See "--Liquidity and Capital Resources-Foreign Currency."

We have financial instruments that are subject to interest rate risk,
principally short-term investments and debt obligations issued at a fixed rate.
Historically, we have not experienced material gains or losses due to interest
rate changes when selling short-term investments and typically hold these
securities until maturity. Based on our current holdings of short-term
investments, our exposure to interest rate risk is not material. Fixed-rate debt
obligations issued by us are generally not callable until maturity.

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<PAGE>
BUSINESS

OVERVIEW

To capitalize on the opportunities presented by deregulation of the
telecommunications industry in Western Europe, we established an early presence
and sought aggressively to acquire licenses, interconnection and infrastructure.
Today, we have licenses in each of Belgium, France, Germany, Italy, The
Netherlands and the United Kingdom and interconnection agreements with the
incumbent telecommunications operator in each of these countries. We also have
licenses in Spain and Switzerland and expect to obtain interconnection
agreements in these countries during the fourth quarter of 1999.

We currently operate one of Europe's largest pan-European networks, with
points of presence in 45 cities. We believe that control of network
infrastructure is critical to becoming a high quality, low-cost provider of
communications services because it will enable us to better manage service
offerings, quality of transmission and costs. Accordingly, we are currently in
the process of migrating from a network composed of international and domestic
leased circuits to a network composed primarily of owned circuits. To facilitate
this transition, in 1998 we commenced construction of a five-ring fiber optic
network in the largest telecommunications markets in Europe. These five rings,
which are expected to consist of approximately 8,700 route kilometers comprise
our Circe Network. In March 1999, we completed construction of phase one of the
Circe Network, which connects four European countries and includes London,
Paris, Amiens, Brussels, Antwerp, Rotterdam and Amsterdam, and have begun
construction of phases two and three. We plan to begin construction of phases
four and five in the second half of 1999.

We believe, and our experience to date has indicated, that demand from end
users, carriers and other communications companies for high quality transmission
capacity in Europe will increase over the next several years due to fundamental
changes in the communications industry brought about by regulatory and technical
improvements. We also believe that cost effective transmission capacity in
Europe will allow new capacity intensive applications to be created which will,
in turn, fuel the need for additional capacity. Our network should allow us to
meet this increased demand by providing abundant transmission capacity for:

- continued growth in our existing long distance voice service business,

- additional provision of wholesale services to the large base of resellers
that is developing as deregulation continues in Western Europe,

- Internet, electronic commerce, multi-media and video services and other
new technologies and applications, and

- asynchronous transfer mode, frame relay, Internet protocol and other high
speed data transmission services.

As part of our strategy to capture a share of the rapidly growing data
market, in the first quarter of 1999 we entered into an arrangement with Lucent
pursuant to which Lucent is installing asynchronous transfer mode backbone
network equipment on our Circe Network. This backbone equipment is designed to
enable us to provide packet switched voice, video conferencing, private
intranets and dedicated Internet protocol transport over an integrated platform
and offer end users high capacity, speed and reliability. Lucent has agreed to
cooperate with us in developing marketing strategies to promote our data
services, to train our personnel and to assist us in achieving
network-to-network interfaces with certain specified carriers. We expect our
data network to be commercially operable in the fourth quarter of 1999.

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MARKET OPPORTUNITIES

International telecommunications is one of the fastest growing segments of
the long distance industry, having experienced a compounded growth in total
minutes of 15.5% per annum from 1988 to 1998. In 1997, according to industry
sources, the European international long distance market for voice services was
the largest in the world, with approximately 29.6 billion minutes or 43% of
international calling volume originating in Europe. A substantial portion of the
traffic originating in Europe terminates in Europe or the United States, where
we have international gateway switches.

INTERNATIONAL TRAFFIC PATTERNS

<TABLE>
<CAPTION>
DESTINATION
---------------------------------------
COUNTRY (MARKET DATA AS OF) EUROPE* USA OTHER
- -------------------------------------------------- OUTGOING MINUTES ------------- --- -----------
-----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United Kingdom (1997/1998)........................ 5,800 52% 13% 35%
Germany (1997).................................... 5,333 52 6 42
France (1997)..................................... 3,545 64 6 30
Italy (1997)...................................... 2,352 57 11 32
Switzerland (1997)................................ 2,164 70 4 26
Netherlands (1997)................................ 1,535 75 6 19
Belgium (1996).................................... 1,228 85 4 11
Spain (1995)...................................... 1,025 70 5 25
</TABLE>

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

* Europe-EU member states and Switzerland.

Source: TeleGeography 1999.

In 1997, the market for total domestic and international long distance in
the Western European countries in which we operate represented approximately
$104.3 billion, with $87.4 billion representing national long distance and
approximately $16.9 billion representing international long distance (Source:
"The European Telecommunications Fact File 1998"). In many European Union member
states, the ability to provide telecommunications services was liberalized on
January 1, 1998. We believe that regulatory liberalization in Western Europe and
technological advancements eventually will lead to market developments similar
to those that have occurred in the United States and the United Kingdom
following deregulation, including an increase in both international and national
traffic volume, reduced prices, increased service offerings and the emergence of
new entrants. By 1997, new entrants had amassed approximately 56.4% of the
United States international long distance market, from approximately 2.7% in
1985. (Source: FCC Common Carrier Bureau). In addition, from 1991 to July 1998
the number of licensed long distance competitors in the United Kingdom grew from
2 to 144. (Source: TeleGeography, 1999).

We believe that there continues to be a shortage of cross-border capacity in
Europe. Most infrastructure in Europe is owned and operated by the incumbent
telecommunications operator. Under the traditional system of carrying
cross-border telecommunications traffic in Europe, the incumbent
telecommunications operators did not develop end-to-end cross-border circuits,
but rather connected their national networks with other carriers at the border
pursuant to bilateral agreements. We believe the system of bilateralism resulted
in a serious shortage of cross-border capacity in Europe. We also believe that
cost effective transmission capacity in Europe will allow new capacity intensive
applications to be created which will, in turn, fuel the need for additional
capacity.

We believe that a substantial part of the capacity on existing routes has a
number of deficiencies including (1) high costs, (2) lack of end-to-end quality
control, (3) limited availability of capacity, (4) long lead times for
provisioning, (5) lack of redundancy and (6) long delays for restoration. While
there have been significant reductions in leased line costs as a result of
deregulation, these deficiencies are exacerbated by the increase in demand for
capacity from new entrants, thereby resulting in artificially and

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significantly higher costs. We believe there is a significant opportunity to
provide high quality, cost-effective capacity to new entrants.

BUSINESS STRATEGY

Our goal is to become a fully integrated communications company that is well
positioned to take advantage of growth opportunities in the European
communications industry. We believe that we can accomplish this goal by becoming
a low-cost provider of services through the ownership of key network
infrastructure. The key elements of our strategy include:

- CAPITALIZE ON DEREGULATION IN LARGE EUROPEAN MARKETS. Our principal focus
is on exploiting both international and national long distance
opportunities presented by rapidly deregulating European
telecommunications markets. In 1997, according to industry sources, the
European international long distance market for voice services was the
largest in the world, with approximately 35 billion minutes of use.
According to industry sources, Europe's volume of international minutes
grew approximately 12% from 1996 to 1997. Industry sources estimate the
European wholesale and retail market for all Internet services was $1.9
billion in revenue for 1997.

- LEVERAGE ESTABLISHED MARKET PRESENCE AND LOCAL DISTRIBUTION NETWORK. We
established an early presence in Western Europe to capitalize on the
opportunities presented by deregulation of the telecommunications
industry. As a result, we gained substantial experience in the
operational, technical, financial and logistical issues involved in
operating a network and building a sales force in Western Europe. To date,
we have established sales offices in twelve Western European cities and
have established indirect sales offices, through arrangements with
independent sales representatives and telemarketing agents, in more than
180 locations in Western Europe. We believe that we are positioned to
further capitalize on market opportunities in Western Europe.

- FOCUS ON END USERS. We have established a customer base of small and
medium-sized businesses to which we currently sell long distance voice
services. The Circe Network allows us to provide high quality services to
these end users at competitive prices, particularly businesses with
multiple offices and those requiring significant capacity. Carrier
preselection, scheduled for the year 2000 in most countries in the
European Union, will enable us to capture a larger portion of our
customers' telecommunications spending by enabling end-users to pre-select
us, as opposed to the incumbent telecommunications operator, as their long
distance provider.

- LEVERAGE NETWORK THROUGH RESELLERS AND CARRIERS. To efficiently use
capacity on our network, we sell switched minutes to wholesale customers
and other resellers. While we are constructing the Circe Network for our
own use, we also intend to sell switched minutes and to opportunistically
sell excess capacity on the Circe Network, thus enhancing its utilization
and reducing our construction cost.

- OFFER A COMPREHENSIVE RANGE OF COMMUNICATION SERVICES. Historically, we
have only offered voice and value-added services such as facsimile
transmission. The Circe Network will significantly expand our ability to
meet the growing demand for data services and to offer a comprehensive
range of these services including Internet access and transmission, frame
relay, asynchronous transfer mode and Internet protocol services, as well
as private line and data center co-location services. All of these
services are extremely capacity intensive, and the high cost of leased
transmission capacity made it uneconomical to offer these services without
owning our own network. See "Risk Factors--We May Not Be Able to Provide
Data Transmission Services Effectively."

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<PAGE>
constructing the Circe Network, and (3) have purchased and swapped for
capacity on fiber optic cable systems in and between Western Europe and
the U.S.

SERVICES

We currently provide competitively priced long distance services with
value-added features that typically have not been provided by the respective
international telecommunications operator in many of the countries in which we
operate. The products and services include switched and dedicated long distance,
800 services, calling cards, domestic and international private line, debit
cards, conference calling, advanced billing systems, enhanced fax and data
connections and facilities management. We are actively exploring the provision
of new services, including Internet access, web hosting, asynchronous transfer
mode and frame relay services, the provision and management of intranets and
virtual private networks and video conferencing. We recently entered into an
arrangement with Lucent to facilitate the provision of these services in the
future.

Our principal services include:

VIADIRECT--permits domestic and international calling to more than 230
countries and territories through interconnect switched access. This service is
currently marketed exclusively in Belgium, France, Germany, The Netherlands and
the United Kingdom where we have full interconnection and a national operator's
license. In addition, carrier preselection, eliminating the requirement to dial
carrier selection codes, is available in Germany.

VIADIRECT PLUS--provides dedicated access via a leased line from the
customer to Viatel's network, permitting calling without dialing access or
location codes.

VIACALL EXPRESS--provides a paid (local) access or toll free number
programmed to dial an existing phone number or system, generally in another
country, without the need for special circuits or modifications.

VIACALL--enables virtual private network calling to a pre-defined group of
locations within a closed user group that can be modified as required, subject
to regulatory limitations.

VIACONNECT--provides "anywhere to anywhere" international callback access
through manual, automatic or Internet initiated callback. These services are
also offered with international toll-free access, subject to pricing
considerations.

VIAGLOBE--provides calling card access from more than 50 countries. In
addition to offering savings over the calling cards of AT&T, MCI and other
providers of credit-based international calling cards, VIAGLOBE provides 24-hour
operator assistance and speed dialing.

VIACARD--is a prepaid international debit card which provides many of the
same features as VIAGLOBE on a prepaid basis.

VIALINK--is the new audio conference service, allowing automatic, manual or
operator assisted establishment of conference calls 24 hours a day, seven days a
week.

VIA0800--is a personal 0800 number permitting users to call the sponsor at
no cost.

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DATA SERVICES

The data communications industry is expected to grow in the near term. To
efficiently handle this growth, the industry has been shifting away from circuit
switching, where a route is maintained for the duration of an entire call, to
packet switching, where digital packets of information for various destinations
are routed over a frame relay, asynchronous transfer mode or Internet protocol
network in an efficient and cost effective manner.

As part of our strategy to capture a share of the rapidly growing data
business market, in the first quarter of 1999 we entered into an arrangement
with Lucent pursuant to which Lucent is installing asynchronous transfer mode
backbone network equipment on our Circe Network. This backbone equipment is
designed to enable us to provide packet switched voice, video conferencing,
private intranets and dedicated Internet protocol transport over an integrated
platform and offer end users high capacity, speed and reliability. Lucent has
agreed to cooperate with us in developing marketing strategies to promote our
data services, to train our personnel and to assist us in achieving
network-to-network interfaces with certain specified carriers. We believe that
our data network will be commercially operable in the fourth quarter of 1999.

We have no direct experience in offering data services. See "Risk
Factors--We May Not Be Able to Provide Data Transmission Services Effectively."

THE VIATEL NETWORK

We currently operate one of Europe's largest pan-European networks, with
international gateway switching centers in New York, New York, Somerset, New
Jersey and London, England, points of presence in 45 Western European cities,
including switches in Amsterdam (The Netherlands), Barcelona and Madrid (Spain),
Brussels (Belgium), Frankfurt (Germany), Milan and Rome (Italy) and Paris
(France), and our Circe Network which currently consists of approximately 1,850
route kilometers. Additional points of presence are placed to enhance network
use and as required by the various interconnection agreements to which we are a
party. We intend to install additional points of presence in cities with both
significant calling activity directed to our switched-based cities and
significant potential for originating and terminating international and domestic
long distance traffic.

Access to our services is obtained either through "indirect access" or
"dedicated access." Currently, substantially all of our business end-users use
one or more forms of indirect access. Indirect access requires the end user to
use (1) carrier selection codes (e.g., "1623" in The Netherlands, Belgium and
France, "01079" in Germany), which requires us to pay a regulated tariff for
using the incumbent telecommunications operator's network to originate the
calls; (2) paid access, which requires the end user to pay another carrier to
access our services; (3) national or international toll-free, which accesses a
Viatel switch, by direct dial or (4) call reorigination, which enables the end
user to receive a return call providing a dial tone originated from one of our
U.S. switching centers. End users using dedicated access are connected to one of
our switches or points of presence by a private leased line connected to the end
user's premises. Carrier selection and dedicated access are our access methods
of choice. As the regulatory environment permits, we expect more customers will
pre-select us as their long distance provider. As our service offering broadens,
we anticipate the percentage of our customers who utilize dedicated access will
increase. We currently have interconnection agreements with Belgacom (Belgium),
British Telecom (United Kingdom), Deutsche Telekom (Germany), France Telecom
(France), KPN (The Netherlands) and Telecom Italia. We also have interconnection
agreements with Cable & Wireless (United Kingdom) and Infostrada (Italy). We are
currently negotiating an interconnection agreements with Telefonica de Espana
and SwissCom. We cannot assure you that we will be successful in securing such
interconnection agreements in a satisfactory or timely manner.

Our ownership of transmission infrastructure and switches reduces our
reliance on other carriers, enables routing of telecommunications traffic over
multiple transmission paths, aids in controlling costs and permits the
compilation of call record data and other customer information.

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<PAGE>
THE EUROPEAN PORTION OF OUR NETWORK

Our network in Europe currently consists of an international gateway
switching center in London, switches in the Western European cities mentioned
above and our Circe Network. The cities in which our switches are located were
chosen due to the substantial number of international calls originating there.
To date, our European network has been primarily used for call origination. We
anticipate increasing use of our European network to transport calls in Western
Europe. See "--Carrier Contracts."

CIRCE NETWORK

Our Circe Network is a series of state-of-the-art, high quality, high
capacity, self-healing rings, utilizing advanced synchronous digital hierarchy,
the current international standard for digital transmission, and dense wave
division multiplexing technology.

As currently planned, the Circe Network will be comprised of five
interlocking, bi-directional rings, consisting of approximately 8,700 route
kilometers of fiber optic cable. The first phase of the Circe Network,
consisting of approximately 1,850 route kilometers (including 312 route
kilometers of undersea fiber optic cable) was placed into operation during the
first half of March 1999. The second phase, which will extend through northern
France, The Netherlands and into western Germany, is scheduled to be placed into
service during the third quarter of 1999. The third phase, which will extend
through eastern Germany, is scheduled to be placed into service during the first
quarter of 2000. We currently anticipate that the fourth and fifth phases of the
Circe Network, which will extend into southern France and Switzerland, will be
completed during the second quarter of 2000.

The Circe Network offers incumbent telecommunications operators and new
entrants a compelling, cost-effective, high quality alternative for the
transport of European cross-border telecommunications traffic. Under the
traditional system of carrying cross-border telecommunications traffic in
Europe, the incumbent telecommunications operator did not develop end-to-end
cross-border circuits, but rather connected their national networks with other
carriers at the border. The Circe Network's cross-border transport will offer
consistently high transmission quality at reduced cost.

Key characteristics of the Circe Network include:

STATE-OF-THE-ART-TECHNOLOGY. The Circe Network uses a laser-generated light
to transmit information bi-directionally over fiber optic glass strands with an
initial capacity of 20 gigabits per second. In addition, the Circe Network
employs dense wave division multiplexing technology. This technology allows more
discrete wavelengths of light to be transmitted through fiber, thereby
permitting the transfer of greater amounts of information at a lower cost than
was achievable with prior fiber optic technology.

UNIFORM NETWORK ARCHITECTURE. The entire Circe Network will consist of a
single uniform configuration of Nortel Telecom's optronics and Lucent's fiber
optic cable, thereby enhancing service quality while improving efficiency and
lowering costs.

SECURE AND RELIABLE. The Circe Network is being designed to provide high
security and reliability, employing such features as:

- two redundant network operating centers monitoring the network 24 hours a
day, seven days a week,

- a self-healing architecture to allow for instantaneous restoration in the
event of a single fiber cut,

- fiber optic cable generally installed in high-density polyethylene
conduits on terrestrial portions of the system, and

- advanced cable armoring techniques on the submarine portions of the
system.

SCALABLE AND FLEXIBLE. The Circe Network's high density network
architecture may be upgraded, without service interruptions, to at least 320
gigabits per second per fiber pair through the use of dense

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wave division multiplexing technology, to support demand for bandwidth intensive
data applications. We anticipate that each ring of the Circe Network will
contain multiple conduits containing at least 48 fibers. These conduits will
have excess space through which additional fibers may be run without the
necessity for any further material civil works.

PRIVATE LINE CIRCUITS

While some of our nine switches in Western Europe are currently still
connected to our international gateway switching center in London by private
line circuits, these switches will be connected by the Circe Network as the
various rings are constructed and placed into commercial operation. Private line
circuits are permanent point-to-point connections for voice and data
transmissions and, when certain levels of volume are reached, are less expensive
for us than purchasing minutes of use on another carrier's network. The private
line circuits connecting our switches to the international gateway switching
center in London are leased directly, or indirectly through third parties, from
the incumbent telecommunications operator in the countries in which these calls
originate.

DIGITAL FIBER OPTIC CABLE OWNERSHIP

As part of our concerted effort to convert leased capacity to owned capacity
for the purpose of improving operating margins, we have continued to purchase
indefeasible rights-of-use or minimum investment units in digital fiber optic
cable systems, including indefeasible rights-of-use in (i) CANUS-1/CANTAT-3
(8.192 megabits per second), a transatlantic cable originating in the United
States, Canada and the United Kingdom, (ii) TAT-12/13 (8.192 megabits per
second), a transatlantic cable originating in the United States, the United
Kingdom and France, (iii) Atlantic Crossing-1 (1,088.5 megabits per second), a
transatlantic cable originating in the United States and the United Kingdom, and
(iv) Gemini (44.736 megabits per second), a transatlantic cable originating in
the United States and the United Kingdom, and minimum investment units in (i)
FLAG (2.048 megabits per second), a cable connecting Europe with multiple
locations in the Middle East and South and Eastern Asia, (ii) TAT-14 (311.0
megabits per second) and (iii) JUS-1 (155.5 megabits per second). We also intend
to acquire additional interests in digital fiber optic cable originating from
our owned infrastructure and connected to certain European Union member states
in which we have a physical presence. These cables will be used for transmission
of traffic between the United States and Europe and within Europe, resulting in
improved service quality at lower cost. By combining our international gateway
switching centers in New York and London with our transatlantic fiber optic
cable capacity, we believe that we will be able to provide customers with
improved quality, while lowering our transmission costs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of the effect of bringing traffic on-net.

SWITCHING PLATFORMS

Our entire network utilizes "intelligent switches" which incorporate
software designed to achieve least cost routing, the process by which we enhance
the routing of calls over the network for more than 230 countries and
territories. Least cost routing is designed to allow calls that are not routed
over our network to be routed directly from our switches to carriers that offer
call completion at the lowest rate for each particular route at any given time.

Our network uses high capacity digital switching platforms designed to
provide services quickly and cost-effectively. The switches are modular and
scalable and incorporate some of the most advanced technologies such as
self-diagnosis, integrated services, digital network hierarchical, call control
and dynamic network management software. The backbone switches are primarily
Nortel Telecom DMS switches. As our network continues to evolve, the installed
base of switches can be augmented or upgraded to create a cost effective,
scalable network.

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INTERNATIONAL NETWORK OPERATIONS CENTERS

We currently monitor the activity of our network from international network
operations centers in Egham, England and Somerset, New Jersey. These
international network operations centers have been fitted with sophisticated
surveillance and control capability, fraud detection and real time transmission
quality enhancements. Our Omaha, Nebraska site houses back office systems
supporting the international network operations centers and our network. Each
international network operations center is capable of acting as a full backup to
the other and will allow full monitoring capability and remote diagnostics and
testing on key elements of our network.

The international network operations centers will utilize a portfolio of
telecommunications network management operations support systems from Lucent.
The Lucent systems are expected to be functionally integrated into one platform
supporting multi-vendor network elements. Service activation provides workflow
management from order entry through network provisioning and into billing.
Service assurance includes trouble receipt, trouble management, and switch
surveillance to include both traffic management and fault monitoring. Network
management includes inventory management, design and network performance. The
Lucent operations support systems provide us with state-of-the-art service
activation, service assurance and network management capabilities.

SALES AND MARKETING; CUSTOMERS

The Circe Network is designed to allow end users, carriers and resellers to
integrate high quality, cross-border capacity into their end user offerings.
Prior to bringing the Circe Network into service, we were limited in our ability
to provide high capacity services to other carriers and, thus focused our
business on selling to end users and selling switched minutes to carriers and
resellers in order to help use the fixed capacity of leased lines. With the high
quality, low cost transmission capacity to be provided by the Circe Network, we
will be well positioned to offer large capacity services to the additional
market segments listed below. We are targeting the following seven major market
segments:

- RESELLERS. Resellers are carriers that do not own transmission facilities
but obtain communications services from another carrier for resale to the
public. Resellers are a growing portion of the market and are expected to
increase in conjunction with the liberalization of the European
telecommunications market.

- INCUMBENT TELECOMMUNICATIONS OPERATORS. These customers consist of the
incumbent telecommunications operators that have historically employed
bilateral agreements with other incumbents for cross-border connectivity
but are now selling their own transborder connectivity by leasing capacity
on alternative networks.

- INTERNATIONAL CARRIERS. These customers consist of non-European carriers
with traffic between European and other international gateways. We can
provide these customers a pan-European distribution network to gather and
deliver traffic to and from their own networks and other hubs.

- END USERS. Small- to large-sized enterprises need inexpensive voice and
data services. The Circe Network should allow us to satisfy this need and
provide bundled services. We expect that additional demand for alternative
service providers will come from increased usage of dedicated circuits for
Internet access, private lines for the deployment of wide-area networks by
large enterprises, "single source" local and long distance services by
small and medium-sized enterprises and emerging high capacity applications
like cable TV programming distribution (other than broadcast) to the end
user.

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- ALTERNATIVE CARRIERS. These customers consist of new entrant carriers,
cable TV and mobile carriers and competitive access providers. These new
carriers have chosen to compete with the incumbent telecommunications
operators in their respective countries.

- INTERNET SERVICE PROVIDERS. Internet service providers are emerging
rapidly and are expected to generate significant requirements for the
services which we offer. As capacity becomes available in Europe, Internet
usage also is expected to grow. These networks require large capacity
international connectivity services between Internet nodes (points of
interconnection among multiple local Internet service providers) in all
local European markets.

- VALUE ADDED NETWORKS AND OTHER SERVICE PROVIDERS. Value added networks are
data communications systems in which special service features enhance the
basic data transmission facilities offered to customers. Many of these
networks are targeted to the data transfer requirements of specific
international customer segments, such as financial institutions. Many
value added networks' basic network transmission requirement is to connect
data switches or processors. Value added networks' providers purchase
their own international circuits and build additional resiliency into
their network infrastructure. We will allow them to meet these needs
cost-effectively, and to extend their services to new markets or customers
while minimizing capital investment. This market segment is expected to
experience substantial growth over the next several years.

During 1998, one customer, LD Exchange.com, accounted for 10.6% of our
revenues.

From 1991 to 1994, our sales and marketing efforts were conducted by
independent sales representatives in each of our markets. In late 1994, we began
establishing our own direct sales forces in certain Western European markets to
take greater control over the sales and marketing functions and to provide a
higher level of customer service. Currently, we have direct sales forces in
twelve cities in Western Europe and have established indirect sales offices,
through arrangements with independent sales representatives and telemarketing
agents, in more than 180 locations in Western Europe. We have sales
professionals dedicated to marketing and maintaining relationships with our
wholesale customers in the United States and in the United Kingdom. In Europe,
our sales and marketing staff is currently divided into two categories: direct
sales representatives and indirect sales representatives. Direct sales
representatives are responsible for face-to-face sales efforts to larger
accounts and indirect sales representatives are responsible for telesales to
smaller accounts.

Our direct sales personnel are currently compensated on a salary and
commission basis, with potential commissions being paid on the basis of revenues
generated by new customers solely during their first three months as a customer.
After this three month period, the customer is turned over to proactive account
managers who manage the account and are compensated based on the monthly growth
of such account above certain minimum requirements. We believe that this
compensation structure provides maximum incentive to our direct sales force to
continue to grow our customer base and revenue.

Our independent sales representatives are retained on a
non-exclusive/commission-only basis, with commissions being subject to charge
back for revenues not collectible by us. We believe that our relationship with
our independent sale representatives is good.

INFORMATION SYSTEMS

We believe that integrated and reliable billing and information systems are
key elements for growth and success in the telecommunications industry.
Accordingly, we have made significant investments to acquire and implement
sophisticated information systems which are designed to enable us to:

- monitor and respond to customer needs by developing new and customized
services;

- manage least cost routing,

- provide customized billing information,

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- provide high quality customer service,

- detect and control fraud,

- verify payables to suppliers, and

- rapidly integrate new customers.

We believe that our network intelligence, billing and financial reporting
systems enhance our ability to competitively meet the increasingly complex and
demanding requirements of the international and national long distance markets.
While we believe that these systems are currently sufficient for our operations,
these systems will require routine upgrades and ongoing investments.

We currently have a turnaround time of approximately 48 hours for new
account entry, subject to credit approval. However, commencement of service can
take substantially longer. Our billing system provides multicurrency billing,
itemized call detail, city level detail for destination reporting and electronic
output for select accounts. Customers are provided with several payment options,
including automated credit card processing and automated direct debiting.

We have developed software to provide telecommunications services and render
customer support. Each switch has a call detail recording function which is
designed to enable us to: (1) achieve accelerated collection of call records;
(2) detect fraud and unauthorized usage; and (3) permit rapid call detail record
analysis.

We also use software to assist in analyzing traffic patterns and determining
network usage and busy hour percentage, originating traffic by switching center,
terminating traffic by supplier and originating traffic by customer. This data
is utilized to provide least cost routing, which may result in call traffic
being transmitted over our transmission facilities, other carriers' transmission
facilities or a combination of such facilities. If traffic cannot be handled
over the least cost route due to overflow, the least cost routing system is
designed to transmit the traffic over the next least cost route. The least cost
routing system chooses among the several variables to minimize the cost of a
long distance call over 15 different suppliers and multiple choices of
terminating carrier per country. The performance of the least cost routing
system is verified based on a daily overflow report generated by our network
traffic management and a weekly/ monthly average termination cost report
generated by our billing system.

CARRIER CONTRACTS

We have entered into contracts to purchase switched minute capacity from
various domestic and foreign carriers and currently depend on such contracts for
origination and termination of traffic on our network as well as for resale of
this capacity to others. Carrier costs currently constitute a significant
portion of our variable costs. Pursuant to these contracts, we obtain guaranteed
rates, which are generally more favorable than otherwise would be available, by
committing to purchase minimum amounts of switched minutes from such carriers.
If we fail to meet our switched minute minimum requirements under a carrier
contract, we would still be required to pay our minimum monthly commitment as a
penalty. We do not believe that the loss of any one supplier or contract would
have a material adverse impact on our business, financial condition or results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

COMPETITION

Our competitors include the incumbent telecommunications operator in each
country in which we operate, global alliances among some of the world's largest
telecommunications carriers, such as British Telecom and AT&T, Global One
(Sprint, France Telecom and Deutsche Telekom), MCI Worldcom and Telefonica de
Espana, and new entrants, such as alternative carriers, Internet backbone
networks and other service providers. In addition Colt Telecom Group and Level 3
Communications are sharing the costs of constructing two networks--one to link
the German cities of Berlin, Koln, Dusseldorf, Frankfurt,

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Hamburg, Munich and Stuttgart and the other linking Paris, Frankfurt, Amsterdam,
Brussels and London. Other potential competitors include:

- cable communications companies,

- wireless telephone companies,

- electric and other utilities with rights-of-way,

- railways,

- microwave carriers, and

- large end-users which have private networks.

The intensity of competition and price declines in both billable minutes and
capacity sales has increased over the past several years and we believe that
this kind of competition and price declines will continue to intensify,
particularly in Western Europe, as other providers obtain connectivity. We are
aware that certain long distance carriers are expanding their capacity and
believe that other long distance carriers and data service providers, as well as
potential new entrants to the industry, are considering the construction of new
fiber optic and other long distance transmission networks. Since the cost of the
actual fiber is a relatively small portion of building new transmission lines,
persons building such lines are likely to install fiber that provides
substantially more transmission capacity than will be needed over the short or
medium term. Further, recent technological advances have shown the potential to
greatly expand the capacity of existing and new fiber optic cable. In addition,
our sales or leases of capacity on the Circe Network to other carriers may
result in competitors having capacity on our routes along the Circe Network,
which may in turn result in pricing pressures with respect to traffic carried
along these routes. If capacity expansion in the telecommunications industry
results in capacity that exceeds overall demand in general or along any of our
routes, severe additional pricing pressure could develop. In addition, strategic
alliances or similar transactions could result in additional pricing pressure on
long distance carriers. Such pricing pressure could have a material adverse
effect on us and the value of our common stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."

Many of our current and potential competitors have substantially greater
financial, marketing and other resources than we do. If our competitors devote
significant additional resources to the provision of international or national
long distance telecommunications services to our target customer base, this
action could have a material adverse effect on our business, financial
condition, results of operations and the price of our common stock and we cannot
assure you that we will be able to compete successfully.

Because all of our current and intended European markets (other than the
United Kingdom) have only liberalized the provision of switched voice telephony
during the past year or still are in the process of liberalizing, customers in
most of the markets are not accustomed to obtaining services from competitors to
incumbent telecommunications operators and may be reluctant to use emerging
telecommunications providers such as us. In particular, our targeted customer
base may be reluctant to entrust their telecommunications needs to new operators
that are believed to be unproven. In addition, in continental Europe, certain of
our competitors (including the incumbent telecommunications operators) provide
potential customers with a broader range of services than we can offer.

Competition for customers in the telecommunications industry is primarily
based on price and quality of services offered. We price our services primarily
by offering discounts to the prices charged by incumbent telecommunications
operators and other major competitors. However, prices for long distance calls
have decreased substantially over the past few years in the markets in which we
currently maintain operations and in which we expect to establish operations.
Some of our larger competitors may be able to use their greater financial
resources to cause severe price competition in the countries in which we operate
or expects to operate. Incumbent telecommunications operators in several Western
European countries are responding to deregulation far more rapidly and
aggressively than occurred after deregulation in the United States and the
United Kingdom. We expect that prices for our services will continue to decrease
for

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the foreseeable future and that incumbent telecommunications operators and other
dominant carriers will continue to improve their product offerings.

The improvement in product offering and customer service by the incumbent
telecommunications operators could have a material adverse effect on our
competitiveness to the extent that we are unable to provide similar levels of
offerings and services. If the incumbent telecommunications operator in any
jurisdiction uses its competitive advantages to their fullest extent, our
operations in that jurisdiction would be adversely affected. Furthermore, the
marginal cost of carrying calls over fiber optic cable is extremely low. As a
result, certain industry observers have predicted that, within a few years,
there may be dramatic and substantial price reductions and that long distance
calls will not be significantly more expensive than local calls. In addition,
numerous carriers currently offer or are implementing plans to offer
telecommunications services over the Internet at substantially reduced prices.
Any price competition could have a material adverse effect on our business,
financial condition, results of operations and result in a decrease in the price
of our common stock.

Incumbent telecommunications operators generally have certain competitive
advantages that we and other competitors do not have due to their control over
local connections. We rely on the incumbent telecommunications operator for
access to the public switched telephone network and the provision of leased
lines, and the failure of the incumbent telecommunications operators to provide
this kind of access or leased lines at reasonable pricing or within a reasonable
time frame could have a material adverse effect on our business, financial
condition, results of operations and result in a decrease in the price of our
common stock. The reluctance of some national regulators to grant regulatory
approvals, provide operative interconnection and enforce access to these
operators' networks and essential facilities could have a material adverse
effect on our competitive position. We cannot assure you that we would be able
to compete effectively in any of our current or proposed markets. The Circe
Network will reduce our dependence on incumbent telecommunications operators for
leased long-haul lines, but it will not reduce our dependence on such carriers
to "last mile" access to the vast majority of our end user customers.

GOVERNMENT REGULATION

OVERVIEW

National and local laws and regulations governing the provision of
telecommunications services differ significantly among the countries in which we
currently operate and intend to operate. The interpretation and enforcement of
these laws and regulations varies and could limit our ability to provide certain
telecommunications services in certain markets. We cannot assure you that future
regulatory, judicial and legislative changes will not have a material adverse
effect on us, that domestic or international regulators or third parties will
not raise material issues with regard to our compliance with applicable laws and
regulations, or that other regulatory activities will not have a material
adverse effect on our business, financial condition, results of operations and
the price of our common stock.

INTERNATIONAL TRAFFIC

Under the WTO Agreement, concluded on February 15, 1997, 69 countries
comprising 95% of the global market for basic telecommunications services agreed
to permit competition from foreign carriers. In addition, 59 of these countries
have subscribed to specific pro-competitive regulatory principles. The WTO
Agreement became effective on February 5, 1998 and has been implemented, to
varying degrees, by the signatory countries. We believe that the WTO Agreement
will increase opportunities for us and our competitors. However, we cannot
assure you that the WTO Agreement will result in beneficial regulatory
liberalization in all signatory countries.

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eliminating certain existing tests. These tests remain in effect, however, for
carriers from non-World Trade Organization member countries.

The FCC adopted rules regarding specific rate levels for international
settlements rates, which became effective on January 1, 1998 and which were
substantially affirmed by the FCC on reconsideration on June 11, 1999.
International Settlement Rates Order generally requires U.S. facilities-based
carriers to negotiate settlement rates with their foreign correspondent at no
greater than FCC-established benchmark prices. In addition, the International
Settlement Rates Order imposed new conditions upon certain carriers, including
us. First, as amended on reconsideration the FCC conditioned facilities-based
authorizations for service on a route on which a carrier has a foreign affiliate
with market power upon the foreign affiliate offering all other U.S. carriers a
settlement rate at or below the relevant benchmark. None of our foreign
affiliates have market power. Second, the FCC conditioned any authorization to
provide switched services over either facilities-based or resold international
private lines upon the condition that at least half of the facilities-based
international message telephone service traffic on the subject route is settled
at or below the relevant benchmark rate. This condition applies whether or not
the licensee has a foreign affiliate on the route in question.

In the Foreign Participation Order described above, however, if the subject
WTO route does not comply with the benchmark requirement, a carrier can
demonstrate that the foreign country provides "equivalent" resale opportunities.
Accordingly, since the February 9, 1998 effective date of the Foreign
Participation Order, we have been permitted to resell private lines for the
provision of switched services, also known as international simple resale, to
any WTO country that either has been found by the FCC to comply with the
benchmarks or has been determined to be equivalent. We, however, remain subject
to prior FCC approval in order to provide resold private lines to any country in
which we have an affiliated carrier that has not been found by the FCC to lack
market power.

Many parties have appealed the International Settlement Rates Order to the
U.S. Court of Appeals for the D.C. Circuit. On January 12, 1999, the U.S. Court
of Appeals for the D.C. Circuit issued an order resolving this appeal, upholding
the International Settlement Rates Order in all respects.

In new rules released on May 6, 1999, but not yet effective, the FCC has
removed the international settlements policy for: (1) all settlement
arrangements between U.S. carriers and foreign carriers that lack market power,
and (2) all settlement arrangements on routes where U.S. carriers are able to
terminate at least 50 percent of their traffic in the foreign market at rates
that are at least 25 percent below the applicable benchmark settlement rate. In
this international settlement policy order, the FCC also eliminated the
requirement that carriers file the settlement arrangements where the
international settlements policy has been eliminated. Finally, the international
settlement policy order expanded its rules to permit carriers to provide
international simple resale on any route where the resale carrier exchanges
switched traffic with a foreign carrier that lacks market power. Accordingly,
upon the effectiveness of these new rules, we will have more flexibility in
negotiating settlement arrangements with many carriers on many routes, which we
expect will lower our costs of terminating international traffic, although our
competitors will benefit from these new rules in the same way.

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Increasing regulatory liberalization in many countries' telecommunications
markets now permits more flexibility in the way we can route calls. Although
certain FCC rules limit the way in which some international calls can be routed,
we do not believe that our network configuration, specifically the way in which
traffic is routed through our facilities in the U.K., is specifically prohibited
by, or undermines in any way the intent of, these rules. It is possible,
however, that the FCC could find that our network configuration violates these
rules. If we were found to be in violation of these routing restrictions, and if
the violation were sufficiently severe, it is possible that the FCC could impose
sanctions and penalties upon us.

REGULATORY STATUS

A summary discussion of the regulatory situations in certain geographic
regions in which we operate or have targeted for penetration is set forth below.

EUROPEAN UNION. The European Union consists of the following member states:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom. The
European Union was established by the Treaty of Rome and subsequent treaties.
European Union member states are required to implement directives issued by the
European Commission and the European Council by passing national legislation. If
a European Union member state fails to effect such directives with national (or,
as the case may be, regional, community or local) legislation and/or fails to
render the provisions of such directives effective within its territory, the
European Commission may take action against the European Union member state,
including in proceedings before the European Court of Justice, to enforce the
directives. Private parties may also bring actions against European Union member
states for failures to implement such legislation.

In an effort to promote competition and efficiency in the European Union
telecommunications market, the European Commission and European Council have
issued a number of key directives establishing basic principles for the
liberalization of the European Union telecommunications market. The general
framework for this liberalized environment has been set out in the European
Commission's Services Directive (the "Services Directive") and its subsequent
amendments, including, in particular, the Full Competition Directive, adopted in
March 1996 (the "Full Competition Directive"). These directives require most
European Union member states to permit competition in all telecommunications
services and had set January 1, 1998 as the date by which all restrictions on
the provision of telecommunications services and telecommunications
infrastructure were to be removed. These directives have been supplemented by
various harmonizing directives, which include the Open Network Provision
Directives, as well as two additional directives adopted in 1997, the Licensing
Directive and the Interconnection Directive.

The Licensing Directive established a framework for the granting of national
authorizations and licenses related to telecommunications services. It permits
European Union member states to establish different categories of licenses for
providers of infrastructure and services, but requires the overall scheme to be
transparent and non-discriminatory. The Interconnection Directive requires
member states to remove restrictions preventing negotiation of interconnection
agreements, ensure that interconnection requirements are non-discriminatory and
transparent and to ensure adequate and efficient interconnection for public
telecommunications networks and publicly available telecommunications services.

In October 1997, the European Commission issued a consultative document
supporting the implementation of long run incremental cost principles as a basis
for interconnection pricing. This document also sets forth interconnection
pricing benchmarks reflecting current interconnection agreements in European
Union member states. The European Commission believes such benchmarks should be
relied upon pending the adoption of accounting systems and interconnection rates
based on long run incremental cost principles.

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Several European Union member states have chosen to apply the provisions of
the Interconnection Directive within their jurisdictions in such ways as to give
more favorable treatment to infrastructure providers and network operators than
to carriers and resellers that have made no infrastructure investment. Such
distinctions must be objectively justified on the grounds of the type of
interconnection provided or because of relevant licensing conditions. The
Licensing Directive does not provide a clear definition of an infrastructure
investment, and many European Union member states have adopted inconsistent
approaches with respect to the level and type of infrastructure investment
required to justify differences in interconnection charges. While we believe
that the European Commission will seek to minimize these disparities in national
interconnection policies, there can be no assurance that these disparities can
be eliminated or significantly reduced or that any such differences in
regulatory treatment will not have a material adverse effect on us. To the
extent incumbent telecommunications operators deny or delay granting us
interconnection, even if only for a limited period of time, in any of the
countries in which we have or will have points of presence, we will be forced to
terminate traffic through refile or resale agreements with other carriers,
resulting in higher costs.

Each European Union member state in which we currently conduct our business
has a different regulatory regime and such differences are expected to continue.
The requirements for us to obtain necessary approvals vary considerably from
country to country.

BELGIUM. In December 1997, the Belgian Federal Parliament provided for full
liberalization of the provision of telecommunications services. However, this
law and secondary legislation are not yet complete.

Under the existing licensing scheme, applicants seeking a network operator
license must commit to invest 400 million Belgian Francs or to deploy 500
kilometers of transmission infrastructure within three years of the date the
license is granted as well as investing an amount equal to 1% of annual turnover
in order to fund research and development and other initiatives. Notwithstanding
these stringent requirements (which may be modified by European Commission
intervention that has been formally commenced), we obtained a license under the
provisional licensing system for the establishment and operation of a public
telecommunications network on June 30, 1998 and a provisional license for the
provision of voice telephony on July 3, 1998. Recently, these provisional
licenses were converted into definitive licenses.

Belgium is one of the European Union member states which differentiates
between interconnection for infrastructure providers and network operators and
switch-based carriers and resellers. The interconnection tariffs of Belgacom
(Belgium's incumbent telecommunications operator), which have been officially
approved by the Belgian Institute for Postal Services and Telecommunications,
provides more favorable interconnection rates for infrastructure providers and
network operators than for switch-based carriers and resellers. As a result of
the construction of the Circe Network, we qualify for these more favorable
rates.

The modified Belgian Telecommunications Law also provides for the creation
of a Universal Service Fund, to be managed by the Belgian Institute for Postal
Services and Telecommunications, to which operators may be required to
contribute funds in proportion to their revenues from the Belgian
telecommunications market. However, the Universal Service Fund system will not
be activated before the year 2000, and then only insofar as: (i) Belgacom claims
a compensation for being the universal service provider, (ii) the Belgian
Institute for Postal Services and Telecommunications considers that universal
service provision represents a net cost, and (iii) the Belgian Federal
Government takes a formal decision to activate the Universal Service Fund. From
1998 onwards, the Belgian Institute for Postal Services and Telecommunications
will "dry-run" the universal service costing model and keep operators informed
of the contributions that they may be required to make if and when the Universal
Service Fund is activated.

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FRANCE. In July 1996, legislation was enacted providing for the
liberalization of all telecommunications activities in France by January 1,
1998.

The establishment and operation of public telecommunications networks and
the provision of voice telephony services to the public are subject to
individual licenses granted by the Minister in charge of telecommunications upon
recommendation of France's new independent regulatory authority, the Authorite
de Regulation des T elecommunications ("ART").

In December 1997, we filed a joint application for a license as a public
telecommunications network operator (under Article L33.1 of the French Code de
Postes et T elecommunications) and provider of voice telephony services to the
public (under Article L34.1 of the French Code de Postes et
T elecommunications). The license application was approved by both ART and the
relevant Minister during 1998. An extension of license was requested by Viatel
in order to obtain a nation-wide license. The application was sent to the ART on
June 21, 1999. The extension should therefore be obtained in the coming four
months if the ART considers that the file received is complete. In March 1999,
we obtained interconnection arrangements which allow customers in the greater
Paris region to originate and terminate calls throughout France and all
countries serviced by us. Additional interconnections to the Strasbourg and
Amiens regions are expected to be obtained in mid-1999.

We are subject to certain obligations in the operation of our public
telecommunications network, most notably in terms of non-discriminatory
treatment of customers and an obligation to accept reasonable requests for
interconnection from other carriers.

France is also one of the European Union member states which differentiates
between interconnection for public telecommunications network operators, holding
a L33.1 license, and voice telephony service providers, holding a L34.1 license.
The interconnection tariffs of France Telecom, which have been officially
approved by ART, provide substantially more favorable interconnection rates for
public telecommunications network operators than for voice telephony service
providers.

GERMANY. The German Telecommunications Act of July 25, 1996 provided for
the liberalization of all telecommunications activities by January 1, 1998. The
German Telecommunications Act has been supplemented by several ordinances
concerning, among other things, license fees, rate regulation, interconnection,
universal service, frequencies and customer protection. The German
telecommunications sector is currently overseen by a new Regulatory Authority
for Telecommunications and Post ("RegTP") that operates under the supervision of
the Ministry of Economics and has taken over the regulatory responsibilities of
the disbanded Ministry of Post and Telecommunications.

Under the German regulatory structure, licenses can be issued for different
types of infrastructure as well as for the provision of services based on
transmission lines provided by other service providers. Viatel has been issued a
nationwide class 3 infrastructure license and a nationwide class 4 license for
the provision of voice telephony.

All existing interconnection agreements with Deutsche Telekom have been
terminated effective December 31, 1999, requiring all affected parties to seek
new interconnection with Deutsche Telekom. In a letter dated February 19, 1999,
the FCC expressed its concerns about the new interconnection regime and argued
that the action taken by Deutsche Telekom as well as other actions taken by such
carrier were designed to impede effective and competitive market entry. Although
Viatel believes that it will be able to obtain a new interconnection agreement
with Deutsche Telekom prior to December 31, 1999, we cannot provide any
assurance that this will be the case or that the interconnection arrangement
obtained will contain terms which are as favorable to us as those contained in
our current interconnection arrangement.

ITALY. In 1997, the Italian authorities enacted a legislative framework for
the full liberalization of telecommunications services by January 1, 1998. On
February 12, 1999, we received a license to provide voice telephony as well as
to own and operate infrastructure.

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On July 24, 1998, Telecom Italia published its Reference Interconnect Offer,
which has been amended recently due to decisions by the Italian regulator. The
offer allows interconnection at one point of interconnect and has brought
interconnection rates down to a level much closer to the European Union
benchmarks. We initiated interconnection negotiations towards the end of 1998
and obtained an interconnection agreement with Telecom Italia on April 30, 1999.

In Italy, providers of network infrastructure and switched voice services as
well as national mobile operators must contribute to a universal service fund.
Such a requirement is to take effect in 1999 provided that Telecom Italia
demonstrates by March 31, 1999, on the basis of audited reports, that its
universal service obligations impose on it net losses. Even in these
circumstances, the Italian regulator can exempt new entrants from an obligation
to contribute to such a universal service fund. Both the Italian competition
agency and the European Commission are likely to recommend such an exemption
scheme to the Italian regulator. However, we cannot assess at this time any
possible impact of any such universal service obligations on its operating
margins.

THE NETHERLANDS. In the Netherlands the incumbent telecommunications
operation's monopoly regarding voice telephony was abolished effective July 1,
1997. Other community liberalization obligations, which took effect on January
1, 1998, were implemented through the new Netherland's Telecommunications Act as
of December 15, 1998. With the exception of radio frequencies, all licensing
requirements have been abolished by mandatory registration requirements with the
Independent Post and Telecommunications Authority. In February 1999, Viatel
obtained from the Independent Post and Telecommunications Authority
registrations to provide a public telecommunication service and to install and
provide a public telecommunications network.

SPAIN. The Spanish government implemented the full liberalization of public
switched telephone services on December 1, 1998. Viatel was granted a nationwide
infrastructure and voice telephony license in March 1999. We expect to sign an
interconnection agreement with Telefonica de Espana in the fourth quarter of
1999.

SWITZERLAND. A new Telecommunications Act was adopted by the Swiss
Parliament in April 1997 and came into effect on January 1, 1998, together with
certain ordinances containing more detailed regulations covering
telecommunications services, frequency management, numbering, terminal equipment
and license fees. The new Telecommunications Act provides for liberalization of
the Swiss telecommunications market as of January 1, 1998.

The Swiss telecommunications regulatory framework facilitates market entry
by: (i) applying a notification procedure for resellers, (ii) applying a
procedure for operators wishing to be granted a concession for the establishment
and operation of transmission facilities and (iii) providing rights-of-way,
subject to a procedure of authorization, over the public domain to
facilities-based carriers. Pro-competitive regulation is also applicable in the
area of numbering.

We have notified our activities as a provider of voice telephony services in
Switzerland but have not yet completed negotiation of an interconnection
agreement (in accordance with the notification procedure). We are applying for a
concession as a facilities-based carrier.

Switzerland is not a member of the European Union and, accordingly,
directives do not apply. Switzerland is, however, a party to the WTO Agreement.

UNITED KINGDOM. The Telecommunications Act 1984 (the "U.K. Act") provides a
licensing and regulatory framework for telecommunications activities in the
United Kingdom. The U.K. has liberalized its market substantially to meet the
requirements of the Full Competition Directive. There is pending secondary
legislation to fully implement the European Commission Directives which may
affect the licenses which have been granted to Viatel and its competitors.
Viatel cannot predict what effect, if any, this legislation will have on its
business.

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Viatel UK has been granted an international simple voice resale standard
license and was awarded an international facilities license with code powers in
June 1998. In addition, Viatel UK has interconnection agreements with Cable &
Wireless and British Telecom.

OTHER EUROPEAN MARKETS. Our ability to expand in other countries will be
affected by the degree to which liberalization has been implemented in that
country. If for strategic reasons we decide to build out infrastructure in each
particular market prior to full liberalization and liberalization is delayed or
not fully implemented, we could sustain a loss on our infrastructure investment.

LATIN AMERICA AND THE PACIFIC RIM. Outside of the European Union, we
provide our customers with access to our services through the use of call
reorigination. A substantial number of countries have prohibited certain forms
of call reorigination. There can be no assurance that certain of our services
and transmission methods will not be or will not become prohibited in certain
jurisdictions.

We are subject to a different regulatory regime in each country in Latin
America and the Pacific Rim in which we conduct business. Local regulations
determine issues significant to our business, including whether we can obtain
authorization to offer transmission of voice and voice band data directly or
through call reorigination. In general, competition is restricted in the region,
with the result that our ability to offer such service is limited. Regulations
governing enhanced services (such as facsimile and voice mail and data
transmission) tend to be more permissive than those covering voice telephony.

ARGENTINA. The telecommunications industry in Argentina was privatized in
1990, but opportunities for competitive entry in basic telephony services remain
restricted. The companies created at the time of privatization, Telecom and
Telefonica, respectively, were granted exclusive rights until 1997 to the
provision of domestic local and long distance fixed telephone service in the
northern and southern portions of Argentina, respectively. Telintar, a company
owned equally by Telecom and Telefonica, was given exclusive rights until 1997
for the provision of international telephony and data transmission services.

Value-added services may be competitively provided and are essentially
deregulated. Although a license must be obtained, such licenses are routinely
granted. Facilities for international value-added services must be obtained from
Telintar. Currently, call reorigination is legal in Argentina, although the
established carriers have advocated strenuously against it and the government's
view has changed from time to time. Telecom and Telefonica have instituted
significant rate rebalancing measures which are likely to lessen the
attractiveness of call reorigination. The Supreme Court ruled in favor of rate
rebalancing, rejecting several challenges to it.

We have had a sales representative in Argentina since 1991 who has focused
on call reorigination, Internet-initiated international business-to-business
service and international calling card services. We do not currently hold any
licenses in Argentina.

BRAZIL. In Brazil, value-added services are not considered to be
telecommunications services and currently can be provided on a completely
unregulated basis, without the necessity of obtaining a permit or a concession.
However, the service provider must operate through a Brazilian company. Call
reorigination is not prohibited in Brazil. A foreign ownership limit of 49% is
imposed under the 1996 "Minimal Law" for B-Band cellular, satellite and cable TV
services. There are presently no foreign ownership limits for limited services,
including specialized limited services, or value added services. Under the 1997
"General Telecommunications Law," the President retains the authority to impose
foreign ownership limits on other services, but by decree dated May 15, 1998,
the President expressly decided not to impose any such limits.

Our services in Brazil currently include call reorigination and
international calling cards and fax store and forward which are classified as
value added-services and therefore do not require a license. We plan to offer
such services as well as to apply for licenses to offer specialized limited
services, which include private line and data transmission services.

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COLOMBIA. Under a new Constitution adopted in 1991, the possibility of
private provision of public services was ratified in Colombia. This paved the
way for both privatization of the state-owned long distance company, TELECOM, as
well as the competitive entry of other entities. Specific plans for the
privatization of TELECOM have faltered due to, among other things, labor union
resistance. However, the government mandated that competition be introduced in
1998. Two competitors to TELECOM have been licensed. A federal judicial body
with jurisdiction over public contracts has recently issued a writ declaring
that the issuance of licenses for any additional competition in long distance
services must be authorized by new legislation. The implications of this
decision for us are not clear.

In Colombia, there are in excess of 35 local operating companies, many
municipally owned. Under Colombian law, local service has been completely
deregulated and may be provided without a telecommunications concession or
license. Other telecommunications services require a concession or other
authorization.

Value-added services are competitive, but must be licensed. There is
currently intense competition for value-added services, and the market for data
communications is one of the most dynamic segments of the telecommunications
sector. Although Colombian law requires that all telecommunications services be
rendered by Colombian entities, foreign investment is not limited.

Most of our customers in Colombia access our network via international toll
free numbers. We have formed a Colombian subsidiary and have been awarded a
value-added services license. We are working on the establishment and operation
of a network to utilize the value-added services license.

VENEZUELA. Pursuant to the Telecommunications Law of 1940, all
telecommunications activities in Venezuela are reserved to the government,
although concessions or permits for the provision of such services may be
granted to third parties. The administration, inspection and monitoring of all
communications systems in Venezuela are carried out by the Ministry of
Transportation and Communications through the Comision Nacional de
Telecommunicaciones.

The national telephone company of Venezuela, Compania Anonima Nacional de
Telefonos de Venezuela, was privatized in 1991 and its concession grants a
monopoly in the provision of basic telecommunications services until the year
2000. The only exceptions to this exclusivity are recently awarded concessions
for the provision of basic services to rural areas not reached by Compania
Anonima Nacional de Telefonos de Venezuela.

Other telecommunications services, such as cellular telephony and other
mobile radio services, private telecommunications networks, switched data
networks and value-added services (including e-mail, Internet, video text,
telenext, voicemail and faxmail) are open to competition upon receipt of a
concession or permit, as applicable. Call reorigination is officially illegal in
Venezuela. The prohibition is supposed to be enforced by Comision Nacional de
Telecommunicaciones with the unofficial aid of Compania Anonima Nacional de
Telefonos de Venezuela through termination of subscriber service, but in
practice the prohibition is widely evaded.

We do not have a local affiliate in Venezuela and do not hold any Venezuelan
concessions or authorizations. At present, our agents in Argentina offer only
Internet-initiated international business-to-business services and international
calling cards in Venezuela. We do not believe that these services are
encompassed within the prohibition against call reorigination, but it is
possible that Venezuelan authorities may consider them to raise similar policy
issues to prohibited call reorigination services. If the call reorigination
prohibition is deemed to apply, we may have to discontinue Internet-initiated
services in Venezuela.

UNITED STATES. Our provision of international service to, from and through
the United States generally is subject to regulation by the FCC. Section 214 of
the Communications Act requires a company to make application to, and receive
authorization from, the FCC to provide such international telecommunications
services. In May 1994, the FCC authorized us pursuant to Section 214 of the

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Communications Act to resell public switched telecommunications services of
other United States carriers (the "Section 214 Switched Authorization"). The
Section 214 Switched Authorization requires that services be provided in a
manner that is consistent with the laws of countries in which we operate. We
also have a license to resell international private lines for the provision of
switched services between the United States and the United Kingdom and between
the United States and Canada. Additionally, in September 1996 we received final
approval for another Section 214 authorization from the FCC to provide both
facilities-based services and resale services (including both the resale of
switched services and the resale of private lines for the provision of switched
services) to all permissible international points. Finally, in September 1996 we
also received final approval for another Section 214 authorization from the FCC
to provide facilities-based service between the United States and the United
Kingdom over the CANUS-1 and CANTAT-3 cable systems (the "Section 214 UK
Facilities Authorization").

EMPLOYEES

As of April 30, 1999, we had 589 full-time employees, approximately 270 of
whom were engaged in sales, marketing and customer service. None of our
employees is covered by a collective bargaining agreement. Our management
believes that our relationship with our employees is good.

PROPERTIES

Our tangible assets include a substantial investment in telecommunications
equipment. Our network and its component assets are the principal properties we
own. We own a significant portion of the telecommunications equipment required
for our business. Our network includes installed fiber optic cable consisting of
lighted (used) and dark (not used) fibers, which is either owned or leased and
is laid pursuant to various rights of way. Other fixed assets are located at
various locations in our service areas.

We currently occupy two sites in New York City, one of which serves as our
principal executive office, while the other is one of our international gateway
switching center. We also lease office space in Somerset, New Jersey, which
serves as our U.S. Network Operations Center, Egham, England, which serves as
our European Operations Center, and Omaha, Nebraska, where our billing and
operations center is located. We lease locations pursuant to the terms of the
respective leases which expire at different times varying from May 2004 to March
2009.

We have European sales offices in the following locations: London, England;
Paris, France; Brussels, Belgium; Amsterdam, The Netherlands; Frankfurt, Berlin,
Munich and Dusseldorf, Germany; Milan and Rome, Italy; and Barcelona and Madrid,
Spain; all of which are leased. The lease terms for our sales offices range from
5 years to 25 years.

We also maintain switching and transmission sites in several countries
throughout Europe. In general, these locations are leased for a minimum term of
20 years, including renewal options. We attempt to structure our leases of space
for our network switching centers and rights-of-way for our fiber optic networks
with initial terms and renewal options so that the risk of relocation is
minimized. We anticipate that prior to termination of any of the leases, we will
be able to renew such leases or make other suitable arrangements.

LEGAL PROCEEDINGS

We are involved from time to time in litigation incidental to the conduct of
our business. We believe that any potential adverse determination in any pending
action will not have a material adverse effect on our business, financial
condition or results of operations.

56
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors and executive officers of Viatel as of June 15, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael J. Mahoney(1)(2)............................. 40 Chairman of the Board, Chief Executive Officer and
President
Allan L. Shaw........................................ 35 Senior Vice President, Finance; Chief Financial
Officer and Director
Lawrence G. Malone................................... 47 Senior Vice President, Global Sales and Marketing
Sheldon M. Goldman................................... 39 Senior Vice President, Business Affairs; General
Counsel and Secretary
Francis J. Mount..................................... 57 Senior Vice President, Engineering and Network
Operations and Director
John G. Graham(1)(2)(3).............................. 60 Director
Paul G. Pizzani(1)(2)(3)............................. 39 Director
</TABLE>

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

(1) Member of the Directors Committee.

(2) Member of the Compensation Committee.

(3) Member of the Audit Committee.

MICHAEL J. MAHONEY. Mr. Mahoney has served as Chairman of the Board of
Viatel since September 1998, as its Chief Executive Officer since September
1997, as its President since September 1996 and as a director since 1995. Mr.
Mahoney was also Chief Operating Officer of Viatel from September 1996 to
September 1997, Executive Vice President, Operations and Technology of Viatel
from July 1994 to September 1996 and Managing Director, Intercontinental of
Viatel from January 1996 to September 1996. From August 1990 to June 1994, Mr.
Mahoney was employed by SITEL Corporation, a teleservices company, most recently
as President, Information Services Group. From August 1987 to August 1990, Mr.
Mahoney was employed by URIX Corporation, a manufacturer of telecommunications
hardware and software, in a variety of sales and marketing positions.

ALLAN L. SHAW. Mr. Shaw has served as Senior Vice President, Finance of
Viatel since December 1997 and as its Chief Financial Officer since January
1996. Mr. Shaw has served as a director of Viatel since June 1996. Mr. Shaw was
Vice President, Finance of Viatel from January 1996 to December 1997 and
Treasurer of Viatel from September 1996 to April 1998. Prior to becoming Vice
President, Finance and Chief Financial Officer, Mr. Shaw served as Corporate
Controller from November 1994 to December 1995. From August 1987 to November
1994, Mr. Shaw was employed by Deloitte & Touche LLP, most recently as a
Manager. Mr. Shaw is a Certified Public Accountant and a member of the American
Institute, United Kingdom Society and New York State Society of Certified Public
Accountants.

LAWRENCE G. MALONE. Mr. Malone has served as Senior Vice President, Global
Sales and Marketing of Viatel since May 1997. Mr. Malone served as Vice
President and Managing Director, Intercontinental of Viatel from September 1996
to May 1997 and served as its Vice President of Sales for Carriers/Wholesale
from January 1995 to September 1996. From December 1993 to December 1994, Mr.
Malone was employed by Frame Relay Technologies, a communications equipment
manufacturer, as Director of Sales. From December 1987 to November 1993, Mr.
Malone was employed by Republic Telcom Systems, a voice/ data networking
company, where he most recently served as Vice President of Sales and Marketing.

57
<PAGE>
SHELDON M. GOLDMAN. Mr. Goldman has served as Senior Vice President,
Business Affairs and General Counsel of Viatel since December 1997. Prior to
becoming Senior Vice President, Business Affairs and General Counsel of Viatel,
Mr. Goldman served as Vice President, Business and Legal Affairs from December
1996 to December 1997 and served as United States General Counsel of Viatel from
April 1996 to December 1996. From January 1987 to March 1996, Mr. Goldman was
associated with the law firm of Wien, Malkin & Bettex. Since March 1996, Mr.
Goldman has been Of Counsel to the law firm of Brief Kesselman Knapp & Schulman,
LLP.

FRANCIS J. MOUNT. Mr. Mount has served as Senior Vice President,
Engineering and Network Operations of Viatel since December 1997 and as a
Director of the company since June 1998. Prior to joining the company, Mr. Mount
was Senior Vice President, Business Initiatives of Primus Telecommunications
Group from October 1997 to December 1997, responsible for Internet telephony,
European operations and network quality. From June 1996 to October 1997, Mr.
Mount was Executive Vice President and Chief Operating Officer of Telepassport,
Inc. and was Vice President and Chief Operating Officer of Telepassport, Inc.
from January 1996 to June 1997. From 1990 to January 1996, Mr. Mount was
employed by MCI, most recently as Director, Global Technical Services,
responsible for international development, alliance management and all technical
operations and services outside the United States, including the construction
and maintenance of large networks such as Hyperstream, "Concert" and private
networks for large accounts such as J.P. Morgan, Proctor and Gamble and I.B.M.
From March 1967 to December 1989, Mr. Mount was employed by AT&T in various
positions.

JOHN G. GRAHAM. Mr. Graham has served as a director of Viatel since June
1998. Mr. Graham has been the President and Chief Operating Officer of Utilities
Mutual Insurance Company since May 1, 1999, a position he assumed following his
retirement from GPU Service, Inc. From December 1998 to May 1999, Mr. Graham was
an Executive Vice President of GPU Service, Inc. and from 1987 to December 1998,
was Senior Vice President and Chief Financial Officer of GPU, Inc., a domestic
and international electric utility and independent power generation company. Mr
Graham was employed by GPU in various other capacities from 1976 to 1987. From
1970 to 1976, Mr. Graham was a Partner in the law firm of Ruprecht and Graham,
Newark, New Jersey. From 1993 to 1997, Mr. Graham served as a Director and
Chairman of the Audit Committee of Edisto Resources, Inc., which was engaged in
the exploration, production and marketing of natural gas and oil.

PAUL G. PIZZANI. Mr. Pizzani has served as a director of Viatel since April
1996. Mr. Pizzani is currently a partner at eVentures LLC. From November 1997 to
March 1999, Mr. Pizzani served as a Managing Director of Wasserstein Perella
Emerging Markets L.P. where he has been employed since November 1997. Prior to
November 1997, Mr. Pizzani was associated with COMSAT Corporation and its
subsidiaries in various capacities from November 1985 to October 1997, most
recently as Treasurer.

SENIOR MANAGEMENT

GLENN K. DAVIDSON. Mr. Davidson has served as Vice President, Corporate
Communications of Viatel since August 1998. Prior to joining the company, Mr.
Davidson was employed by the Computer & Communications Industry Association as
Executive Vice President, Chief Operating Officer and Corporate Secretary from
September 1995 to July 1998. From November 1994 to September 1995, Mr. Davidson
was an independent consultant. From May 1994 to November 1994, Mr. Davidson was
the Campaign Manager for Douglas Wilder's bid for election to the United States
Senate. From August 1991 to January 1994, Mr. Davidson was employed by the
Office of Governor, Commonwealth of Virginia, most recently as Chief of Staff.
From January 1990 to August 1991, Mr. Davidson was the Director of the Virginia
Liaison Office, Commonwealth of Virginia. From 1985 to 1990, Mr. Davidson was
employed by Computer & Communications Industry Association in various
capacities, most recently as Vice President and Chief of Staff.

58
<PAGE>
CHARLES T. FIELD. Mr. Field has served as Vice President and Treasurer of
Viatel since September 1998. Prior to becoming Vice President and Treasurer, Mr.
Field served as Treasurer from April 1998 to September 1998. Prior to joining
Viatel, Mr. Field was employed by Horsehead Industries, Inc., a diversified
manufacturing company, from August 1995 to April 1998. From October 1987 to
August 1995, Mr. Field was employed by Deloitte & Touche LLP, Independent
Certified Public Accountants, most recently as Manager. Mr. Field is a Certified
Public Accountant and a member of the American Institute, United Kingdom Society
and Illinois Society of Certified Public Accountants.

DEREK FOXWELL. Mr. Foxwell has served as Viatel's Vice President of
Infrastructure Programs since January 1999. Prior to becoming Vice President of
Infrastructure Programs, Mr. Foxwell served as Director of Infrastructure
Programs from May 1998 to January 1999. From December 1997 to May 1998, Mr.
Foxwell served as a consultant to Viatel providing advice to the company in
connection with the development of the Circe Network. Prior to joining Viatel as
a consultant, Mr. Foxwell was a consultant to Nynex Network Service (Flag Ltd.)
where he chaired the Flag Assignment, Routing & Restoration Subcommittee and
Sprint International (PTAT) and acted as the operations and maintenance manager
for PTAT systems. From 1972 to 1991, Mr. Foxwell was employed by British
Telecom, most recently as Transmission Engineering Planning Manager,
International Cable Network; International and National Elements. Mr. Foxwell is
a chartered engineer with more than 25 years of experience in international
telecommunications networks.

SIMON JOLYON GILLING. Mr. Gilling has served as Vice President, European
Legal Affairs of Viatel since May 1999. Prior to joining Viatel, Mr. Gilling was
a consultant from July 1998 to May 1999. From June 1990 to July 1998, Mr.
Gilling was Partnership Secretary and Head of Legal Affairs of Mercury Personal
Communications, a personal mobile telecommunications company. From 1985 to May
1990, Mr. Gilling was the Company secretary and Senior Legal Adviser for Mercury
Communications Ltd., a wholly owned subsidiary of Cable and Wireless PLC.

PAUL K. HEUN. Mr. Heun has been Vice President, Operations of Viatel since
January 1998. Prior to joining Viatel, Mr. Heun was Vice President, Network
Services of Primus Telecommunications Group from October 1997 to January 1998.
From April 1996 to October 1997, Mr. Heun was Vice President, Network Services
of Telepassport, Inc. From January 1995 to April 1996, Mr. Heun was employed by
AT&T as Manager, Customer Connectivity. From April 1989 to January 1995, Mr.
Heun was employed by MCI, most recently as Senior Manager, Network Operations.

FRED HUGHES. Mr. Hughes has served as Vice President, Engineering of Viatel
since December 1997. From July 1994 to December 1997, Mr. Hughes was Vice
President, Operations-Europe of Viatel. From August 1993 to July 1994, Mr.
Hughes served as Director of Telephony of the company. From January 1991 to
August 1993, Mr. Hughes was President of Communications Services Group, a
Connecticut-based voice and data communications consulting company. From August
1988 to January 1991, Mr. Hughes was Director of Engineering at Millicom
Telecommunications Services, Inc.

EVAN MILLER. Mr. Miller has served as Vice President of Business
Development of Viatel since February 1999. Prior to joining the company, Mr.
Miller was Director, Equity Research at Credit Suisse First Boston from March
1995 to December 1998 and was Director, Equity Research at Lehman Brothers from
December 1990 to February 1995. From April 1988 to November 1990, Mr. Miller was
a member of the Senior Management Group, Corporate Strategy at British Telecom.

WAYNE MYERS. Mr. Myers has been Vice President, European Sales of Viatel
since January 1999. Prior to becoming Vice President, European Sales, Mr. Myers
served as General Manager, European Sales of the company from July 1997 to
January 1999. From February 1996 to June 1997, Mr. Myers was Channel Sales
Director of PSI Net. From November 1994 to February 1996, Mr. Myers was a Sales
Director for LDDS/WorldCom. From June 1993 to November 1994, Mr. Myers was
President of the Gold Club, a direct

59
<PAGE>
mail Company. From February 1988 to June 1993, Mr. Myers was employed by Cable &
Wireless Communications, Inc. in various capacities, most recently as a National
Account Director.

JAN S. PIAZZA. Mr. Piazza has been Vice President, Carrier Sales since
January 1999. Prior to becoming Vice President, Carrier Sales, Ms. Piazza served
as Viatel's General Manager, Carrier Sales from January 1998 to January 1999.
Prior to joining Viatel, Ms. Piazza was a Vice President of Primus
Telecommunications Group from October 1997 to December 1997. From September 1995
to October 1997, Ms. Piazza was a Vice President, Sales and Marketing of
Telepassport, Inc. From 1987 to August 1995, Ms. Piazza served in various
positions at a predecessor of WorldCom, most recently as Vice President of
Product Development and Carrier Sales. From 1983 until 1987, Ms. Piazza was
Director of Sales Administration and Customer Service for Argo Communications.

ELLEN S. RUDIN. Ms. Rudin has served as Vice President and Deputy General
Counsel of Viatel since September 1998 and as Assistant Secretary since
September 1997. Prior to becoming Vice President and Deputy General Counsel, Ms.
Rudin served as Assistant General Counsel from October 1997 to September 1998,
as Counsel from March 1997 to October 1997 and as a staff attorney from August
1996 to March 1997. From September 1987 to August 1996, Ms. Rudin was associated
with the law firm of Wien, Malkin & Bettex.

PETER STEPHENS. Mr. Stephens has been Vice President, Operations--Europe of
Viatel since January 1999. Prior to becoming Vice President, Operations--Europe,
Mr. Stephens served as Technical Director for MCI's operations in Europe, the
Middle East and Africa from January 1993 to December 1998. Prior to January
1993, Mr. Stephens was employed by Reuters in various capacities for
approximately 19 years, most recently as Communications Quality Director.

Viatel's Board of Directors is comprised of seven directorships, two of
which are currently vacant. The Board consists of three classes: Class A, Class
B and Class C. One of the three classes, comprising one-third of the directors,
is elected each year to succeed the directors whose terms are expiring.
Directors hold office until the annual meeting for the year in which their terms
expire and until their successors are elected and qualified unless, prior to
that date, they have resigned, retired or otherwise left office.

The Board of Directors has established three committees, a Compensation
Committee, an Audit Committee and a Directors Committee. The current members of
the Compensation Committee are Messrs. Mahoney, Graham and Pizzani, the current
members of the Audit Committee are Messrs. Graham and Pizzani and the current
members of the Directors Committee are Messrs. Mahoney, Graham and Pizzani. The
Compensation Committee reviews general policy matters relating to compensation
and benefits of employees and officers of Viatel and administers the Stock
Incentive Plan. The Audit Committee recommends to the Board the firm of
independent public accountants to audit Viatel's financial statements, reviews
with management and the independent accountants the Company's interim and
year-end operating results, considers the adequacy of the internal controls and
audit procedures of Viatel and reviews the nonaudit services to be performed by
the independent accountants. The Directors Committee searches for and interviews
prospective directors, makes recommendations to the Board regarding the size of
the Board and candidates to fill vacancies on the Board, including vacancies
created by reason of an increase in the size of the Board and nominates
candidates for election to the Board.

Viatel pays an annual fee to non-employee directors of $30,000 (paid $15,000
in cash, in quarterly installments, and $15,000 in shares of restricted stock),
$1,200 for every board meeting attended and held separately and $600 for each
Board meeting or committee meeting participated in by telephone. Directors who
are also employees of Viatel are not separately compensated for serving on the
Board. All directors are reimbursed for out-of-pocket expenses incurred in
attending Board and committee meetings.

60
<PAGE>
SUMMARY COMPENSATION TABLE

The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, any person acting
as Viatel's Chief Executive Officer during 1998, regardless of the amount of
compensation paid, and the other most highly compensated executive officers of
Viatel during 1998 whose aggregate cash and cash equivalent compensation
exceeded $100,000.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------- LONG TERM COMPENSATION
OTHER -------------------------
ANNUAL RESTRICTED SECURITIES ALL
COMPENSATION STOCK UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($) OPTIONS(#) COMPENSATION(2)
- ------------------------------------------ ---- --------- -------- ------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Mahoney(3),.................... 1998 $ 289,583 $260,000 $ -- $ -- 360,771 $10,000
President and Chief Executive Officer 1997 212,500 125,000 -- -- -- 9,500
1996 166,458 183,129 102,825 299,997(4) 253,333 --

Allan L. Shaw,............................ 1998 172,917 107,500 -- -- 195,019 10,000
Senior Vice President, Finance and Chief 1997 140,000 60,000 -- -- 60,666 8,400
Financial Officer 1996 108,333 115,000 -- -- 43,333 --

Lawrence G. Malone,....................... 1998 155,833 110,000 -- -- 138,140 9,350
Senior Vice President, Global Sales and 1997 141,750 35,588 -- -- 73,533 8,505
Marketing 1996 98,333 88,147 -- -- -- --

Sheldon M. Goldman(5),.................... 1998 182,917 112,000 -- -- 162,500 10,000
Senior Vice President, Business Affairs 1997 143,750 60,000 -- -- 40,200 9,000
and General Counsel 1996 86,354 100,000 -- -- 20,000 --

Francis J. Mount(6),...................... 1998 175,000 107,500 -- -- 122,500 10,000
Senior Vice President, Engineering and
Network Operations
</TABLE>

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

(1) The amount reflected for Mr. Mahoney includes $32,416 of tax equalization
payments, $28,227 of relocation expense reimbursement associated with Mr.
Mahoney's repatriation from London to New York and $9,263 of tax gross ups.

(2) Represents matching contributions under Viatel's 401(k) plan.

(3) Mr. Mahoney was appointed as Chief Executive Officer in September 1997.

(4) Calculated based on a value of $9.00 per share, the fair market value of the
common stock on December 31, 1996.

(5) Mr. Goldman began his employment with Viatel in March 1996.

(6) Mr. Mount began his employment with Viatel in December 1997.

STOCK OPTION GRANTS

The following table sets forth information regarding grants of options to
purchase common stock made by Viatel during the fiscal year ended December 31,
1998 to each of the executives named in the Summary Compensation Table. No stock
appreciation rights were granted during 1998.

61
<PAGE>
OPTION GRANTS IN 1998

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED (#) 1998 (1) ($/SHARE)(2) DATE (5%) (10%)
- -------------------------------- ----------- ------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Mahoney.............. 90,000(4)(5) 5.0% $ 5.00 01/01/2008 $ 282,600 $ 717,300
90,000(4)(6) 5.0 5.50 01/01/2008 311,400 789,300
180,771(4)(7) 10.1 10.25 09/18/2008 1,165,973 2,953,798

Allan L. Shaw................... 60,000(4)(5) 3.3 5.00 01/01/2008 188,400 478,200
60,000(4)(6) 3.3 5.50 01/01/2008 207,600 526,200
75,019(4)(7) 4.2 10.25 09/18/2008 483,873 1,225,815

Lawrence G. Malone.............. 27,000(4)(5) 1.5 5.00 01/01/2008 84,780 215,190
60,000(4)(6) 3.3 5.50 01/01/2008 207,600 526,200
51,140(4)(7) 2.9 10.25 09/18/2008 329,853 835,628

Sheldon M. Goldman.............. 60,000(4)(5) 3.3 5.00 01/01/2008 188,400 478,200
60,000(4)(6) 3.3 5.50 01/01/2008 207,600 526,200
42,500(4)(7) 2.4 10.25 09/18/2008 274,125 694,450

Francis J. Mount................ 40,000(4)(5) 2.2 5.00 01/01/2008 125,600 318,800
60,000(4)(6) 3.3 5.50 01/01/2008 207,600 526,200
22,500(4)(7) 1.3 10.25 09/18/2008 145,125 367,650
</TABLE>

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

(1) Viatel granted options to purchase a total of 1,793,736 shares of common
stock during 1998.

(2) The exercise price was equal to the fair market value of the shares of
common stock underlying the options on the grant date.

(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on the
common stock over the term of the options. These assumptions are based on
rules promulgated by the Commission and do not reflect Viatel's estimate of
future stock price appreciation. Actual gains, if any, on the stock option
exercises and common stock holdings are dependent on the timing of such
exercise and the future performance of the common stock. There can be no
assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the option
holder.

(4) In the event of certain Corporate Transactions (as defined) involving
Viatel, all unvested stock options become fully vested. See "--Stock
Incentive Plan." The options granted to the Named Executives also vest upon
a change of control.

(5) Options to purchase shares of common stock vested and became exercisable as
to 33.34% of these options on January 1, 1999 and the remainder will vest
and become exercisable on each successive anniversary date thereafter to the
extent of 33.33% of these options.

(6) Options to purchase shares of common stock vested and became exercisable as
to 25% of these options on January 1, 1999 and the remainder will vest and
become exercisable on each successive anniversary date thereafter to the
extent of 25% of these options.

(7) Options to purchase shares of common stock will vest and become exercisable
as to 33.34% of these options on September 18, 1999 and the remainder will
vest and become exercisable on each successive anniversary date thereafter
to the extent of 33.33% of these options.

62
<PAGE>
On January 1, 1999, Viatel granted the following stock options, with an
exercise price of $22.875 per share: Michael J. Mahoney, 52,278 options; Allan
L. Shaw, 38,519 options; Lawrence G. Malone, 38,519 options; Sheldon M. Goldman,
38,519 options; and Francis J. Mount, 38,519 options.

On June 1, 1999, Viatel granted the following stock options, with an
exercise price of $43.00 per share, and shares of restricted stock: Michael J.
Mahoney, 38,196 options and 43,859 shares; Allan L. Shaw, 4,123 options and
16,123 shares; Lawrence G. Malone, 4,123 options and 16,123 shares; Sheldon M.
Goldman, 4,123 options and 16,123 shares; and Francis J. Mount, 4,123 options
and 16,123 shares.

YEAR-END OPTION VALUES

The following table sets forth information regarding the number and year end
value of unexercised options held at December 31, 1998 by each of the executives
named in the Summary Compensation Table. No stock appreciation rights were
exercised by these executives during fiscal 1998.

FISCAL 1998 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES "IN-THE-MONEY"
UNDERLYING UNEXERCISED OPTIONS AT FISCAL
SHARES VALUE OPTIONS AT FISCAL YEAR-END ($)
ACQUIRED ON REALIZED YEAR-END (#) EXERCISABLE/UNEXERCISABLE
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE (1)
- ----------------------------- ------------- ----------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
Michael J. Mahoney........... 46,666 $ 662,891(2) 217,820/368,265 $3,372,766/$5,179,939
Allan L. Shaw................ -- -- 132,116/180,235 2,144,123/2,724,471
Lawrence G. Malone........... -- -- 105,249/149,757 1,713,119/2,298,995
Sheldon M. Goldman........... -- -- 81,805/179,414 1,330,560/2,219,277
Francis J. Mount............. -- -- 28,360/94,140 499,435/1,542,128
</TABLE>

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

(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between $22.875 per share, the fair market value of
the common stock issuable upon exercise of options at December 31, 1998 and
the exercise price of the option, multiplied by the applicable number of
options.

(2) The amounts set forth represent the difference between $19.00 per share, the
fair market value of the common stock issuable upon exercise of options at
July 27, 1998, and the exercise price of the option, multiplied by the
applicable number of options.

EMPLOYMENT AGREEMENTS

We intend to execute new employment agreements with Messrs. Mahoney, Shaw
and Goldman, pursuant to which Mr. Mahoney will continue to serve as President
and Chief Executive Officer of Viatel, Mr. Shaw will continue to serve as Senior
Vice President, Finance and Chief Financial Officer and Mr. Goldman will
continue to serve as Senior Vice President, Business Affairs and General Counsel
for Viatel. In addition, we intend to execute employment agreements with Messrs.
Lawrence Malone and Francis Mount, pursuant to which Mr. Malone will continue to
serve as Senior Vice President, Global Sales and Marketing and Mr. Mount will
continue to serve as Senior Vice President, Engineering and Network Operations.
The term of the Mahoney employment agreement will extend for a period of three
years, and the term of the employment agreement of each of Messrs. Shaw,
Goldman, Malone and Mount will extend for a period of two years, in each case
unless earlier terminated in accordance with the terms thereof. Each employment
agreement will be effective as of June 1, 1999. Pursuant to the respective
employment agreements, Mr. Mahoney will be entitled to receive an annual base
salary of $386,000 (subject to adjustments), Mr. Shaw will be entitled to
receive an annual base salary of $246,000, Mr. Goldman will be entitled to
receive an annual base salary of $257,000, Mr. Malone will be entitled to
recieve an annual base salary of $250,000 and Mr. Mount will be entitled to
recieve an annual base salary of $246,000, subject, in each case, to increases
approved from time to time by the Board. In addition, Mr. Mahoney's Employment

63
<PAGE>
Agreement will provide for an annual cash bonus payment equal to 100% of his
base salary multiplied by a bonus multiple ranging from 0.6 to 2.0 determined
based upon a comparison of actual versus projected EBITDA and revenue figures
and each of Messrs. Shaw's, Goldman's, Malone's and Mount's employment
agreements will provide for an annual cash bonus payment equal to 80% of their
base salary multiplied by a bonus multiple ranging from 0.6 to 2.0 determined
based upon a comparison of actual versus projected EBITDA and revenue figures.
Each of the employment agreements will also (1) provide that the executive will
be entitled to receive annual grants of stock options or restricted stock in
amounts to be determined by the Board of Directors in its sole and absolute
discretion, (2) provide that following a change of control (as defined therein),
Viatel will be obligated to pay the executive an amount equal to the Severance
Amount (as defined therein), together with any applicable excise tax gross up on
such amount, if the executive chooses to terminate his employment, (3) include a
non-competition covenant and (4) contain a prohibition on the solicitation of
Viatel employees.

For purposes of each of the foregoing employment agreements, "change of
control" is defined to mean such time as (1) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act) of more than 50% of the total voting
power of the then outstanding voting stock of Viatel on a fully diluted basis or
(2) individuals who at the beginning of any period of two consecutive calendar
years constituted the Board (together with any new directors whose
election by the Board or whose nomination for election by Viatel's stockholders
was approved by a vote of at least two-thirds of the members of the Board then
still in office who either were members of the Board at the beginning of this
period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of the Board then
in office.

STOCK INCENTIVE PLAN

Viatel has adopted the Amended Stock Incentive Plan (the "Stock Incentive
Plan") under which "non-qualified" stock options to acquire shares of common
stock may be granted to employees, directors and consultants of Viatel and
"incentive" stock options to acquire shares of common stock may be granted to
employees, including employee-directors. The Stock Incentive Plan also provides
for the grant of stock appreciation rights and shares of restricted common stock
to Viatel's employees, directors and consultants.

The Stock Incentive Plan, which is currently administered by the
Compensation Committee of the Board, allows for the issuance of up to a maximum
of approximately 3.4 million shares of common stock, of which approximately 0.2
million shares are available for future grants. Under the Stock Incentive Plan,
the option price of any incentive stock option may not be less than the fair
market value of a share of common stock on the date on which the option is
granted. The option price of a non-qualified stock option may be less than the
fair market value on the date the non-qualified stock option is granted if the
Board of Directors so determines. An incentive stock option may not be granted
to a "ten percent stockholder" (as that term is defined in Section 422A of the
Code) unless the exercise price is at least 110.0% of the fair market value of
the common stock and the term of the option may not exceed five years from the
date of grant. Each option granted pursuant to the Stock Incentive Plan is
evidenced by a written agreement executed by Viatel and the grantee, which
contains the terms, provisions and conditions of the grant. Stock options may
not be assigned or transferred during the lifetime of the holder except as may
be required by law or pursuant to a qualified domestic relations order. Common
stock subject to a restricted stock purchase or bonus agreement is transferable
only as provided in that agreement. The maximum term of each stock option
granted to persons other than ten percent stockholders is ten years from the
date of grant.

For options to qualify as incentive stock options, the aggregate fair market
value, determined on the date of grant, of the shares with respect to which the
incentive stock options are exercisable for the first time by the grantee during
any calendar year may not exceed $100,000. Payment by option holders upon

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<PAGE>
exercise of an option may be made in cash or, with the consent of the Board of
Directors, in whole or in part,

- with shares of common stock,

- by irrevocable direction to an approved securities broker to sell shares
and deliver all or a portion of the proceeds to Viatel,

- by delivery of a promissory note with any provisions that the Board of
Directors determines appropriate, or

- in any combination of these three possibilities.

In addition, the Board of Directors, in its sole discretion, may authorize
the surrender by an optionee of all or part of an unexercised stock option and
authorize a payment in consideration thereof of an amount equal to the
difference between the aggregate fair market value of the shares of common stock
subject to this stock option and the aggregate option price per share of such
common stock. In the Board of Directors' discretion, this payment may be made in
cash, shares of common stock with a fair market value on the date of surrender
equal to the payment amount or some combination of the two.

The Stock Incentive Plan provides that outstanding options, restricted
shares of common stock or stock appreciation rights vest in their entirety and
become exercisable, or with respect to restricted common stock, are released
from restrictions on transfer and repurchase rights, in the event of a
"Corporate Transaction." For purposes of the Stock Incentive Plan, a Corporate
Transaction includes any of the following stockholder-approved transactions to
which Viatel is a party:

- a merger or consolidation in which Viatel is not the surviving entity,
other than a transaction the principal purpose of which is to change the
state of Viatel's incorporation, or a transaction in which Viatel's
stockholders immediately prior to the merger or consolidation hold (by
virtue of securities received in exchange for their shares in Viatel)
securities of the surviving entity representing more than 50.0% of the
total voting power of that entity immediately after the transaction,

- the sale, transfer or other disposition of all or substantially all of
the assets of Viatel unless Viatel's stockholders immediately prior to
the sale, transfer or other disposition hold (by virtue of securities
received in exchange for their shares in Viatel) securities of the
purchaser or other transferee representing more than 50.0% of the total
voting power of that entity immediately after the transaction, or

- any reverse merger in which Viatel is the surviving entity but in which
Viatel's stockholders immediately prior to the merger do not hold (by
virtue of their shares in Viatel held immediately prior to such
transaction) securities of Viatel representing more than 50.0% of the
total voting power of Viatel immediately after the transaction.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1998, the members of the Compensation Committee were Messrs. Pizzani,
Mahoney and Graham. Mr. Mahoney is Viatel's President and Chief Executive
Officer. None of the executive officers of Viatel currently serves on the
compensation committee of another entity or any other committee of the board of
directors of another entity performing functions similar to the Compensation
Committee. No interlocking relationships exist between Viatel's Board of
Directors or its Compensation Committee and the board of directors or
compensation committee of any other company.

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CERTAIN TRANSACTIONS

On June 3, 1998, we entered into a Mutual Cooperation Agreement with Martin
Varsavsky and Jazz Telecom S.A. pursuant to which the parties made certain
agreements including the following: (1) subject to Jazz Telecom S.A. completing
a high yield offering with net proceeds to Jazz Telecom S.A. of at least $100
million (the "Offering Condition"), we and Jazz Telecom S.A. agreed to use
commercially reasonable efforts to execute and deliver a construction agreement
no later than January 1, 1999 to construct a fiber optic submarine cable system
between Spain and the United Kingdom, (2) subject to the Offering Condition, we
agreed to purchase $6.0 million of Jazz Telecom S.A. common stock, (3) we and
Jazz Telecom S.A. agreed to the purchase from the other international switched
minutes and we agreed to transmit at least one-third of our Spanish domestic
switched minute traffic over Jazz Telecom S.A.'s network, assuming the prices
charged by Jazz Telecom S. A. are competitive, (4) we and Jazz Telecom S.A.
agreed to sell capacity to each other for fixed prices, (5) Mr. Varsavsky agreed
to lock-up his Viatel shares for a specified period, (6) we agreed to release
any past claims which we had against either Jazz Telecom S.A. and Mr. Varsavsky
in exchange for their respective release of any claims against us, and (7) Mr.
Varsavsky agreed to pay us liquidated damages in the event that he violates
certain provisions of the agreement. We and Jazz Telecom S.A. are in discussions
concerning certain modifications to the terms of the Mutual Cooperation
Agreement.

On November 13, 1998, Mr. Varsavsky entered into an additional lock-up
agreement with us pursuant to which he agreed that he would not sell, contract
to sell, announce an intention to sell, pledge or otherwise dispose of his
shares of our common stock, either directly or indirectly, without the prior
written consent of us until after August 12, 1999.

On June 4, 1999, Mr. Varsavsky entered into an agreement with us pursuant to
which he agreed that he would not, subject to certain exclusions, (1) offer,
pledge, sell or grant, any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of his
Viatel common stock or any securities which are exercisable, or convertible into
or exchangeable for such common stock, or (2) enter into any swap or other
arrangement that transfers to another any of the economic consequences of
ownership of his common stock, for a period commencing on the date we price a
public offering of our common stock and ending on December 31, 1999; PROVIDED,
HOWEVER, that Martin Varsavsky may, under certain circumstances, pledge all, but
not less than all, of his shares of common stock to secure a loan of up to $15
million. In exchange for his agreement to lockup his shares, we have agreed to
include an aggregate of up to 588,000 shares of his common stock in the
registration statement for our offering and to sell an aggregate of up to
705,000 shares of his common stock in the event that the underwriters exercise
their over-allotment option.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Viatel's common stock, as of June 15, 1999, and as adjusted to
reflect the sale of the shares offered hereby, by (1) each person known to
Viatel to own beneficially more than 5% of its outstanding shares of common
stock, (2) each director of Viatel, (3) each person named in the Summary
Compensation Table under "Management", and (4) all executive officers and
directors of Viatel, as a group, together with their respective percentage
ownership of such shares before and after the offering. All information with
respect to beneficial ownership has been furnished to Viatel by the respective
stockholders of Viatel.

<TABLE>
<CAPTION>
TOTAL SHARES
SHARES SHARES BENEFICIALLY BENEFICIALLY
AND OWNED PRIOR TO OWNED AFTER
OPTIONS OFFERING(1) SHARES OFFERING
NAME AND ADDRESS OF --------- ------------------------ BEING ------------------
BENEFICIAL OWNER NUMBER NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- --------- ------------ --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Martin Varsavsky
Parque Empresarial Edificio 2,
c/o Beatriz De Bobadilla
14,5 Ofic. B
Madrid, Spain.............................. 3,596,666 3,596,666 12.8% 588,000 3,008,666 9.4%
Capital Group International, Inc. and
The Capital Guardian Trust Co.
11100 Santa Monica Boulevard
Los Angeles, CA 90025-3384(2).............. 2,695,700 2,695,700 9.6 -- 2,695,700 8.4
Michael J. Mahoney........................... 821,417 362,678(3) 1.3 70,000 292,678 *
Allan L. Shaw................................ 392,116 169,239(3) * 5,000 164,239 *
Lawrence G. Malone........................... 329,771 148,482(3) * 10,000(4) 138,482 *
Sheldon M. Goldman(5)........................ 304,465 120,928(3) * 10,000(4) 110,928 *
Francis J. Mount............................. 197,265 60,459(3) * 17,000(4) 43,459 *
John G. Graham............................... 3,163 2,797(3) * -- 2,797 *
Paul G. Pizzani.............................. 2,163 1,797(3) * -- 1,797 *
All directors and executive
officers as a group (7 persons)(6)......... 2,051,360 867,380 2.7% 112,000 755,380 2.3%
</TABLE>

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

* Represents beneficial ownership of less than 1% of the outstanding shares of
common stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common stock subject
to options and warrants held by that person that are currently exercisable
or exercisable within 60 days of June 15, 1999 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Except as indicated in the
footnotes to this table, the stockholder named in the table has sole voting
and investment power with respect to the shares set forth opposite such
stockholder's name.

(2) The amount reported reflects shares held by Capital Group International,
Inc. and The Capital Guardian Trust Company solely as the investment manager
of various institutional accounts. The Capital Guardian Trust Company does
not have investment power or voting power over any of these shares.

(3) Includes shares of common stock which these individuals have the right to
acquire through the exercise of options within 60 days of June 15, 1999, as
follows: Michael J. Mahoney 217,820; Allan L. Shaw 132,116; Lawrence G.
Malone 116,359; Sheldon M. Goldman 81,805; Francis J. Mount 28,336; John G.
Graham, 1,097; and Paul G. Pizzani, 1,097.

(4) Includes the following shares of common stock to be acquired through the
exercise of stock options: Lawrence G. Malone, 10,000; Sheldon M. Goldman,
3,000; and Francis J. Mount, 17,000.

(5) Includes 1,000 shares owned by Mr. Goldman's wife. Mr. Goldman disclaims
"beneficial ownership" of such shares within the meaning of Rule 13d-3 under
the Exchange Act.

(6) Includes vested and exercisable options to purchase 578,630 shares of common
stock which were granted pursuant to the Stock Incentive Plan.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

Our authorized capital stock consists of (i) 50.0 million shares of common
stock, and (ii) 2.0 million shares of preferred stock. As of June 1, 1999, there
were 28,008,510 shares of common stock and no shares of preferred stock issued
and outstanding.

The statements under this caption are brief summaries of certain material
provisions of our certificate of incorporation and by-laws. These summaries do
not purport to be complete, and are subject to, and are qualified in their
entirety by reference to, such documents.

COMMON STOCK

Holders of our common stock are entitled to one vote per share on all
matters on which the holders of common stock are entitled to vote and do not
have any cumulative voting rights. This means that the holders of more than
50.0% of our common stock voting for the election of directors can elect all of
the directors up for election if they choose to do so; if this event occurs, the
holders of the remaining shares of our common stock will not be able to elect
any person to our board of directors. Subject to the rights of the holders of
shares of our preferred stock, holders of our common stock are entitled to
receive ratably such dividends as may be from time to time declared by our board
of directors out of funds legally available for this purpose. Holders of our
common stock are not entitled to any preemptive, conversion, redemption,
subscription or similar rights. In the event of a liquidation, dissolution or
winding up of Viatel, whether voluntary or involuntary, holders of our common
stock are entitled to share proportionately in any assets which remain after we
have paid all of our debts and other liabilities and reserved any amounts due to
holders of our outstanding preferred stock.

PREFERRED STOCK

Our certificate of incorporation authorizes our board of directors to issue,
from time to time, up to two million shares of preferred stock in one or more
series. The board is authorized to fix or alter the specific rights of each
series, including:

- dividend rights,

- dividend rates,

- conversion rights,

- voting rights,

- terms of redemption,

- redemption prices,

- liquidation preferences, and

- the number of shares of each series.

The issuance of preferred stock could delay, deter or prevent a change in
control of Viatel. See "Risk Factors--Certain Provisions of Our Corporate
Documents and Our Employment Contracts May Make a Takeover More Difficult Even
If the Takeover Would Benefit Stockholders."

CERTIFICATE OF INCORPORATION AND BY-LAWS

Our certificate of incorporation provides that no director shall be liable
to Viatel or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, except for liability:

- for any breach of the director's duty of loyalty to Viatel or its
stockholders,

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- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,

- in respect of certain unlawful dividend payments or stock redemptions or
repurchases, or

- for any transaction from which the director derived an improper personal
benefit.

These provisions effectively eliminate our right and the right of our
stockholders, through stockholders' derivative suits on behalf of Viatel, to
recover monetary damages against a director for breach of fiduciary duty as a
director, including breaches resulting from grossly negligent behavior, except
in the situations described above.

Our by-laws require that we indemnify any of our legal representatives,
directors and officers and any person who is or was serving at our request as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, to the fullest extent authorized by the DGCL.

We have obtained officers' and directors' liability insurance in the amount
of $15 million for members of our board of directors and executive officers. We
have entered into agreements to indemnify our directors and officers from and
against any expenses incurred by them in connection with certain legal matters
arising from their service to, or at request of, Viatel. The indemnity
agreements contain provisions designed to protect against the loss of the
contemplated benefits in the event of a change in control.

Our certificate of incorporation and by-laws include provisions which may
delay, deter or prevent a future takeover or change in control of Viatel unless
the transaction is approved by our board of directors. These provisions may also
render the removal of directors and management more difficult.

Our certificate of incorporation divides our board of directors into three
classes, as equal in number as possible, serving staggered, three-year terms.
Our by-laws contain provisions which require that stockholders give Viatel prior
notice of their intent to either nominate a director or submit a proposal for
consideration at the annual meeting. In general, we must receive notice no less
than 120 days prior to the meeting. This notice must contain specified
information regarding (1) the person to be nominated or the matter to be brought
before the meeting and (2) the stockholder submitting the proposal.

DELAWARE ANTI-TAKEOVER LAW

We are subject to the provisions of Section 203 of the DGCL. The DGCL
generally prohibits a publicly-held company from engaging in a business
combination with an interested stockholder for a period of three years after the
date of the transaction in which the person became an interested stockholder,
unless the interested stockholder attained that status with the approval of the
board or unless the business combination is approved in a prescribed manner. A
business combination includes mergers, asset sales, and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an interested stockholder is a person who, together with
affiliates and associates, owns, or within three years did own, fifteen percent
or more of a corporation's voting stock. This statute could prohibit or delay
the accomplishment of mergers or other takeover or change in control attempts
with respect to us and, accordingly, may discourage attempts to acquire us.

REGISTRATION RIGHTS

In connection with our 1998 high yield offering, we agreed to register, no
later than April 8, 1999, the shares of our common stock which will be issued
upon conversion of our outstanding preferred stock and subordinated convertible
debentures. The required registration has been declared effective by the SEC.
Subject to limited exceptions, we are required to keep the registration
statement current and available for use for a period of two years or until all
the unregistered notes have been sold under the registration statement, if
earlier.

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In connection with our 1999 high yield offering, we agreed to use our best
efforts to complete, at our expense, by September 19, 1999, a registered
exchange offer for each of the two series of notes which were issued. Under the
terms of our agreement, we are required to offer to exchange registered notes
which have terms substantially identical to those of the notes originally sold
by us on a private placement basis in our March 1999 offering. In the event we
are unable to complete the exchange offer due to a change in SEC policy, we are
required to use our best efforts to put in place a shelf registration statement
for the sale of the unregistered notes by the respective holders. We are
required to keep any shelf registration which we file current and available for
use for up to two years or until all the unregistered notes have been sold under
the registration statement, if earlier. If we do not complete the registered
exchange offer or have the shelf registration statement in place within the
required time frames, we will be required to pay specified penalties.

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CERTAIN UNITED STATES TAX CONSEQUENCES FOR NON-U.S. INVESTORS

INTRODUCTION

The following is a summary of certain United States federal tax consequences
to non-U.S. investors of owning and disposing of common stock. In this summary,
"non-U.S. investor" means:

- a nonresident alien individual,

- a foreign corporation,

- a nonresident alien fiduciary of a foreign estate or trust, or

- a foreign partnership, one or more members of which is, for U.S. tax
purposes, a nonresident alien individual, a foreign corporation, or a
nonresident alien fiduciary of a foreign estate or trust.

This summary does not address all of the federal tax considerations that may
be relevant to you in light of your particular circumstances and also does not
discuss any state, local or foreign tax. This summary is based on current
provisions of the Internal Revenue Code, Treasury regulations, judicial
opinions, published positions of the Internal Revenue Service (the "IRS") and
other applicable authorities. These authorities are all subject to change,
possibly with retroactive effect. If you are considering buying common stock,
you should consult your tax advisor with respect to the tax consequences of
investing in the common stock.

DIVIDENDS

Dividends paid to a non-U.S. investor generally will be subject to
withholding of federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. To receive a reduced treaty rate,
you must furnish to us or our paying agent a completed IRS Form 1001 or W-8BEN
(or substitute form) certifying that you qualify for a reduced rate. Dividends
that are effectively connected with the conduct of a trade or business within
the United States or, if a treaty applies, attributable to a permanent
establishment within the United States, will be exempt if you provide us with an
IRS Form 4224 or IRS Form W-8ECI (or substitute form). Dividends exempt from
withholding because they are effectively connected or attributable to a
permanent establishment will instead be taxed at ordinary federal income tax
rates on a net income basis. Further, if the non-U.S. investor is a corporation,
this effectively connected dividend income may also be subject to an additional
branch profits tax. Under current Treasury regulations, dividends paid before
January 1, 2001 to an address outside the United States are presumed to be paid
to a resident of the country of address for purposes of the withholding
discussed above and for purposes of determining the applicability of a tax
treaty rate. However, for dividends paid after December 31, 2000, this
presumption is eliminated.

SALE OR OTHER DISPOSITION OF COMMON STOCK

A non-U.S. investor generally will not be subject to federal income tax on
any gain recognized on the sale or other disposition of common stock, except in
the following circumstances:

(1) The gain will be subject to federal income tax if it is effectively
connected with a trade or business of the non-U.S. investor within the
United States or, if a treaty applies, is attributable to a permanent
establishment. Unless an applicable treaty provides otherwise, the
non-U.S. investor will be taxed on its net gains derived from the sale
under regular graduated U.S. federal income tax rates. If the non-U.S.
investor is a foreign corporation, it may be subject to an additional
branch profits tax.

(2) The gain will be subject to federal income tax if the non-U.S. investor
is an individual who holds the common stock as a capital asset, is
present in the United States for 183 or more days in the taxable year of
the sale or other disposition, and certain other conditions are met.

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(3) The gain may be subject to federal income tax pursuant to federal income
tax laws applicable to certain expatriates.

(4) The gain may be subject to federal income tax if we are or have been
during certain periods a "United States real property holding
corporation" and the non-U.S. investor held, at any time during the
five-year period ending on the date of disposition (or, if shorter, the
non-U.S. investor's holding period), more than 5 percent of the
outstanding common stock. We believe that we will not constitute a United
States real property holding corporation immediately after the offering
and do not expect to become a United States real property holding
corporation; however, we can give no assurance in this regard.

BACKUP WITHHOLDING AND INFORMATION REPORTING

DIVIDENDS. United States backup withholding tax generally will not apply to
dividends paid before January 1, 2001 to a non-U.S. investor at an address
outside the United States, or to dividends paid after December 31, 2000 if the
non-U.S. investor certifies that it is a non-U.S. investor on an IRS Form W-8BEN
or otherwise establishes an exemption. We must report annually to the IRS and to
each non-U.S.investor the amount of dividends paid to such investor and the
amount, if any, of tax withheld with respect to such dividends. This information
may also be made available to the tax authorities in the non-U.S. investor's
country of residence.

SALE THROUGH A U.S. OFFICE OF A BROKER. Upon the sale or other disposition
of common stock by a non-U.S. investor to or through a United States office of a
broker, the broker must backup withhold at a rate of 31% and report the sale to
the IRS, unless the investor certifies its foreign status under penalties of
perjury or otherwise establishes an exemption from backup withholding.

SALE THROUGH A FOREIGN OFFICE OF A BROKER. Upon the sale or other
disposition of common stock by a non-U.S. investor to or through a foreign
office of a United States broker or a foreign broker with certain types of
relationships with the United States, the broker is not required to backup
withhold. However, the broker must report the sale or other disposition to the
IRS unless the broker has documentary evidence in its files that the seller is a
non-U.S. investor and certain other conditions are met, or the holder otherwise
establishes an exemption.

Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
the non-U.S. investor's federal income tax liability, if any, provided that the
required information is furnished to the IRS.

FEDERAL ESTATE TAXES

Common stock owned or treated as owned by an individual who is not a citizen
or a "resident," which is specially defined for federal estate tax purposes, of
the United States at the time of death, will be included in such individual's
gross estate for federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.

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UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof (the "underwriting agreement"), the U.S.
underwriters named below, for whom Morgan Stanley & Co. Incorporated, Credit
Suisse First Boston Corporation, Salomon Smith Barney Inc. and ING Baring Furman
Selz LLC are acting as U.S. representatives, and the international underwriters
named below, for whom Morgan Stanley & Co. International Limited, Credit Suisse
First Boston (Europe) Limited, Salomon Brothers International Limited and ING
Barings Limited as agent for ING Bank N.V., London branch are acting as
international representatives, have severally agreed to purchase, and Viatel and
the selling stockholders have agreed to sell to them, severally, the respective
number of shares of common stock set forth opposite the names of such
underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------------------ -------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated...................................................................
Credit Suisse First Boston Corporation..............................................................
Salomon Smith Barney Inc............................................................................
ING Baring Furman Selz LLC..........................................................................
-----
Subtotal..........................................................................................
-----
International Underwriters:
Morgan Stanley & Co. International Limited..........................................................
Credit Suisse First Boston (Europe) Limited.........................................................
Salomon Brothers International Limited..............................................................
ING Barings Limited, as agent for ING Bank N.V., London branch......................................
-----
Subtotal..........................................................................................
-----
Total...........................................................................................
-----
-----
</TABLE>

The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively referred
to as the "underwriters" and the "representatives", respectively. The
underwriters are offering the shares of common stock subject to their acceptance
of the shares from Viatel and the selling stockholders and subject to prior
sale. The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are obligated to take
and pay for all of the shares of common stock offered by this prospectus (other
than those covered by the U.S. underwriters' over-allotment option described
below) if any such shares are taken.

Pursuant to the agreement between U.S. and international underwriters, each
U.S. underwriter has represented and agreed that, with certain exceptions: (1)
it is not purchasing any shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (2) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
shares or distribute any prospectus relating to the shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that, with certain
exceptions: (1) it is not purchasing any shares for the account of any United
States or Canadian Person and (2) it has not offered or sold, and will not offer
or sell, directly or indirectly, any shares or distribute any prospectus
relating to the shares in the United States or Canada or to any United States or
Canadian Person. With respect to any underwriter that is a U.S. underwriter and
an international underwriter, the foregoing representations and agreements (1)
made by it in its capacity as a U.S. underwriter apply only to it in its
capacity as a U.S. underwriter and (2) made by it in its capacity as an
international underwriter apply only to it in its capacity as an

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international underwriter. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
agreement between U.S. and international underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of common stock to be purchased by the
underwriters under the underwriting agreement are referred to herein as
"shares".

Pursuant to the agreement between U.S. and international underwriters, sales
may be made between the U.S. underwriters and international underwriters of any
number of shares as may be mutually agreed. The per share price of any shares so
sold shall be the public offering price set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.

Pursuant to the agreement between U.S. and international underwriters, each
U.S. underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
underwriter has further agreed to send to any dealer who purchases from it any
of the shares a notice stating in substance that, by purchasing such shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such shares a notice containing
substantially the same statement as is contained in this sentence.

Pursuant to the agreement between U.S. and international underwriters, each
international underwriter has represented and agreed that (1) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the shares to the international underwriters, will not offer or sell, any shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments, as
principal or agent, for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (2) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares in, from or otherwise involving
the United Kingdom; and (3) it has only issued or passed on and will only issue
or pass on in the United Kingdom any document received by it in connection with
the offering of the shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 (as amended) or is a person to whom such document may
otherwise lawfully be issued or passed on.

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

74
<PAGE>
Martin Varsavsky and Viatel have jointly and severally granted to the U.S.
underwriters an option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate of 705,000 additional shares of
common stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The U.S. underwriters may exercise
such option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock offered hereby. To
the extent such option is exercised, each U.S. underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of common stock as the number set forth
next to such U.S. underwriter's name in the preceding table bears to the total
number of shares of common stock set forth next to the names of all U.S.
underwriters in the preceding table. If the U.S. underwriters' option is
exercised in full, the total price to the public would be $ , the
total underwriters' discounts and commissions would be $ and total
proceeds to Viatel would be $ .

Each of Viatel and the directors, executive officers and certain other
stockholders of Viatel has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 120 days after the date of this prospectus:

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

- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,

whether any of the transactions described above is to be settled by delivery of
common stock or any other above-mentioned securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to:

- the sale of shares to the underwriters,

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

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

In addition, Viatel and Martin Varsavsky entered into a similar lock-up
agreement. See "Certain Transactions" for a description of the terms of the
lock-up agreement between Viatel and Martin Varsavsky.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.

From time to time, certain of the underwriters or their affiliates have
provided, and may continue to provide investment banking services to Viatel.

75
<PAGE>
Viatel, the selling stockholders and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.

An affiliate of Morgan Stanley & Co. Incorporated has made a loan of
approximately $245,000 to Michael Mahoney, Viatel's Chairman and Chief Executive
Officer. The loan bears interest, is secured by approximately 48,000 shares of
common stock of Viatel, and is payable on demand.

LEGAL MATTERS

Certain legal matters in connection with this offering will be passed upon
for us by Kelley Drye & Warren LLP, New York, New York. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Shearman & Sterling, New York, New York.

EXPERTS

The consolidated financial statements of Viatel, Inc. and subsidiaries as of
December 31, 1997 and 1998 and for each of the years in the three year period
ended December 31, 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION ABOUT US

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public at the
SEC's web site at http://www.sec.gov.

You may request a copy of our annual, quarterly and special reports, proxy
statements and other information, at no cost, by writing or telephoning us at
the following address:

Viatel, Inc.
Attention: Investor Relations
685 Third Avenue
New York, NY 10017
Telephone: (212) 350-9200

76
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
VIATEL, INC. AND SUBSIDIARIES

Independent Auditors' Report.............................................................................. F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998.............................................. F-3

Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998........................................................................ F-4

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 1996, 1997 and 1998........ F-5

Consolidated Statements of Stockholders' Equity (Deficiency) for the
Years ended December 31, 1996, 1997 and 1998............................................................ F-6

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

Notes to Consolidated Financial Statements for the Years
Ended December 31, 1996, 1997 and 1998.................................................................. F-8

Condensed Consolidated Balance Sheet as of March 31, 1999................................................. F-22

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and March 31,
1999.................................................................................................... F-23

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and March 31,
1999.................................................................................................... F-24

Notes to Condensed Consolidated Financial Statements...................................................... F-25
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Viatel, Inc.:

We have audited the accompanying consolidated balance sheets of Viatel, Inc.
and subsidiaries as of December 31, 1997 and 1998, and the related consolidated
statements of operations, comprehensive loss, stockholders' equity (deficiency),
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Viatel, Inc. and subsidiaries as of December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.

/s/ KPMG LLP

New York, New York
February 26, 1999

F-2
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
ASSETS

Current Assets:
Cash and cash equivalents.............................................................. $ 21,096 $ 329,511
Restricted cash equivalents............................................................ -- 10,310
Restricted marketable securities, current.............................................. -- 50,870
Marketable securities, current......................................................... 3,500 171,771
Trade accounts receivable, net of allowance for doubtful accounts of $1,041 and $3,093,
respectively......................................................................... 10,981 28,517
Other receivables...................................................................... 6,505 13,404
Prepaid expenses....................................................................... 1,348 2,417
---------- -----------
Total current assets................................................................. 43,430 606,800
---------- -----------
Restricted marketable securities, non-current............................................ -- 83,343
Marketable securities, non-current....................................................... 22,547 --
Property and equipment, net.............................................................. 54,094 266,256
Intangible assets, net................................................................... 4,338 46,968
Other assets............................................................................. 2,400 5,744
---------- -----------
$ 126,809 $ 1,009,111
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
Accrued telecommunications costs....................................................... $ 16,898 $ 26,518
Accounts payable and other accrued expenses............................................ 10,753 23,656
Property and equipment purchases payable............................................... 4,739 97,288
Accrued interest....................................................................... -- 12,240
Liability under joint construction agreement........................................... -- 9,523
Current installments of notes payable and obligations under capital leases............. 3,373 8,918
---------- -----------
Total current liabilities............................................................ 35,763 178,143
---------- -----------
Long term liabilities:
Long term debt......................................................................... 89,855 896,503
Notes payable and obligations under capital leases, excluding current installments..... 8,255 24,636
Equipment purchase obligation.......................................................... 1,500 --
---------- -----------
Total long term liabilities.......................................................... 99,610 921,139
---------- -----------
Series A Redeemable Convertible Preferred Stock, $.01 par value; Authorized 718,042
Shares; issued and outstanding no shares and 461,258, respectively..................... -- 47,121
---------- -----------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value. Authorized 1,281,958 shares, no shares issued and
outstanding.......................................................................... -- --
Common Stock, $.01 par value. Authorized 50,000,000 shares, issued and outstanding
22,635,267 and 23,184,465 shares, respectively....................................... 226 232
Additional paid-in capital............................................................. 125,661 128,357
Unearned compensation.................................................................. (65) --
Accumulated other comprehensive loss................................................... (5,356) (6,246)
Accumulated deficit.................................................................... (129,030) (259,635)
---------- -----------
Total stockholders' deficiency....................................................... (8,564) (137,292)
---------- -----------
$ 126,809 $ 1,009,111
---------- -----------
---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Communication services revenue............................................... $ 50,419 $ 73,018 $ 135,188
---------- ---------- -----------
Operating expenses:
Cost of communication services............................................. 42,130 63,504 122,109
Selling, general and administrative expenses............................... 32,866 36,077 44,893
Depreciation and amortization.............................................. 4,802 7,717 16,268
---------- ---------- -----------
Total operating expenses................................................. 79,798 107,298 183,270
---------- ---------- -----------
Other income (expenses):
Interest income............................................................ 1,852 3,686 28,259
Interest expense........................................................... (10,848) (12,450) (79,177)
---------- ---------- -----------
Loss before extraordinary loss............................................... (38,375) (43,044) (99,000)
Extraordinary loss on debt prepayment...................................... -- -- (28,304)
---------- ---------- -----------
Net loss..................................................................... (38,375) (43,044) (127,304)
Dividends on redeemable convertible preferred stock........................ -- -- (3,301)
---------- ---------- -----------
Net loss attributable to common stockholders................................. $ (38,375) $ (43,044) $ (130,605)
---------- ---------- -----------
---------- ---------- -----------
Loss per common share, basic and diluted:
Before extraordinary item................................................ $ (2.47) $ (1.90) $ (4.44)
From extraordinary item.................................................. $ -- $ -- $ (1.23)
---------- ---------- -----------
Net loss attributable to common stockholders............................. $ (2.47) $ (1.90) $ (5.67)
---------- ---------- -----------
---------- ---------- -----------
Weighted average common shares outstanding................................. 15,514 22,620 23,054
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Net loss..................................................................... $ (38,375) $ (43,044) $ (127,304)
Foreign currency translation adjustments................................... (698) (4,494) (890)
---------- ---------- -----------
Comprehensive loss........................................................... $ (39,073) $ (47,538) $ (128,194)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF CLASS A ACCUMULATED
COMMON COMMON CLASS A ADDITIONAL OTHER
STOCK STOCK COMMON COMMON PAID-IN UNEARNED COMPREHENSIVE
SHARES SHARES STOCK STOCK CAPITAL COMPENSATION LOSS
------------ ----------- ----------- ----------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... 10,736,135 2,904,846 $ 107 $ 29 $ 30,099 $ (78) $ (164)
Issuance of restricted
common stock........... 66,666 -- 1 -- 389 (52) --
Issuance of common stock,
net of $9,541,954 issue
costs.................. 8,667,000 -- 87 -- 94,375 -- --
Conversion of Class A
common stock to common
stock.................. 2,904,846 (2,904,846) 29 (29) -- -- --
Stock options exercised.. 138,579 -- 1 -- 373 -- --
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (698)
Net loss................. -- -- -- -- -- -- --
------------ ----------- ----- --- ----------- ----- --------------
Balance at December 31,
1996................... 22,513,226 -- 225 -- 125,236 (130) (862)
Stock options exercised.. 122,041 -- 1 -- 425 -- --
Earned compensation...... -- -- -- -- -- 65 --
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (4,494)
Net loss................. -- -- -- -- -- -- --
------------ ----------- ----- --- ----------- ----- --------------
Balance at December 31,
1997................... 22,635,267 -- 226 -- 125,661 (65) (5,356)
Stock options exercised.. 174,198 -- 2 -- 945 -- --
Issuance costs of Series
A Redeemable
Convertible Preferred
Stock.................. -- -- -- -- (1,620) -- --
Issuance of common stock
related to business
purchase............... 375,000 -- 4 -- 3,371 -- --
Earned compensation...... -- -- -- -- -- 65 --
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (890)
Dividends on redeemable
convertible preferred
stock.................. -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- --
------------ ----------- ----- --- ----------- ----- --------------
Balance at December 31,
1998................... 23,184,465 -- $ 232 $ -- $ 128,357 $ -- $ (6,246)
------------ ----------- ----- --- ----------- ----- --------------
------------ ----------- ----- --- ----------- ----- --------------

ACCUMULATED
DEFICIT TOTAL
------------- -------------
<S> <C> <C>
Balance at January 1,
1996................... $ (47,611) $ (17,618)
Issuance of restricted
common stock........... -- 338
Issuance of common stock,
net of $9,541,954 issue
costs.................. -- 94,462
Conversion of Class A
common stock to common
stock.................. -- --
Stock options exercised.. -- 374
Foreign currency
translation
adjustment............. -- (698)
Net loss................. (38,375) (38,375)
------------- -------------
Balance at December 31,
1996................... (85,986) 38,483
Stock options exercised.. -- 426
Earned compensation...... -- 65
Foreign currency
translation
adjustment............. -- (4,494)
Net loss................. (43,044) (43,044)
------------- -------------
Balance at December 31,
1997................... (129,030) (8,564)
Stock options exercised.. -- 947
Issuance costs of Series
A Redeemable
Convertible Preferred
Stock.................. -- (1,620)
Issuance of common stock
related to business
purchase............... -- 3,375
Earned compensation...... -- 65
Foreign currency
translation
adjustment............. -- (890)
Dividends on redeemable
convertible preferred
stock.................. (3,301) (3,301)
Net loss................. (127,304) (127,304)
------------- -------------
Balance at December 31,
1998................... $ (259,635) $ (137,292)
------------- -------------
------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (38,375) $ (43,044) $ (127,304)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 4,802 7,717 16,268
Accreted interest expense on long term debt................................ 10,783 12,479 35,417
Provision for losses on accounts receivable................................ 2,225 2,733 4,225
Extraordinary loss on debt repayment....................................... -- -- 28,304
Earned compensation........................................................ 338 65 65
Changes in assets and liabilities:
Increase in accounts receivable............................................ (6,058) (6,221) (20,302)
Increase in accrued interest expense on Senior Notes....................... -- -- 11,969
Increase in prepaid expenses and other receivables......................... (1,384) (3,482) (8,291)
Increase in other assets and intangible assets............................. (315) (1,022) (12,625)
Increase in accrued telecommunications costs, accounts payable, and other
accrued expenses......................................................... 1,653 8,250 11,956
----------- ----------- -----------
Net cash used in operating activities.................................... (26,331) (22,525) (60,318)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, equipment and software............................... (9,423) (34,190) (94,674)
Payment for business acquired excluding cash acquired of $364.............. -- -- (5,000)
Purchase of marketable securities.......................................... (30,571) (49,098) (310,625)
Proceeds from maturity of marketable securities............................ 38,807 40,124 60,307
Investment in affiliate.................................................... (102) -- --
Issuance of notes receivable............................................... (303) -- --
----------- ----------- -----------
Net cash used in investing activities...................................... (1,592) (43,164) (349,992)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long term debt................................... -- -- 845,752
Proceeds from issuance of redeemable convertible preferred stock........... -- -- 42,198
Prepayment of senior discount notes........................................ -- -- (119,282)
Deferred financing costs................................................... -- -- (31,547)
Proceeds from issuance of Common Stock..................................... 94,836 426 947
Borrowings on notes payable................................................ -- 11,121 --
Payments under capital leases.............................................. (64) (525) (5,480)
Repayment of notes payable and bank credit line............................ -- (336) (3,553)
Borrowings under bank credit line.......................................... -- 600 --
----------- ----------- -----------
Net cash provided by financing activities.................................. 94,772 11,286 729,035
----------- ----------- -----------
Effects of exchange rate changes on cash....................................... 12 (297) --
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents........................... 66,861 (54,700) 318,725
Cash and cash equivalents at beginning of year................................. 8,935 75,796 21,096
----------- ----------- -----------
Cash and cash equivalents at end of year....................................... $ 75,796 $ 21,096 $ 339,821
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosures of cash flow information:
Interest paid................................................................ $ 65 $ 134 $ 31,560
----------- ----------- -----------
----------- ----------- -----------
Assets acquired under capital lease obligations.............................. $ 310 $ 1,122 $ 30,359
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996, 1997 AND 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) DESCRIPTION OF BUSINESS

Viatel, Inc. (the "Company") is an international facilities-based global
provider of communications services offering international and domestic long
distance telecommunications services, primarily to small and medium-sized
businesses, carriers and resellers. The Company operates a pan-European
communication network with international gateway switching centers in New York
and London and network points of presence throughout Western Europe. The Company
is constructing a fiber optic ring which will connect five European countries
(the "Circe Network").

(B) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation. Investments in affiliates in
which the Company has significant influence but does not exercise control are
accounted for under the equity method.

The Company's policy is to maintain its uninvested cash at minimum levels.
Unrestricted cash equivalents, which include highly liquid debt instruments
purchased with a maturity of three months or less, were $8.2 million and $278.9
million at December 31, 1997 and 1998, respectively.

(D) REVENUE

The Company records communication services revenue as earned, at the time
services are provided. Network capacity sales are recorded at the time the
capacity is provided to the customer.

(E) PROPERTY AND EQUIPMENT

Property and equipment consist principally of telecommunications related
equipment such as switches, fiber optic cable systems, remote nodes and related
computer software and is stated at cost. Assets acquired under capital leases
are stated at the present value of the future minimum lease payments.
Maintenance and repairs are expensed as incurred.

Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized over
the life of the lease or useful life of the improvement, whichever is shorter.
The estimated useful lives are as follows:

<TABLE>
<S> <C>
Communications systems....................................... 5 to 7 years
Fiber optic cable systems.................................... 15 years
Leasehold improvements....................................... 2 to 5 years
Furniture, equipment and other............................... 5 years
</TABLE>

(F) INTANGIBLE ASSETS

Deferred financing and registration fees represent costs incurred to issue
and register debt and are being amortized over the term of the related debt.

F-8
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Licenses issued by governing bodies are being amortized over the lesser of
25 years or the term of the license.

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefitted, five to seven years.

Acquired employee base and sales force in place represents the intangible
assets associated with the acquisition of independent sales organizations and is
being amortized over three years.

The costs of all other intangible assets are being amortized over their
useful lives, ranging from three to seven years.

(G) INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income or expense in the period it occurs.

(H) FOREIGN CURRENCY TRANSLATION

Foreign currency assets and liabilities are translated using the exchange
rates in effect at the balance sheet date. Results of operations are translated
using the average exchange rates prevailing throughout the year. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are accumulated as part of the foreign currency
translation adjustment in stockholders' equity. Gains and losses from foreign
currency transactions are included in selling, general and administrative
expenses in the period in which they occur. For the years ending December 31,
1996, 1997 and 1998, the Company experienced no material exchange transaction
gains or losses.

(I) NET LOSS PER SHARE

Basic earnings per share ("EPS") is computed by dividing income or loss
attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
from the exercise or conversion of securities into common stock.

Net loss and weighted average shares outstanding used for computing diluted
loss per common share were the same as that used for computing basic loss per
common share for each of the years ended December 31, 1996, 1997 and 1998.

The Company had potentially dilutive common stock equivalents of 1.0
million, 1.1 million and 7.2 million for the years ended December 31, 1996, 1997
and 1998, respectively. These common stock equivalents were not included in the
computation of diluted net loss per common share because they were antidilutive
for the periods presented.

(J) CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of

F-9
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
temporary cash investments to financial institutions with high credit standing.
The Company does not believe there is any concentration of credit risk on trade
receivables as a result of the large and diverse nature of the Company's
worldwide customer base.

During 1998, one customer, LD Exchange.com, accounted for 10.6% of the
Company's revenues.

(K) RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.

(L) USE OF ESTIMATES

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

(M) ADDITIONAL ACCOUNTING POLICIES

Additional accounting policies are incorporated into the notes herein.

(N) STOCK OPTION PLAN

The Company accounts for its stock option plan in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 123 which allows entities to
continue to apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method, as defined in SFAS No. 123, had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure required by SFAS No. 123. See Note 12.

(O) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

(2) INVESTMENTS IN DEBT SECURITIES

F-10
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(2) INVESTMENTS IN DEBT SECURITIES (CONTINUED)
that the Company has both the intent and ability to hold to maturity are carried
at amortized cost. Debt securities for which the Company does not have the
intent or ability to hold to maturity are classified as available for sale.
Securities available for sale are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of stockholders'
equity. The Company does not invest in securities for the purpose of trading and
as such does not classify any securities as trading.

The cost of debt securities classified as held to maturity are adjusted for
amortization of premiums and accretion of discounts to maturity over the
estimated life of the security. Such amortization and accretion are included in
interest income. There were no securities classified as held to maturity as of
December 31, 1997 and no securities classified as available for sale as of
December 31, 1998.

The following is a summary of the amortized cost, which approximates fair
value of restricted securities held to maturity at December 31, 1998 (in
thousands):

<TABLE>
<S> <C>
U.S. Treasury obligations......................................... $ 105,508
German government obligations..................................... 28,705
---------
Total......................................................... $ 134,213
---------
---------
</TABLE>

The following is a summary of the amortized cost, which approximates fair
value of securities held to maturity at December 31, 1998 (in thousands):

<TABLE>
<S> <C>
European corporate debt securities................................ $ 122,299
U.S. corporate debt securities.................................... 49,472
---------
Total......................................................... $ 171,771
---------
---------
</TABLE>

The following is a summary of the fair value of securities available for
sale at December 31, 1997 (in thousands):

<TABLE>
<S> <C>
U.S. Treasury obligations.......................................... $ 2,028
Corporate debt securities.......................................... 13,482
Federal agencies obligations....................................... 10,537
---------
Total.......................................................... $ 26,047
---------
---------
</TABLE>

Unrealized gains or losses on securities classified as available for sale
are not material at December 31, 1997.

The amortized cost, which approximates fair value, of restricted securities
held to maturity at December 31, 1998 are shown below (in thousands):

<TABLE>
<S> <C>
Due within one year............................................... $ 50,870
Due after one year through two years.............................. 54,328
Due after two years............................................... 29,015
---------
Total......................................................... $ 134,213
---------
---------
</TABLE>

F-11
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(2) INVESTMENTS IN DEBT SECURITIES (CONTINUED)
There were no changes in the classification of any securities held to
maturity or securities available for sale from the time of purchase to the time
of maturity or sale.

(3) PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31 (in
thousands):

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Communications system..................................................................... $ 43,322 $ 70,971
Construction in progress.................................................................. 10,094 172,630
Fiber optic cable systems................................................................. 1,432 25,222
Furniture, equipment and other............................................................ 8,924 16,450
Leasehold improvements.................................................................... 3,254 6,651
---------- ----------
67,026 291,924
Less accumulated depreciation and amortization............................................ 12,932 25,668
---------- ----------
$ 54,094 $ 266,256
---------- ----------
---------- ----------
</TABLE>

At December 31, 1997, construction in progress represents a portion of the
expansion of the Company's European network. At December 31, 1998, construction
in progress represents construction of the Circe Network. For the years ended
December 31, 1996, 1997 and 1998, $0.1 million, $0.2 million and $3.3 million of
interest was capitalized.

The Company trades indefeasible rights-of-use or capacity on the Circe
Network for indefeasible rights-of-use or capacity on other cable systems. These
trades of indefeasible rights-of-use or capacity are accounted for as
non-monetary exchanges and did not have a material effect on the Company's
statement of operations.

At December 31, 1998, the Company has entered into a letter of intent with
Metromedia Fiber Networks, Inc. and Carrier 1, Inc. to jointly construct the
civil works associated with a national communications networks being constructed
by each party in Germany. As part of the letter of intent, Metromedia Fiber
Networks, Inc. and Carrier 1, Inc. were required to place in escrow with the
Company an amount of $9.3 million which is included in restricted cash
equivalents in the accompanying consolidated balance sheets. In February 1999,
the parties entered into a definitive agreement which required each party to
supply a standby letter of credit to cover the construction costs related to
their portion of the network.

F-12
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(4) INTANGIBLE ASSETS

Intangible assets consist of the following as of December 31 (in thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred financing and registration costs................................................... $ 3,789 $ 31,547
Licenses, trademarks and servicemarks....................................................... 464 10,031
Goodwill.................................................................................... 474 8,744
Purchased software.......................................................................... 1,494 1,859
Acquired employee base and sales force in place............................................. 1,607 --
Other....................................................................................... 385 206
--------- ---------
8,213 52,387
Less accumulated amortization............................................................... 3,875 5,419
--------- ---------
$ 4,338 $ 46,968
--------- ---------
--------- ---------
</TABLE>

(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consists of the following as of
December 31 (in thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Accounts payable............................................................................ $ 6,231 $ 5,566
Accrued expenses............................................................................ 3,253 16,224
Accrued compensation and benefits........................................................... 1,269 1,866
--------- ---------
$ 10,753 $ 23,656
--------- ---------
--------- ---------
</TABLE>

(6) LINE OF CREDIT AND LETTERS OF CREDIT

The Company has a revolving line of credit agreement which provides for
secured borrowings of up to $11.2 million. Borrowings under this line of credit
agreement can be made under either of the following interest rate formulas: (i)
the lending institution's prime rate or (ii) the LIBOR rate plus two hundred
basis points. The Company had $0.6 million in borrowings under the line of
credit agreement at December 31, 1997 and no borrowings under the line of credit
agreement at December 31, 1998. The terms of the line of credit agreement
include, among other provisions, requirements for maintaining defined levels of
securities and other liquid collateral. At December 31, 1998, standby letters of
credit of approximately $3.3 million have been issued under this line of credit
agreement.

In connection with the Company's joint construction of the civil works
associated with national communications networks being constructed by each party
in Germany, in February 1999 the Company was required to obtain a letter of
credit of approximately $123 million (DM219.1 million) in support of its
obligations.

The weighted-average interest rate on short-term borrowings under the line
of credit agreement at December 31, 1997 was 8.0%.

F-13
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(7) LONG TERM LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

(A) LONG TERM DEBT AND REDEEMABLE CONVERTIBLE PREFERRED STOCK

On April 8, 1998, the Company completed an offering of units (the "Units
Offering") consisting of senior notes or senior discount notes due 2008 and
shares of 10% Series A Redeemable Convertible Preferred Stock due 2010 ("Series
A Preferred"), $.01 par value per share, of the Company and units consisting of
senior notes or senior discount notes due 2008 and subordinated convertible
debentures due 2011 (the "Subordinated Debentures") through which it raised
approximately $889.6 million of gross proceeds ($856.6 million of net proceeds).
The Company utilized $118.9 million of the proceeds from the Units Offering to
retire its 15% Senior Discount Notes due 2005 resulting in an extraordinary loss
of $28.3 million. Additionally, a portion of the proceeds from the Units
Offering were used to purchase approximately $122.8 million of U.S. government
securities which were pledged as security for the first six interest payments on
the U.S. dollar denominated senior notes and approximately $30.6 million of
German government obligations which were pledged as security for the first six
interest payments on the Deutsche Mark denominated senior notes issued in the
Units Offering. The senior discount notes accrete through April 15, 2003 and
interest becomes payable in cash in semi-annual installments thereafter. The
interest on the senior notes is payable in semi-annual installments. The Series
A Preferred and the subordinated convertible debentures require quarterly
payments which are paid in additional securities, cash or any combination
thereof through April 15, 2003 and payable in cash thereafter. The Series A
Preferred and the subordinated convertible debentures are mandatorily
convertible in the event the closing price of the Company's common stock exceeds
certain predetermined annual price targets. The Series A Preferred and the
Subordinated Debentures conversion rates are $13.20 and DM24.473 ($14.58),
respectively. In addition, the terms of the Series A Preferred and Subordinated
Debentures provide for special dividends and special interest payments,
respectively, under certain conditions.

The indentures pursuant to which the senior notes and the senior discount
notes were issued contain certain covenants that, among other things, limit the
ability of the Company to incur additional indebtedness, pay dividends or make
certain other distributions, enter into transactions with stockholders and
affiliates and create liens on its assets. In addition, upon a change of
control, the Company is required to make an offer to purchase the senior notes
and the senior discount notes at a purchase price equal to 101% of the principal
amount, in the case of the senior notes, and 101% of the accreted value of the
notes, in the case of the senior discount notes. The indenture pursuant to which
the subordinated convertible debentures were issued also requires that the
Company offer to repurchase the debentures at 101% of the principal amount in
the event of a change of control.

On September 30, 1998, the Company consummated an offer to exchange senior
notes and senior discount notes due 2008 which have been registered under the
Securities Act of 1933, as amended, for outstanding notes of each such series
which were not registered under the Securities Act of 1933, as amended.

F-14
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(7) LONG TERM LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Long term debt consists of the following as of December 31 (in thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
11.25% Senior Notes........................................................................ $ -- $ 400,000
11.15% Senior Notes (DM178,000)............................................................ -- 106,015
12.50% Senior Discount Notes, less discount of $202,716.................................... -- 297,284
12.40% Senior Discount Notes (DM134,916), less discount of $54,249
(DM91,084)............................................................................... -- 80,355
10% Subordinated Convertible Debentures (DM21,573)......................................... -- 12,849
15% Senior Discount Notes, less discount of $30,845........................................ 89,855 --
--------- ----------
$ 89,855 $ 896,503
--------- ----------
--------- ----------
</TABLE>

(B) EQUIPMENT FINANCING

In November and December 1997, the Company entered into Loan and Security
Agreements, as amended, with Charter Financial, Inc. ("Charter") pursuant to
which the Company borrowed an aggregate of $11.1 million, of which $7.8 million
was outstanding as of December 31, 1998. Repayment of these loans commenced in
December 1997 and January 1998 and are repayable in thirty-two or thirty-six
successive monthly installments respectively. Under the terms of these
arrangements, the Company is required to satisfy certain EBITDA and unrestricted
cash requirements. As of December 31, 1998, the Company was either in compliance
with, or had received waivers to, these covenants. Obligations under these Loan
and Security Agreements are secured by the grant to Charter of a security
interest in certain designated telecommunications equipment. A portion of the
payment obligations under these borrowing arrangements are also secured by
letters of credit.

(8) STOCKHOLDERS' EQUITY

On October 23, 1996, the Company completed an initial public offering
("IPO") of its Common Stock, through which it sold 8,667,000 shares of Common
Stock at $12 a share and raised approximately $104 million of gross proceeds
($94.5 million of net proceeds).

In connection with the IPO, all shares of then Class A Common Stock were
converted into shares of Common Stock at a ratio of one-to-one and all then
outstanding shares of Common Stock were subject to a reverse stock split at a
ratio of 3-to-2. In addition, the Company's stockholders approved an amendment
to the Company's Certificate of Incorporation which (i) authorized the Board of
Directors to issue up to two million shares of Preferred Stock, $.01 par value
per share, of which no shares were issued and outstanding at December 31, 1996,
in one or more series and to fix the powers, voting rights, designations and
preferences of each series and (ii) eliminated the Class A Common Stock.

All earnings per share and share data presented herein reflect the
conversion of the Class A Common Stock into Common Stock and the reverse stock
split of all then outstanding shares of Common Stock.

(9) ACQUISITION

On February 27, 1998, the Company acquired Flat Rate Communications, Inc.
("Flat Rate"), a long distance telecommunications reseller, for $5.0 million of
cash, 375,000 shares of Common Stock and a contingent payment based upon key
operating performance targets for the twelve month period ending February 28,
1999 which will range from zero to $21.0 million in cash and zero to 1.0 million
shares of

F-15
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(9) ACQUISITION (CONTINUED)
Common Stock. The Company recorded the acquisition under the purchase method of
accounting. The purchase price has been allocated to the assets acquired and
liabilities assumed, based upon the estimated fair values at the date of
acquisition. The excess purchase price was $8.3 million and will be amortized on
a straight line basis over a five-year period. If the acquisition had occurred
on January 1, 1996 (i) communication services revenue for the years 1996, 1997
and 1998 would have been $53.4 million, $101.8 million and $138.5 million,
respectively, (ii) loss before extraordinary loss for 1998 would have been
$(98.9) million, (iii) net loss attributable to common stockholders for the
years 1996, 1997 and 1998 would have been $(38.5) million, $(42.8) million and
$(130.5) million, respectively and (iv) net loss per common share for the years
1996, 1997 and 1998 would have been $(2.43), $(1.86) and $(5.65), respectively.

(10) INCOME TAXES

The statutory Federal tax rates for the years ended December 31, 1996, 1997
and 1998 were 35%. The effective tax rates were zero for the years ended
December 31, 1996, 1997 and 1998 due to the Company incurring net operating
losses for which no tax benefit was recorded.

For Federal and foreign income tax purposes, the Company has unused net
operating loss carryforwards of approximately $218.8 million expiring in 2007
through 2018. The availability of the net operating loss carryforwards to offset
income in future years is restricted as a result of the Company's issuance of
its Common Stock and may be further restricted as a result of future sales of
Company stock and other events.

The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
Accounts receivable principally due to
allowance for doubtful accounts..................................... $ 587 $ 1,506
OID Interest not deductible in current period......................... 11,149 11,125
Federal net operating loss carryforwards.............................. 29,093 68,579
Foreign net operating loss carryforwards.............................. 3,777 7,989
---------- ----------
Total gross deferred tax assets................................. 44,606 89,199
Less valuation allowance.............................................. (44,606) (89,199)
---------- ----------
Net deferred tax assets......................................... $ -- $ --
---------- ----------
---------- ----------
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning in making these assessments. During 1997 and 1998, the
valuation allowance increased by $14.7 million and $44.6 million, respectively.

(11) SEGMENT AND GEOGRAPHIC DATA

All of the Company's operations are in a single industry segment,
communications services. While the Company's chief decision maker monitors the
revenue streams of the various products and geographic locations, operations are
managed and financial performance is evaluated based on the delivery of

F-16
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(11) SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
multiple, integrated services to customers over a single network. As a result,
there are many shared expenses generated by the various revenue streams and
management believes that any allocation of the expenses incurred to multiple
revenue streams or geographic locations would be impractical and arbitrary.
Management does not currently make such allocations internally.

The Company groups its products and services by two customers types,
wholesale and retail. The information below summarizes communication services
revenue by customer type (in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Wholesale....................................................................... $ 9,516 $ 20,397 $ 78,777
Retail.......................................................................... 40,903 52,621 56,411
--------- --------- ----------
Consolidated.................................................................... $ 50,419 $ 73,018 $ 135,188
--------- --------- ----------
--------- --------- ----------
</TABLE>

The information below summarizes communication services revenue by
geographic area (in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
---------- --------- ----------
<S> <C> <C> <C>
Western Europe................................................................. $ 19,917 $ 32,647 $ 62,946
North America.................................................................. 9,516 15,936 56,172
Latin America.................................................................. 14,402 16,240 14,653
Asia/Pacific Rim and other..................................................... 6,584 8,195 1,417
---------- --------- ----------
Consolidated................................................................. $ 50,419 $ 73,018 $ 135,188
---------- --------- ----------
---------- --------- ----------
</TABLE>

The information below summarizes long lived assets by geographic area (in
thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Western Europe............................................................................. $ 32,640 $ 237,443
North America.............................................................................. 25,626 75,492
Latin America.............................................................................. 166 289
--------- ----------
Consolidated............................................................................... $ 58,432 $ 313,224
--------- ----------
--------- ----------
</TABLE>

(12) STOCK OPTION PLAN

During 1993, the Board of Directors approved the 1993 Flexible Stock
Incentive Plan, as amended (the "Stock Incentive Plan") under which
"non-qualified" stock options ("NQSOs") to acquire shares of Common Stock may be
granted to employees, directors and consultants of the Company and "incentive"
stock options ("ISOs") to acquire shares of Common Stock may be granted to
employees, including non-employee directors. The Stock Incentive Plan also
provides for the grant of stock appreciation rights ("SARs") and shares of
restricted stock to the Company's employees, directors and consultants.

The Stock Incentive Plan provides for the issuance of up to a maximum of
4,166,666 shares of Common Stock and is currently administered by the
Compensation Committee of the Board of Directors. Under the Stock Incentive
Plan, the option price of any ISO may not be less than the fair market value of
a share of Common Stock on the date on which the option is granted. The option
price of an NQSO may be less than the fair market value on the date the NQSO is
granted if the Board of Directors so determines. An ISO may not be granted to a
"ten percent stockholder" (as such term is defined in Section 422A of the
Internal Revenue Code) unless the exercise price is at least 110% of the fair
market value of the Common

F-17
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(12) STOCK OPTION PLAN (CONTINUED)
Stock and the term of the option may not exceed five years from the date of
grant. Common Stock subject to a restricted stock purchase or bonus agreement is
transferable only as provided in such agreement. The maximum term of each stock
option granted to persons other than ten percent stockholders is ten years from
the date of grant.

The per share weighted average fair value of stock options granted during
1996, 1997 and 1998 was $2.29, $5.99 and $6.40, respectively, on the date of
grant using the Black-Scholes option pricing model with the following
assumptions: (1) a risk free interest rate of 5.5% in 1996 and 1997 and 5.0% in
1998, (2) an expected life of 10 years for all years, (3) volatility of
approximately 35.9% for 1996, 52.2% for 1997 and 92.7% for 1998 and (4) an
annual dividend yield of 0% for all years.

The Company applies the provisions of APB Opinion No. 25 in accounting for
its Stock Incentive Plan and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements since the exercise
price was equal to or greater than the fair market value at the date of grant.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Net loss, as reported (in thousands)..................... $ (38,375) $ (43,044) $ (130,605)
Net loss, pro forma (in thousands)....................... (38,986) (44,171) (135,458)
Net loss per common share, as reported................... (2.47) (1.90) (5.67)
Net loss per common share, pro forma..................... (2.51) (1.95) (5.88)
</TABLE>

Pro forma net loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts because
compensation cost is reflected over the options' vesting period of three years
and compensation cost for options granted prior to January 1, 1995 is not
considered.

F-18
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(12) STOCK OPTION PLAN (CONTINUED)
Stock option activity under the Stock Incentive Plan is shown below:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER OF
EXERCISE SHARES
PRICES (IN THOUSANDS)
----------- ---------------
<S> <C> <C>
Outstanding at January 1, 1996.......................................................... 4.01 474
Granted................................................................................. 6.75 823
Forfeited............................................................................... 5.77 (188)
Exercised............................................................................... 2.70 (139)
----- ------
Outstanding at December 31, 1996........................................................ 6.18 970
Granted................................................................................. 8.61 428
Forfeited............................................................................... 6.68 (197)
Expired................................................................................. 5.46 (27)
Exercised............................................................................... 3.49 (122)
----- ------
Outstanding at December 31, 1997........................................................ 7.40 1,052
Granted................................................................................. 7.19 1,794
Forfeited............................................................................... 7.14 (64)
Expired................................................................................. 5.05 (14)
Exercised............................................................................... 5.44 (174)
----- ------
Outstanding at December 31, 1998........................................................ 7.41 2,594
----- ------
----- ------
</TABLE>

The following table summarizes weighted-average option exercise price
information:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
NUMBER
OUTSTANDING AT WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF DECEMBER 31, AVERAGE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE 1998 REMAINING EXERCISE DECEMBER 31, 1998 EXERCISE
PRICES (IN THOUSANDS) LIFE PRICE (IN THOUSANDS) PRICE
- -------------------------------- --------------- ---------- ----------- --------------------- -----------
$0.75 - $3.50 2 5 Years 0.75 2 0.75
3.51 - 5.75 999 9 Years 5.22 19 3.74
5.76 - 8.75 552 8 Years 6.17 291 5.90
8.76 - 12.00 1,041 9 Years 10.13 148 10.22
----- ----- --- -----
2,594 7.41 460 7.18
----- ----- --- -----
----- ----- --- -----
</TABLE>

Prior to the adoption of the Stock Incentive Plan, 5,913 options were
granted. These options were exercised at $0.75 per share during the year ended
December 31, 1996.

The exercise price of all options approximates the fair market value of the
Common Stock on the date of grant.

In addition, prior to the adoption of the Stock Incentive Plan, the Board of
Directors authorized the issuance of up to 233,333 shares of Common Stock as
compensation to employees and consultants of the Company of which 219,639 are
available for issuance at December 31, 1998.

F-19
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(13) COMMITMENTS AND CONTINGENCIES

(A) LEASES

At December 31, 1998, the Company was committed under non-cancelable
operating and capital leases for the rental of office space, network locations
and for fiber optic cable systems.

The Company's future minimum capital and operating lease payments are as
follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
--------- -----------
<S> <C> <C>
1999.................................................................... $ 6,890 $ 3,917
2000.................................................................... 6,952 4,277
2001.................................................................... 4,372 4,206
2002.................................................................... 1,635 4,263
2003.................................................................... 1,635 4,231
Thereafter.............................................................. 32,692 28,853
--------- -----------
54,176 $ 49,747
-----------
-----------
Less interest costs..................................................... 28,453
---------
$ 25,723
---------
---------
</TABLE>

Total rent expense amounted to $1.5 million, $1.3 million and $1.8 million
for the years ended December 31, 1996, 1997 and 1998, respectively.

(B) CARRIER CONTRACTS

The Company has entered into contracts to purchase transmission capacity
from various domestic and foreign carriers. By committing to purchase minimum
volumes of transmission capacity from carriers, the Company is able to obtain
guaranteed rates which are more favorable than those generally offered in the
marketplace. The minimum volume commitments are approximately $13.2 million for
the year ending December 31, 1999. The Company is involved in disputes with
carriers arising in the ordinary course of business. The Company believes the
outcome of all current disputes will not have a material effect on the Company's
financial position or results of operations.

The Company is continually upgrading and expanding its network and its
switching facilities. In connection therewith, the Company has entered into
purchase commitments to expend approximately $38.2 million.

The Company is developing a fiber-optic ring which will connect over 30
cities in Western Europe (the "Circe Network"). In connection with the Circe
Network, the Company has entered into purchase commitments to expend
approximately $130.6 million.

(D) EMPLOYMENT CONTRACTS

The Company has employment contracts with certain officers at amounts
generally equal to such officers' current levels of compensation. The Company's
remaining commitments at December 31, 1998 for the next three years under such
contracts aggregates approximately $1.4 million.

F-20
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1996, 1997 AND 1998

(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
(E) LITIGATION

From time to time, the Company is subject to litigation in the normal course
of business. The Company believes that any adverse outcome from litigation would
not have a material adverse effect on its financial position or results of
operations.

(14) REGULATORY MATTERS

The Company is subject to regulation in countries in which it does business.
The Company believes that an adverse determination as to the permissibility of
the Company's services under the laws and regulations of any such country would
not have a material adverse long-term effect on its business.

(15) RELATED PARTY TRANSACTIONS

During 1998, the Company entered into an agreement with Cignal Global
Communications, Inc. ("Cignal"), pursuant to which the Company sold
transatlantic capacity. Consideration received was in the form of 650,000 shares
of Cignal's common stock. The Company recognized $3.25 million of revenue, the
fair value of the transatlantic capacity. In addition, the Company agreed to
sell capacity on the Circe Network in exchange for an additional 350,000 shares
of Cignal's common stock. Pending delivery of the capacity to Cignal, these
350,000 shares are being held in escrow. The Company's Chairman and Chief
Executive Officer is a director of Cignal.

On June 3, 1998, the Company entered into a Mutual Cooperation Agreement
with Martin Varsavsky, a greater than ten percent stockholder of the Company,
and Jazz Telecom S.A. pursuant to which the parties made certain agreements
including the following: (1) subject to Jazz Telecom S.A. completing a high
yield offering with net proceeds to Jazz Telecom S.A. of at least $100 million
(the "Offering Condition"), the Company and Jazz Telecom S.A. agreed to use
commercially reasonable efforts to execute and deliver a construction agreement
no later than January 1, 1999 to construct a fiber optic submarine cable system
between Spain and the United Kingdom, (2) subject to the Offering Condition the
Company agreed to purchase $6.0 million of Jazz Telecom S.A. common stock, (3)
the Company and Jazz Telecom S.A. agreed to the purchase from the other
international switched minutes and to transmit at least one-third of our Spanish
domestic switched minute traffic over Jazz Telecom S.A.'s network, assuming the
prices charged by Jazz Telecom S. A. are competitive, (4) the Company and Jazz
Telecom S.A. agreed to sell capacity to each other for fixed prices, (5) Mr.
Varsavsky agreed to lock-up his Viatel shares for a specified period, (6) the
Company agreed to release any past claims which the Company had against either
Jazz Telecom S.A. and Mr. Varsavsky in exchange for their respective release of
any claims against the Company and (7) Mr. Varsavsky agreed to pay the Company
liquidated damages in the event that he violates certain provisions of the
agreement. The Company and Jazz Telecom S.A. are currently in discussions to
certain modifications to the terms of the Mutual Corporation Agreement.

On November 13, 1998, Mr. Varsavsky entered into an additional lock-up
agreement with us pursuant to which Mr. Varsavsky agreed that he would not sell,
contract to sell, announce an intention to sell, pledge or otherwise dispose of
his shares of our common stock, either directly or indirectly, without the prior
written consent of the Company until after August 12, 1999.

F-21
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................................................... $ 442,042
Restricted cash equivalents......................................................................... 23,530
Restricted marketable securities, current........................................................... 90,430
Marketable securities, current...................................................................... 56,713
Trade accounts receivable, less allowance for doubtful accounts of $2,966........................... 47,107
Other receivables................................................................................... 14,463
Prepaid expenses.................................................................................... 8,512
------------
Total current assets............................................................................ 682,797
------------
Restricted marketable securities, non-current......................................................... 115,836
Property and equipment, net........................................................................... 409,909
Cash securing letters of credit for network construction.............................................. 121,239
Intangible assets, net................................................................................ 70,579
Other assets.......................................................................................... 11,630
------------
$ 1,411,990
------------
------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accrued telecommunications costs.................................................................... $ 41,913
Accounts payable and other accrued expenses......................................................... 25,379
Property and equipment purchases payable............................................................ 141,361
Accrued interest.................................................................................... 27,288
Liability under joint construction agreement........................................................ 9,631
Current installments of notes payable and obligations under capital leases.......................... 10,008
------------
Total current liabilities....................................................................... 255,580
------------
Long-term liabilities:
Long-term debt...................................................................................... 1,256,196
Notes payable and obligations under capital leases, excluding current installments.................. 36,286
------------
Total long-term liabilities..................................................................... 1,292,482
Series A Redeemable Convertible Preferred Stock, $.01 par value; authorized 718,042 shares; issued and
outstanding 472,791................................................................................. 48,298
------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.01 par value. Authorized 1,281,958 shares, no shares issued and outstanding...... --
Common stock, $.01 par value. Authorized 50,000,000 shares, issued and outstanding 23,193,265
shares............................................................................................ 232
Additional paid-in capital.......................................................................... 128,403
Accumulated other comprehensive loss................................................................ (15,082)
Accumulated deficit................................................................................. (297,923)
------------
Total stockholders' deficiency.................................................................. (184,370)
------------
$ 1,411,990
------------
------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-22
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
<S> <C> <C>
1998 1999
---------- ----------
Revenue:
Communication service revenue....................................................... $ 21,239 $ 48,395
Capacity sales...................................................................... -- 13,246
---------- ----------
Total revenue................................................................. 21,239 61,641
---------- ----------
Operating expenses:
Cost of services and sales........................................................ 19,105 51,048
Selling, general and administrative............................................... 8,955 18,763
Depreciation and amortization..................................................... 2,911 9,603
---------- ----------
Total operating expenses...................................................... 30,971 79,414
---------- ----------
Other income (expense):
Interest income................................................................... 510 6,828
Interest expense.................................................................. (3,781) (26,166)
---------- ----------
Net loss............................................................................ (13,003) (37,111)
Dividend on redeemable convertible preferred stock................................ -- (1,177)
---------- ----------
Net loss attributable to common stockholders........................................ $ (13,003) $ (38,288)
---------- ----------
---------- ----------
Net loss per common share attributable to common stockholders....................... $ (0.57) $ (1.65)
---------- ----------
---------- ----------
Weighted average common shares outstanding.......................................... 22,783 23,186
---------- ----------
---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-23
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................... $ (13,003) $ (37,111)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................ 2,911 9,603
Accreted interest expense on long term debt.......................................... 3,447 10,330
Provision for losses on accounts receivable.......................................... 754 1,600
Earned compensation.................................................................. 16 --
Changes in assets and liabilities:
Increase in accounts receivable...................................................... (2,732) (18,936)
Increase in accrued interest expense on senior notes................................. -- 15,049
Increase in prepaid expenses and other receivables................................... (1,248) (8,855)
Decrease (increase) in other assets and intangible assets............................ 555 (947)
Decrease (increase) in accrued telecommunication costs, accounts payable and other
accrued expenses................................................................... (1,471) 7,689
---------- -----------
Net cash used in operating activities............................................ (10,771) (21,578)
---------- -----------
Cash flows from investing activities:
Purchase of property, equipment and software........................................... (2,716) (101,691)
Payment for business acquired, excluding cash acquired................................. (5,000) --
Purchase of marketable securities...................................................... (3,510) (194,058)
Cash securing letters of credit for network construction............................... -- (121,239)
Issuance of notes receivable........................................................... -- (4,390)
Proceeds from maturity of marketable securities........................................ 27,681 220,954
---------- -----------
Net cash provided by (used in) investing activities.............................. 16,455 (200,424)
---------- -----------
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of senior notes................................................. -- 365,471
Deferred financing costs............................................................... -- (12,880)
Proceeds from issuance of common stock................................................. 421 46
Repayment of notes payable and bank credit line........................................ (577) (682)
Payments under capital leases.......................................................... (53) (300)
---------- -----------
Net cash (used in) provided by financing activities.............................. (209) 351,655
---------- -----------
Effects of exchange rate changes on cash................................................. (109) (3,902)
---------- -----------
Net increase in cash equivalents......................................................... 5,366 125,751
Cash and cash equivalents at beginning of period......................................... 21,096 339,821
---------- -----------
Cash and cash equivalents at end of period............................................... $ 26,462 $ 465,572
---------- -----------
---------- -----------
Supplemental disclosures of cash flow information:
Interest paid.......................................................................... $ 334 $ 231
---------- -----------
Assets acquired under capital lease obligations........................................ -- $ 13,550
---------- -----------
---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-24
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

(1) DESCRIPTION OF BUSINESS

Viatel Inc. and subsidiaries (collectively, the "Company") is a global
integrated services provider of high quality, competitively priced, long
distance communication and data services to end users, carriers and
resellers. The Company operates one of Europe's largest pan-European
networks with points of presence in 45 cities, direct sales forces in
twelve Western European cities and an indirect sales force in more than 180
locations in Western Europe. The Company is currently constructing a series
of state-of-the art, high quality, high capacity rings utilizing the
synchronous digital hierarchy standard for digital transmission which will
connect major cities in six European countries (the "Circe Network").

(2) BASIS OF PRESENTATION

The consolidated financial statements as of March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998, respectively, have been
prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the consolidated
financial position, results of operations and cash flows for each period
presented have been made on a consistent basis. Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations although
management believes that the disclosures herein are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the Company's annual consolidated
financial statements. Operating results for the three months ended March
31, 1999 may not be indicative of the results that may be expected for the
full year.

CAPACITY SALES

Customers of the Company can purchase capacity on the Company's
network. Revenues from the sale of network capacity are recognized in the
period that the rights and obligations of ownership transfer to the
purchaser.

Cost of IRU sales in any period is determined based upon the ratio of
total capacity sold and total anticipated capacity to be utilized
multiplied by the related total costs of the relevant portion of the
network.

NEW PRONOUNCEMENTS

The Company adopted Statement of Position 98-5 (SOP 98-5), "Reporting
on the Costs of Start-Up Activities," issued by the American Institute of
Certified Public Accountants, during the three months ended March 31, 1999.
SOP 98-5 requires that certain start-up expenditures and organization costs
previously capitalized must now be expensed. The adoption of this statement
did not have material effect on our consolidated financial statements.

F-25
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

(3) INVESTMENTS IN DEBT SECURITIES

Management determines the appropriate classification of its investments in
debt securities at the time of purchase and classifies them as held to
maturity or available for sale. These investments are diversified among
high credit quality securities in accordance with the Company's investment
policy. Debt securities that the Company has both the intent and ability to
hold to maturity are carried at amortized cost. Debt securities for which
the Company does not have the intent or ability to hold to maturity are
classified as available for sale. Securities available for sale are carried
at fair value, with the unrealized gains and losses, net of tax, reported
in a separate component of stockholders' equity. The Company does not
invest in securities for the purpose of trading and therefore does not
classify any securities as trading.

Debt securities classified as held to maturity are adjusted for
amortization of premiums and accretion of discounts to maturity over the
estimated life of the security. Such amortization and interest are included
in interest income. There were no securities classified as available for
sale as of March 31, 1999.

The following is a summary of the amortized cost, which approximates fair
value, of restricted securities held to maturity at March 31, 1999 (in
thousands):

<TABLE>
<S> <C>
U.S. Treasury obligations......................................... $ 148,859
German government obligations..................................... 57,407
---------
Total........................................................... $ 206,266
---------
---------
</TABLE>

The following is a summary of the amortized cost, which approximates fair
value, of securities held to maturity at March 31, 1999 (in thousands):

<TABLE>
<S> <C>
U.S. corporate debt securities..................................... $ 34,043
German corporate debt securities................................... 22,670
---------
Total............................................................ $ 56,713
---------
---------
</TABLE>

The amortized cost, which approximates fair value, of restricted securities
held to maturity at March 31, 1999 are shown below (in thousands):

<TABLE>
<S> <C>
Due within one year............................................... $ 90,430
Due after one through two years................................... 115,836
---------
Total........................................................... $ 206,266
---------
---------
</TABLE>

There were no changes in the classification of any securities held to
maturity or securities available for sale from the time of purchase to the
time of maturity or sale.

F-26
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

(4) PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
Communication system.............................................................. $ 326,511
Construction in progress.......................................................... 89,067
Furniture, equipment and other.................................................... 17,742
Leasehold improvements............................................................ 6,695
----------
440,015
Less accumulated depreciation and amortization.................................... 30,106
----------
$ 409,909
----------
----------
</TABLE>

At March 31, 1999, construction in progress primarily represents
construction of the Circe Network. For the three month periods ended March
31, 1998 and 1999, $0 and $2.3 million of interest were capitalized,
respectively.

In connection with the Company's joint construction of the civil works
associated with a national communications network being constructed in
Germany, the Company was required to obtain a letter of credit of
approximately $121.2 million (DM219.1 million) in support of its
obligations.

(5) INTANGIBLE ASSETS

Intangible assets consist of the following as of (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
Deferred financing and registration fees........................................... $ 44,427
Licenses, trademarks and servicemarks.............................................. 9,464
Goodwill .......................................................................... 20,270
Purchased software................................................................. 3,096
Other.............................................................................. 140
-----------
77,397
Less accumulated amortization...................................................... 6,818
-----------
$ 70,579
-----------
-----------
</TABLE>

The Company recognized its obligation to pay contingent consideration for
its 1998 acquisition of Flat Rate based upon key operating performance
targets which were met during the period ended March 31, 1999. Such
contingent consideration has been recorded as goodwill.

(6) LONG TERM DEBT

On April 8, 1998, the Company completed an offering of units (the "Units
Offering") consisting of senior notes or senior discount notes due 2008 and
shares of 10% Series A Redeemable Convertible

F-27
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

(6) LONG TERM DEBT (CONTINUED)
Preferred Stock due 2010 ("Series A Preferred"), $.01 par value per share,
of the Company and units consisting of senior notes or senior discount
notes due 2008 and subordinated convertible debentures due 2011 (the
"Subordinated Debentures") through which it raised approximately $889.6
million of gross proceeds ($856.6 million of net proceeds). The Company
utilized $118.9 million of the proceeds from the Units Offering to retire
its 15% Senior Discount Notes due 2005 resulting in an extraordinary loss
of $28.3 million. Additionally, a portion of the proceeds from the Units
Offering were used to purchase approximately $122.8 million of U.S.
government securities which were pledged as security for the first six
interest payments on the U.S. dollar denominated senior notes and
approximately $30.6 million of German government obligations which were
pledged as security for the first six interest payments on the Deutsche
Mark denominated senior notes issued in the Units Offering. The senior
discount notes accrete through April 15, 2003 and interest becomes payable
in cash in semi-annual installments thereafter. The Series A Preferred and
the subordinated convertible debentures require quarterly payments which
are paid in additional securities, cash or any combination thereof through
April 15, 2003 and payable in cash thereafter. The Series A Preferred and
the Subordinated Debentures are mandatorily convertible in the event the
closing price of the Company's common stock exceeds certain predetermined
annual price targets. On May 13, 1999, the conditions for mandatory
conversion were met for both the Series A Preferred and the Subordinated
Debentures. The Series A Preferred and Subordinated Debentures conversion
rates are $13.20 and DM24.473, at the then applicable exchange rate,
respectively.

On September 30, 1998, the Company consummated an offer to exchange senior
notes and senior discount notes due 2008 which have been registered under
the Securities Act of 1933, as amended, for outstanding notes of each such
series which were not registered under the Securities Act of 1933, as
amended.

On March 19, 1999, the Company completed a high yield offering through
which it raised approximately $365.5 million of gross proceeds. A portion
of the proceeds from this offering were used to purchase securities which
were pledged as security for the first four interest payments on the notes
issued.

The indentures pursuant to which the senior notes and the senior discount
notes were issued contain certain covenants that, among other things, limit
the ability of the Company to incur additional indebtedness, pay dividends
or make certain other distributions, enter into transactions with
stockholders and affiliates and create liens on its assets. In addition,
upon a change of control, the Company is required to make an offer to
purchase the senior notes and the senior discount notes at a purchase price
equal to 101% of the principal amount, in the case of the senior notes, and
101% of the accreted value of the notes, in the case of the senior discount
notes. The indenture pursuant to which the Subordinated Debentures were
issued also required that the Company offer to repurchase the debentures at
101% of the principal amount in the event of a change of control.

F-28
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

(6) LONG TERM DEBT (CONTINUED)
Long term debt consists of the following as of (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
11.25% Senior Notes............................................................. $ 400,000
11.15% Senior Notes ([EURO]91,010).............................................. 98,389
11.50% Senior Notes............................................................. 200,000
11.50% Senior Notes ([EURO]150,000)............................................. 162,162
12.50% Senior Discount Notes, less discount of $193,664......................... 306,336
12.40% Senior Discount Notes ([EURO]115,552), less discount of $48,093
([EURO]44,486)................................................................ 76,828
10% Subordinated convertible debentures ([EURO]11,545).......................... 12,481
------------
$ 1,256,196
------------
------------
</TABLE>

During 1997, the Company entered into Loan and Security Agreements pursuant
to which the Company borrowed an aggregate of $11.1 million. Under the
terms of these agreements, the Company is required to satisfy certain
covenants and restrictions. As of March 31, 1999, the Company was either in
compliance with, or had received waivers to, these covenants. Obligations
under these Loan and Security Agreements are secured by the grant of a
security interest in certain telecommunications equipment, as well as a
portion of the payment obligations also being secured by letters of credit.

(7) STOCK INCENTIVE PLAN

The Amended Stock Incentive Plan (the "Stock Incentive Plan") allows for
the issuance of approximately 3,636,000 shares of the Company's common
stock.

Stock option activity for the three months ended March 31, 1999 under the
Stock Incentive Plan is shown below (number of shares in thousands):

<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER OF
EXERCISE PRICES SHARES
----------------- -----------
<S> <C> <C>
Outstanding at December 31, 1998................................ $ 7.41 2,594
Granted......................................................... 22.88 573
Exercised....................................................... 5.27 (9)
------ -----------
Outstanding at March 31, 1999................................... $ 10.22 3,158
------ -----------
------ -----------
</TABLE>

As of March 31, 1999, 950,471 options were exercisable under the Stock
Incentive Plan.

F-29
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

(8) COMPREHENSIVE LOSS

The Company's comprehensive loss is as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Net loss.............................................................. $ (13,003) $ (37,111)
Foreign currency translation adjustment............................... (517) (8,836)
---------- ----------
Comprehensive loss.................................................... $ (13,520) $ (45,947)
---------- ----------
---------- ----------
</TABLE>

(9) SEGMENT AND GEOGRAPHIC DATA

Company's chief decision maker monitors revenue streams of the various
products and geographic locations, operations are managed and financial
performance is evaluated based on the delivery of multiple, integrated services
to customers over a single network. As a result, there are many shared expenses
generated by the various revenue streams and management believes that any
allocation of the expenses incurred to multiple revenue streams or geographic
locations would be impractical and arbitrary. Management does not currently make
such allocations internally.

The Company groups its products and services by wholesale, retail, and
capacity. The information below summarizes revenue by customer type for the
three months ended March 31, 1998 and 1999, respectively (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Wholesale............................................................... $ 9,477 $ 21,061
Retail.................................................................. 11,762 27,334
Capacity................................................................ -- 13,246
--------- ---------
Consolidated............................................................ $ 21,239 $ 61,641
--------- ---------
--------- ---------
</TABLE>

The information below summarizes revenue by geographic area for the three
months ended March 31, 1998 and 1999, respectively (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Western Europe.......................................................... $ 11,228 $ 41,449
North America........................................................... 5,707 17,252
Latin America........................................................... 3,694 2,897
Asia/Pacific Rim and other.............................................. 610 43
--------- ---------
Consolidated............................................................ $ 21,239 $ 61,641
--------- ---------
--------- ---------
</TABLE>

F-30
<PAGE>
VIATEL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

(9) SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
The information below summarizes long lived assets by geographic area as of
March 31, 1999 (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
Western Europe.................................................................... $ 381,712
North America..................................................................... 98,558
Latin America..................................................................... 218
----------
Consolidated...................................................................... $ 480,488
----------
----------
</TABLE>

(10) SUBSEQUENT EVENT--CONVERSION

On May 13, 1999, the Series A Preferred Stock and its Subordinated
Debentures converted into shares of the Company's common stock. The
conversion was based upon maintenance of the Company's stock price above a
certain per share price for a specified time period. The Preferred Stock
and the Subordinated Debentures converted at a conversion price equal to
$13.20 and DM24.473, at the then applicable exchange rate, respectively.
Accordingly, the Company will issue approximately 4.6 million shares of
common stock and will pay cash for any fractional shares due upon
conversion, which is deemed to be immaterial.

F-31
<PAGE>
[LOGO]
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)

ISSUED JUNE 22, 1999

4,700,000 SHARES

[LOGO]

COMMON STOCK

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

VIATEL, INC. IS OFFERING 4,000,000 SHARES AND THE SELLING STOCKHOLDERS ARE
OFFERING 700,000 SHARES.

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

INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.

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

PRICE $ A SHARE

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

MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
SALOMON SMITH BARNEY INTERNATIONAL
ING BARINGS

, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses, all of which will be
paid by the Registrant in connection with the sale and distribution of the
securities being registered. All of the amounts shown are estimates except the
SEC registration fee.

<TABLE>
<S> <C>
SEC Registration Fee............................................................ $ 68,556
Legal Fees and Expenses......................................................... $ 400,000
Accounting Fees and Expenses.................................................... $ 300,000
Printing expenses............................................................... $ 650,000
Miscellaneous expenses.......................................................... $ 381,444
---------
Total......................................................................... $1,800,000
---------
---------
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporations Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Delaware corporation may indemnify any person under such
Section in connection with a proceeding by or in the right of the corporation to
procure judgment in its favor, as provided in the preceding sentence, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action, except that no
indemnification shall be made with respect thereto unless, and then only to the
extent that, a court of competent jurisdiction shall determine upon application
that such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. A Delaware corporation must indemnify
present or former directors and officers who are successful on the merits or
otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter in any proceeding, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith. A Delaware corporation may pay for the expenses (including attorneys'
fees) incurred by an officer or director in defending a proceeding in advance of
the final disposition upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation. Article Tenth of
the Registrant's Amended and Restated Certificate of Incorporation and Article X
of the Registrant's Amended and Restated Bylaws provide for indemnification of
directors and officers to the fullest extent permitted by Section 145 of the
DGCL.

Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for any
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) with respect to certain unlawful dividend

II-1
<PAGE>
payments or stock redemptions or repurchases or (iv) for any transaction from
which the director derived an improper personal benefit. Article Ninth of the
Registrant's Amended and Restated Certificate of Incorporation eliminates the
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the DGCL.

Section 145 of the DGCL permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other employee against any liability asserted against
such person and incurred by such person in such capacity, or arising out of
their status as such, whether or not the corporation would have the power to
indemnify directors and officers against such liability. The Registrant has
obtained officers' and directors' liability insurance of $15 million for members
of its Board of Directors and executive officers. In addition, the Registrant
has entered into agreements to indemnify its directors and officers from and
against any Expenses (as defined in the indemnity agreement) incurred by such
person in connection with investigating, defending, serving as a witness in,
participating in (including on appeal) or preparing for any of the foregoing in
any threatened, pending or contemplated action, suit or proceeding (including an
action by or in the right of the Registrant), or any inquiry, hearing or
investigation, to the fullest extent permitted by law, as such law may be
amended or interpreted (but only to the extent that such amendment or
interpretation provides for broader indemnification rights). The indemnity
agreement contains certain provisions to ensure that the indemnitee receives the
benefits contemplated by the agreement in the event of a "change in control" (as
defined in the indemnity agreement) such as the establishment and funding of a
trust in an amount sufficient to satisfy any and all expenses reasonably
anticipated to be incurred by the indemnitee in connection with investigating,
preparing for, participating in and/or defending a proceeding.

At present, there is no pending litigation or other proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>

1.1** Form of Underwriting Agreement between Viatel, Inc. and the representatives of the Underwriters.

4.1* Indenture, dated as of April 8, 1998, between Viatel, Inc. and The Bank of New York, as Trustee,
relating to Viatel, Inc.'s 12.50% Senior Discount Notes Due 2008 (including form of 12.50% Senior
Discount Note) (incorporated herein by reference to Exhibit 4.1 to Viatel, Inc.'s Registration Statement
on Form S-4, filed on July 10, 1998, Registration No. 333-58921 ("Viatel's 1998 Form S-4")).

4.2* Indenture, dated as of April 8, 1998, between Viatel, Inc. and The Bank of New York, as Trustee,
relating to Viatel, Inc.'s 11.25% Senior Notes Due 2008 (including form of 11.25% Senior Note)
(incorporated herein by reference to Exhibit 4.2 to Viatel's 1998 Form S-4).

4.3* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank of New York, as Trustee, and Deutsche
Bank, Aktiengesellschaft, as German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s 12.40%
Senior Discount Notes Due 2008 (including form of 12.40% Senior Discount Note) (incorporated herein by
reference to Exhibit 4.3 to Viatel's 1998 Form S-4).
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.4* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank of New York, as Trustee, and Deutsche
Bank, Aktiengesellschaft, as German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s 11.15%
Senior Notes Due 2008 (including form of 11.15% Senior Note) (incorporated herein by reference to
Exhibit 4.4 to Viatel's 1998 Form S-4).

4.5* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank of New York, as Trustee, and Deutsche
Bank, Aktiengesellschaft, as German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s 10%
Subordinated Convertible Debentures Due 2011 (including form of 10% Subordinated Convertible Debenture)
(incorporated herein by reference to Exhibit 4.5 to Viatel's 1998 Form S-4).

4.6* Conversion Shares Registration Rights Agreement, dated April 3, 1998, among Viatel, Inc., Morgan Stanley
& Co. Incorporated, Morgan Stanley Bank AG, Salomon Brothers Inc, ING Baring (U.S.) Securities, Inc. and
NationsBanc Montgomery Securities LLC (incorporated herein by reference to Exhibit 4.7 to Viatel's 1998
Form S-4).

4.7* Amended and Restated Certificate of Incorporation of Viatel, Inc. (incorporated herein by reference to
Exhibit 3.1(i)(a) to Viatel, Inc.'s Registration Statement on Form S-1, Registration No. 333-09699,
filed on August 7, 1996; Certificate of Designations, Preferences and Rights of 10% Series A Redeemable
Convertible Preferred Stock, $.01 par value (incorporated herein by reference to Exhibit 3(i)(b) to
Viatel's 1998 Form S-4); Certificate of Amendment to Viatel, Inc.'s Amended and Restated Certificate of
Incorporation (incorporated herein by reference to Exhibit 4.9 to Viatel, Inc.'s quarterly report on
Form 10-Q for the quarter ended September 30, 1998, File No. 000-21261).

4.8* Second Amended and Restated Bylaws of Viatel, Inc. (incorporated herein by reference to Exhibit 3(ii) of
Viatel, Inc.'s quarterly report on Form 10-Q for the quarter ended September 30, 1997, File No.
000-21261).

4.9* Indenture, dated as of March 19, 1999, between Viatel, Inc. and The Bank of New York, as Trustee,
relating to Viatel, Inc.'s US dollar denominated 11.50% Senior Notes Due 2009 (including form of 11.50%
Senior Note) (incorporated by reference to Exhibit 4.9 of Viatel's Registration Statement on Form S-3,
filed on February 12, 1999, Registration No. 333-72309 ("Viatel's February 1999 Form S-3)).

4.10* Indenture, dated as of March 19, 1999, between Viatel, Inc. and The Bank of New York, as Trustee,
relating to Viatel, Inc.'s Euro denominated 11.50% Senior Notes Due 2009 (including form of 11.50%
Senior Note) (incorporated by reference to Exhibit 4.10 of Viatel's February 1999 Form S-3).

4.11* Registration Rights Agreement, dated as of March 12, 1999, among Viatel, Inc. and the Initial Purchasers
(incorporated by reference to Exhibit 4.11 of Viatel's February 1999 Form S-3).

4.12* Specimen common stock certificate (incorporated by reference to Exhibit 4.4 of Viatel's Registration
Statement on Form S-1, filed on August 7, 1996, Registration No. 333-09699).

5.1** Opinion of Kelley Drye & Warren LLP.

23.1** Consent of Kelley Drye & Warren LLP (included in their opinion filed as Exhibit 5.1).

23.2** Consent of KPMG LLP.

24+ Powers of Attorney (included on original S-3 signature page).
</TABLE>

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

* Incorporated herein by reference.

** Filed herewith.

+ Previously filed.

II-3
<PAGE>
ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes:

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

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

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

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

PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, that are incorporated by reference in this
Registration Statement.

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

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

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

(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant, Viatel,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on this 21st day of June,
1999.

VIATEL, INC.

BY: MICHAEL J. MAHONEY*
----------------------------------------
Michael J. Mahoney
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated on June 21, 1999.

SIGNATURE TITLE
- ------------------------------ ---------------------------
Chairman of the Board,
MICHAEL J. MAHONEY* President and Chief
- ------------------------------ Executive Officer
Michael J. Mahoney (Principal Executive
Officer)

Senior Vice President,
ALLAN L. SHAW* Finance, Chief Financial
- ------------------------------ Officer and Director
Allan L. Shaw (Principal Financial and
Accounting Officer)

PAUL G. PIZZANI* Director
- ------------------------------
Paul G. Pizzani

FRANCIS J. MOUNT* Director
- ------------------------------
Francis J. Mount

JOHN G. GRAHAM* Director
- ------------------------------
John G. Graham

<TABLE>
<S> <C> <C> <C>
*By: /s/ SHELDON M. GOLDMAN
-------------------------
Sheldon M. Goldman
ATTORNEY-IN-FACT
</TABLE>

II-5
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement between Viatel, Inc. and the representatives of the Underwriters.
4.1* Indenture, dated as of April 8, 1998, between Viatel, Inc. and The Bank of New York, as Trustee,
relating to Viatel, Inc.'s 12.50% Senior Discount Notes Due 2008 (including form of 12.50% Senior
Discount Note) (incorporated herein by reference to Exhibit 4.1 to Viatel, Inc.'s Registration
Statement on Form S-4, filed on July 10, 1998, Registration No. 333-58921 ("Viatel's 1998 Form
S-4")).

4.3* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank of New York, as Trustee, and
Deutsche Bank, Aktiengesellschaft, as German Paying Agent and Co-Registrar, relating to Viatel,
Inc.'s 12.40% Senior Discount Notes Due 2008 (including form of 12.40% Senior Discount Note)
(incorporated herein by reference to Exhibit 4.3 to Viatel's 1998 Form S-4).

4.4* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank of New York, as Trustee, and
Deutsche Bank, Aktiengesellschaft, as German Paying Agent and Co-Registrar, relating to Viatel,
Inc.'s 11.15% Senior Notes Due 2008 (including form of 11.15% Senior Note) (incorporated herein by
reference to Exhibit 4.4 to Viatel's 1998 Form S-4).

4.5* Indenture, dated as of April 8, 1998, among Viatel, The Bank of New York, as Trustee, and Deutsche
Bank, Aktiengesellschaft, as German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s 10%
Subordinated Convertible Debentures Due 2011 (including form of 10% Subordinated Convertible
Debenture) (incorporated herein by reference to Exhibit 4.5 to Viatel's 1998 Form S-4).

4.6* Conversion Shares Registration Rights Agreement, dated April 3, 1998, among Viatel, Inc., Morgan
Stanley & Co. Incorporated, Morgan Stanley Bank AG, Salomon Brothers Inc, ING Baring (U.S.)
Securities, Inc. and NationsBanc Montgomery Securities LLC (incorporated herein by reference to
Exhibit 4.7 to Viatel's 1998 Form S-4).

4.7* Amended and Restated Certificate of Incorporation of Viatel, Inc. (incorporated herein by reference
to Exhibit 3.1(i)(a) to Viatel, Inc.'s Registration Statement on Form S-1, Registration No.
333-09699, filed on August 7, 1996; Certificate of Designations, Preferences and Rights of 10% Series
A Redeemable Convertible Preferred Stock, $.01 par value (incorporated herein by reference to Exhibit
3(i)(b) to Viatel's 1998 Form S-4); Certificate of Amendment to Viatel, Inc.'s Amended and Restated
Certificate of Incorporation (incorporated herein by reference to Exhibit 4.9 to Viatel, Inc.'s
quarterly report on Form 10-Q for the quarter ended September 30, 1998, File No. 000-21261).

4.8* Second Amended and Restated Bylaws of Viatel, Inc. (incorporated herein by reference to Exhibit 3(ii)
of Viatel, Inc.'s Form 10-Q for the quarter ended September 30, 1997, File No. 000-21261).

4.9* Indenture, dated as of March 19, 1999, between Viatel, Inc. and The Bank of New York, as Trustee,
relating to Viatel, Inc.'s US dollar denominated 11.50% Senior Notes Due 2009 (including form of
11.50% Senior Note). (incorporated by reference to Exhibit 4.9 of Viatel's Registration Statement on
Form S-3, filed on February 12, 1999, Registration No. 333-72309 ("Viatel's February 1999 Form S-3)).
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.10* Indenture, dated as of March 19, 1999, between Viatel, Inc. and The Bank of New York, as Trustee,
relating to Viatel, Inc.'s Euro denominated 11.50% Senior Notes Due 2009 (including form of 11.50%
Senior Note) (incorporated by reference to Exhibit 4.10 of Viatel's February 1999 Form S-3).

4.11* Registration Rights Agreement, dated as of March 12, 1999, among Viatel, Inc. and the Initial
Purchasers (incorporated by reference to Exhibit 4.11 of Viatel's February 1999 Form S-3).

4.12* Specimen common stock certificate (incorporated by reference to Exhibit 4.4 of Viatel's Registration
Statement on Form S-1, filed on August 7, 1996, Registration No. 333-09699).

5.1** Opinion of Kelley Drye & Warren LLP as to the validity of the securities being registered.

23.1** Consent of Kelley Drye & Warren LLP (included in their opinion filed as Exhibit 5.1).

23.2** Consent of KPMG LLP.

24+ Powers of Attorney (included on original S-3 signature page).
</TABLE>

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

* Incorporated herein by reference

** Filed herewith.

+ Previously filed.

<PAGE>

Exhibit 1.1

4,700,000 Shares

VIATEL, INC.

COMMON STOCK (PAR VALUE $.01 PER SHARE)

UNDERWRITING AGREEMENT

June , 1999
<PAGE>

June , 1999

Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
Salomon Smith Barney Inc.
ING Baring Furman Selz LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036

Morgan Stanley & Co. International Limited
Credit Suisse First Boston (Europe) Limited
Salomon Brothers International Limited
ING Barings Limited, as agent for ING Bank N.V., London branch
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England

Dear Sirs and Mesdames:

Viatel, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedules I and II hereto
(the "Underwriters"), and certain stockholders of the Company (each, a "Selling
Stockholder" and, collectively, the "Selling Stockholders") named in Schedule
III hereto severally propose to sell to the several Underwriters, an aggregate
of 4,700,000 shares of the Company's common stock, par value $.01 per share (the
"Firm Shares"), of which 4,000,000 shares are to be issued and sold by the
Company and 700,000 shares are to be sold by the Selling Stockholders, each
Selling Stockholder selling the amount set forth opposite such Selling
Stockholder's name in Schedule III hereto.

It is understood that, subject to the conditions hereinafter stated,
3,760,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 940,000 Firm Shares (the "International Shares") will be sold to the several
International
<PAGE>

Underwriters named in Schedule II hereto (the "International Underwriters") in
connection with the offering and sale of such International Shares outside the
United States and Canada to persons other than United States and Canadian
Persons. Morgan Stanley & Co. Incorporated, Credit Suisse First Boston
Corporation, Salomon Smith Barney Inc. and ING Baring Furman Selz LLC shall act
as representatives (the "U.S. Representatives") of the several U.S.
Underwriters, and Morgan Stanley & Co. International Limited, Credit Suisse
First Boston (Europe) Limited, Salomon Brothers International Limited and ING
Barings Limited, as agent for ING Bank N.V., London branch, shall act as
representatives (the "International Representatives") of the several
International Underwriters.

The Company and Martin Varsavsky, a Selling Stockholder, also
propose to issue and sell, jointly and severally, to the several U.S.
Underwriters not more than an additional 705,000 shares of the Company's common
stock, par value $.01 per share (the "Additional Shares"), if and to the extent
that the U.S. Representatives shall determine to exercise, on behalf of the U.S.
Underwriters, the right to purchase such shares of common stock granted to the
U.S. Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares
are hereinafter collectively referred to as the "Shares." The shares of common
stock, par value $.01 per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock." The Company and the Selling Stockholders are hereinafter
collectively referred to as the "Sellers."

The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (333-78855) relating to
the Shares. The registration statement contains two prospectuses to be used in
connection with the offering and sale of the Shares: the U.S. prospectus, to be
used in connection with the offering and sale of Shares in the United States and
Canada to United States and Canadian Persons, and the international prospectus,
to be used in connection with the offering and sale of Shares outside the United
States and Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except for the
outside front cover page. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus." If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"Rule 462(b) Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement.
<PAGE>

1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:

(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the
Company's knowledge, threatened by the Commission.

(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and the
Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, and (iii) the
Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph
1(b) do not apply to statements in or omissions from the Registration
Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter either
directly or through you expressly for use therein.

(c) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
has the corporate power and corporate authority to own its properties and
to conduct its business as described in the Prospectus and is duly
qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect (as defined below) on the Company
and its Subsidiaries (as defined below), taken as a whole.

(d) Each subsidiary of the Company is listed on Exhibit B hereto
(each a "Subsidiary" and, collectively, the "Subsidiaries"). If applicable
to such country, each of the Subsidiaries operating in such country has
been duly incorporated or otherwise organized, is validly existing in good
standing under the laws of the jurisdiction of its incorporation or
organization, with full corporate power and corporate authority to own its
properties and to conduct its business as described in the Prospectus and
is duly
<PAGE>

qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole; all of the issued shares of capital stock or other equity
interests, as the case may be, of each Subsidiary of the Company have been
duly authorized and are validly issued, fully paid and non-assessable and
are owned, either directly or by the Company, free and clear of all liens,
encumbrances, equities or claims, other than those indicated in the
Prospectus.

(e) This Agreement has been duly authorized, executed and delivered
by the Company. The Irrevocable Power of Attorney and Custody Agreement,
dated the date hereof, between the Selling Stockholders (other than Martin
Varsavsky) and the Company, as custodian (the "Power of Attorney and
Custody Agreement"; and together with this Agreement, the "Transaction
Documents"), appointing certain individuals as such Selling Stockholders'
attorneys-in-fact to the extent set forth therein and relating to the
deposit of the Shares to be sold by such Selling Stockholders and the
transactions contemplated hereby and by the Registration Statement and the
Prospectus, have been duly authorized, executed and delivered by the
Company, and will be valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as
the enforceability thereof may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and subject to general
equitable principles (whether considered in a proceeding in equity or at
law).

(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.

(g) The shares of Common Stock (including the Shares to be sold by
the Selling Stockholders) outstanding prior to the issuance of the Shares
to be sold by the Company have been duly authorized and are validly
issued, fully paid and non-assessable.

(h) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.

(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under the Transaction
Documents will not contravene (i) any provision of applicable law, (ii)
the certificate of incorporation or by-laws of the
<PAGE>

Company, as amended to date, (iii) any agreement or other instrument
binding upon the Company or any of its Subsidiaries, or (iv) any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any of its Subsidiaries, except with
respect to clauses (i) and (iii) to the extent that any contravention
would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under the
Transaction Documents, except (x) such as may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares, (y) such as may be required by federal and
state securities laws with respect to the Company's obligations under any
of the Transaction Documents, and (z) for any consents, approvals,
authorizations, orders or qualifications, the failure to obtain which
would not have a Material Adverse Effect on the ability of the Company to
perform its obligations under the Transaction Documents.

(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole (a
"Material Adverse Effect"), from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement). Furthermore, (i) other than the transactions
contemplated hereby, the Company and its Subsidiaries have not incurred
any material liability or obligation, direct or contingent, nor entered
into any material transaction not in the ordinary course of business; (ii)
the Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any kind
on its capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock, short-term
debt or long-term debt of the Company and its consolidated Subsidiaries,
taken as a whole, except in each case as described in the Prospectus.

(k) There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened to which the Company or any of
its Subsidiaries is or may be a party, or to which any of the properties
of the Company or any of its Subsidiaries is or may be subject that are
required to be described in the Registration Statement or the Prospectus
and are not so described, or any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required, except to the extent that
such proceeding, statute, regulation, contract or other document is not
reasonably likely to have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole,
<PAGE>

or on the power or ability of the Company to perform its obligations under
any of the Transaction Documents or to consummate the transactions
contemplated by the Registration Statement or the Prospectus.

(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder.

(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus under the caption "Use of Proceeds," will not
be an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended.

(n) The Company and its Subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals would not, singly or
in the aggregate, have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.

(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole.

(p) Except as described in the Prospectus, the Company and its
Subsidiaries (i) have all necessary consents, authorizations, approvals,
orders, certificates and permits of and from, and have made all
declarations and filings with, all federal, state, local and other
governmental, administrative or regulatory authorities, all
self-regulatory organizations and all courts and other tribunals, to own,
lease, license and use their properties and assets and to conduct their
business in the manner described in the Prospectus, except to the extent
that the failure to obtain such consents, authorizations, approvals,
orders, certificates or permits or make such declarations or
<PAGE>

filings would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole; and (ii) have not received any notice of
proceedings relating to the violation, revocation or modification of any
such license, consent, authorization, approval, order, certificate or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would reasonably be expected to have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole.

(q) The Company and its Subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its Subsidiaries, taken as a whole, in each case free and
clear of all liens, encumbrances and defects except (i) such as are
reflected in the Company's financial statements or are described in the
Prospectus; (ii) such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of
such property by the Company and its Subsidiaries; or (iii) such as do not
have a Material Adverse Effect on the Company and its Subsidiaries, taken
as a whole; and any real property and buildings held under lease by the
Company and its Subsidiaries are held by them under valid, binding and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries, in each case
except as described in or contemplated by the Prospectus.

(r) The Company and its Subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
currently employed by them in connection with the business now operated by
them, and, except as set forth in the Prospectus, neither the Company nor
any of its Subsidiaries has received any notice of infringement of or
conflict with asserted rights of others with respect to any of the
foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would be reasonably likely to
have a Material Adverse Effect on the Company and its Subsidiaries, taken
as a whole.

(s) No material labor dispute with the employees of the Company or
any of its Subsidiaries exists, except as described in or contemplated by
the Prospectus, or, to the knowledge of the Company, is imminent, and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that might reasonably be expected to have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole.
<PAGE>

(t) (i) The Company and its Subsidiaries are insured against such
losses and risks and in such amounts as the Company reasonably believes
are prudent and customary in the businesses in which they are engaged;
(ii) neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for; and (iii) neither the Company
nor any such Subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.

(u) The Company and its Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

(v) The Company has reviewed its operations and that of its
Subsidiaries to evaluate the extent to which the business or operations of
the Company or any of its Subsidiaries will be affected by the Year 2000
Problem (that is, any significant risk that computer hardware or software
applications used by the Company and its Subsidiaries will not, in the
case of dates or time periods occurring after December 31, 1999, function
at least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000); as a result of such review, (i) the Company has
no reason to believe, and does not believe, that (A) there are any issues
related to the Company's preparedness to address the Year 2000 Problem
that are of a character required to be described or referred to in the
Registration Statement or Prospectus which have not been accurately
described in the Registration Statement or Prospectus and (B) with respect
to the systems of the Company and its Subsidiaries, the Year 2000 Problem
will have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company and
its Subsidiaries, taken as a whole, or result in any material loss or
interference with the business or operations of the Company and its
Subsidiaries, taken as a whole; and (ii) the Company reasonably believes,
after due inquiry, that the suppliers, vendors, customers or other
material third parties used or served by the Company and such Subsidiaries
are addressing or will address the Year 2000 Problem in a timely manner,
except to the extent that a failure to address the Year 2000 Problem by
any supplier, vendor, customer or material
<PAGE>

third party would not have a material adverse effect on the condition,
financial or otherwise, or on the earnings, business or operations of the
Company and its Subsidiaries, taken as a whole.

(w) Except as described in the Registration Statement and
Prospectus, there are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.

2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders represents and warrants to and agrees with each of
the Underwriters that:

(a)This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder.

(b) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement and the Power of Attorney and Custody Agreement of such Selling
Stockholder will not contravene (i) any provision of applicable law, (ii)
any agreement or other instrument binding upon such Selling Stockholder,
or (iii) any judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Stockholder, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such
Selling Stockholder of its obligations under this Agreement or the Power
of Attorney and Custody Agreement of such Selling Stockholder, except such
as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.

(c) Such Selling Stockholder has, and on the Closing Date (defined
below) will have, valid title to the Shares to be sold by such Selling
Stockholder and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement and the Power of
Attorney and Custody Agreement of such Selling Stockholder and to sell,
transfer and deliver the Shares to be sold by such Selling Stockholder.

(d)The Power of Attorney and Custody Agreement of such Selling
Stockholder has been duly executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms,
<PAGE>

subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity.

(e) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear
of any security interests, claims, liens, equities and other encumbrances.

(f) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) to the knowledge of the respective
Selling Stockholder, the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, it being
understood and agreed that the representations and warranties set forth in
this paragraph 2(f) apply only to statements in or omissions from the
Registration Statement or the Prospectus based upon information relating
to any such Selling Stockholder furnished to the Company in writing by
such Selling Stockholder expressly for use therein.

In addition to the foregoing provisions of this Section 2, Martin
Varsavsky represents and warrants to and agrees with each of the Underwriters
that Schedule I to the opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
acting as counsel to Martin Varsavsky, dated the Closing Date, will, on such
date be a true and complete list of all material agreements or other instrument
binding upon Martin Varsavsky.

3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $ a share (the
"Purchase Price") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the number of Firm Shares to be sold by such Seller as the number of Firm
Shares set forth in Schedules I and II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.

On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company and Martin
Varsavsky agree, jointly and severally, to sell to the U.S. Underwriters the
Additional Shares, and the U.S. Underwriters shall
<PAGE>

have a one-time right to purchase, severally and not jointly, up to 705,000
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify Martin Varsavsky and the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the U.S. Underwriters and the
date on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares.

The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 120 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing or (C) transactions by any person
other than the Company relating to shares of Common Stock or other securities
acquired in open market transactions after the completion of the offering of the
Shares.

4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
U.S.$ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$ a share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$ a share, to any Underwriter or to certain other dealers.
<PAGE>

5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by
each Seller shall be made, (i) if to the Company, to the account of the Company,
and (ii) if to a Selling Stockholder, to the relevant custodian of such Selling
Stockholder, in accordance with the provisions of the applicable Power of
Attorney and Custody Agreement, in Federal or other funds immediately available
in New York City against delivery of such Firm Shares for the respective
accounts of the several Underwriters at a closing to be held at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, New York, at 10:00 a.m.,
New York City time, on June , 1999, or at such other time on the same or
such other date, not later than July , 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "Closing Date."

Payment for any Additional Shares shall be made, (i) if to the
Company, to the account of the Company, and/or (ii) if to Martin Varsavsky, to
the custodian of Martin Varsavsky, in accordance with the provisions of the
applicable Power of Attorney and Custody Agreement, in Federal or other funds
immediately available in New York City against delivery of such Additional
Shares for the respective accounts of the several Underwriters at a closing to
be held at the offices of Shearman & Sterling, 599 Lexington Avenue, New York,
New York, at 10:00 a.m., New York City time, on the date specified in the notice
described in Section 2 or at such other time on the same or on such other date,
in any event not later than August , 1999, as shall be designated in writing
by the U.S. Representatives. The time and date of such payment are hereinafter
referred to as the "Option Closing Date."

Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.

6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 5:00 p.m. on June , 1999 (New York City time) on
the date hereof.

The several obligations of the Underwriters are subject to the
following further conditions:
<PAGE>

(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:

(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded to any of
the Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act; and

(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.

(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 6(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.

The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.

(c) The Underwriters shall have received on the Closing Date an
opinion of Kelley Drye & Warren LLP, outside counsel to the Company, dated
the Closing Date, to the effect set forth in Exhibit C.

(d) The Underwriters shall have received on the Closing Date the
opinions of Paul, Weiss, Rifkind, Wharton & Garrison, dated the Closing
Date, to the effect set forth in Exhibit E, and Kelley Drye & Warren LLP,
dated the Closing Date, to the effect set forth in Exhibit D, in their
respective capacities as counsels for the several Selling Stockholders.
<PAGE>

With respect to Section 6(d) above, Kelley Drye & Warren LLP and
Paul, Weiss, Rifkind, Wharton & Garrison, in their respective capacities
as counsels for the several Selling Stockholders, may rely upon an opinion
or opinions of counsel for any Selling Stockholder and, with respect to
factual matters and to the extent such counsel deems appropriate, upon the
representations of each Selling Stockholder contained herein and in the
Power of Attorney and Custody Agreement of such Selling Stockholder and in
other documents and instruments; PROVIDED that (A) each such counsel for
the Selling Stockholders is satisfactory to your counsel, (B) a copy of
each opinion so relied upon is delivered to you and is in form and
substance satisfactory to your counsel, (C) copies of such Power of
Attorney and Custody Agreements and of any such other documents and
instruments shall be delivered to you and shall be in form and substance
satisfactory to your counsel and (D) Kelley Drye & Warren LLP and Paul,
Weiss, Rifkind, Wharton & Garrison, if applicable, shall state in their
opinion that they are justified in relying on each such other opinion.

The opinions of Kelley Drye & Warren LLP, as outside counsel to the
Company, and Paul, Weiss, Rifkind, Wharton & Garrison and Kelley Drye &
Warren LLP, in their respective capacities as counsel for Martin Varsavsky
and the other Selling Stockholders, respectively, described in Sections
6(c) and 6(d) above (and any opinions of counsel for any Selling
Stockholder referred to in the immediately preceding paragraph) shall be
rendered to the Underwriters at the request of the Company or one or more
of the Selling Stockholders, as the case may be, and shall so state
therein.

(e) The Underwriters shall have received on the Closing Date
opinions of foreign local counsel in Germany, Switzerland, Italy, France,
Belgium, Spain, The Netherlands and the United Kingdom dated the Closing
Date, to the effect set forth in Exhibit F or as to such other form as
agreed to by the Underwriters. Such opinions shall be rendered to the
Underwriters at the request of the Company and shall so state therein.

(f) The Underwriters shall have received on the Closing Date an
opinion of Morrison & Forester, LLP, special U.S. communications counsel
to the Company, together with an opinion of Nebraska counsel, each dated
the Closing Date, substantially to the effect set forth in Exhibit G. Such
opinions shall be rendered to the Underwriters at the request of the
Company and shall so state therein.

(g) The Underwriters shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Underwriters, dated the
Closing Date, in form and substance satisfactory to you.
<PAGE>

(h) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the
Underwriters, from KPMG LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; PROVIDED that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.

(i) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and the Selling Stockholders (other than
Martin Varsavsky), executive officers and directors of the Company
relating to sales and certain other dispositions of shares of Common Stock
or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.

(j) The "lock-up" agreement between Martin Varsavsky and the
Company, dated June 4, 1999, shall be in full force and effect on the
Closing Date and shall not have been amended, supplemented or modified
without the consent of Morgan Stanley & Co. Incorporated.

(k) The Shares shall have been approved for quotation on the Nasdaq
National Market, subject only to official notice of issuance.

(l) The representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct as of the Closing
Date and each Selling Stockholder shall have complied with all of the
agreements and satisfied all of the conditions on its part to be performed
or satisfied hereunder on or before the Closing Date. The Underwriters
shall have received on the Closing Date certificates dated the Closing
Date and signed by the Selling Stockholders or by their attorneys-in-fact
to the effect set forth above.

(m) The Underwriters shall have received on the Closing Date, a
certificate of an executive officer of the Company that provides that
there are no material misstatements or omissions with respect to the
"Management" and "Certain Transactions" sections of the Prospectus, in
form and substance satisfactory to Morgan Stanley & Co.
Incorporated.

(n) You shall have received such other documents and certificates as
are reasonably requested by you or your counsel.
<PAGE>

The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.

7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:

(a) To furnish to you, without charge, 9 signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you, without charge, in New
York City, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 7(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.

(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.

(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will
furnish to the Company) to which Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
<PAGE>

(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request; PROVIDED that in no event shall the Company be obligated to
qualify to do business in any jurisdiction in which it is not now so
qualified or to take any action which would subject it to taxation in any
jurisdiction in which it is not now so subject or to service or process in
suits, other than those arising out of the offering or sale of the Shares
in any jurisdiction in which it is not now so subject.

(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending June 30, 2000 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.

(f) Not to amend, supplement or modify the "lock-up" agreement
between Martin Varsavsky and the Company, dated June 4, 1999, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of
the Underwriters, which consent may be granted or withheld at the sole
discretion of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters.

8. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations and the obligations of the Selling Stockholders under this Agreement
including: (i) the preparation of the Registration Statement and the Prospectus
and all amendments and supplements thereto, (ii) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (iii) the
qualification of the Shares under securities or Blue Sky laws in accordance with
the provisions of Section 7(d), including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of any Blue Sky or legal investment memoranda,
(iv) all costs and expenses related to the transfer and delivery of the Shares
to the Underwriters, including any transfer or other taxes payable thereon, (v)
the printing and delivery to the Underwriters in quantities as hereinabove
stated of copies of the Registration Statement and the Prospectus and any
amendments or supplements thereto, (vi) all document production charges and
expenses of counsel to the Underwriters (but not including their fees for
professional services) in connection with the preparation of this Agreement,
(vii) all filing fees and the reasonable fees and disbursements of counsel to
the Underwriters incurred
<PAGE>

in connection with the review and qualification of the offering of the Shares by
the National Association of Securities Dealers, Inc., (viii) all costs and
expenses incident to listing the Shares on the Nasdaq National Market and the
London Stock Exchange, (ix) the cost of printing certificates representing the
Shares, (x) the costs and charges of any transfer agent, registrar or
depositary, (xi) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering, whether by traditional or electronic means, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the
road show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with the road
show with the prior approval of the Company, and (xii) all other costs and
expenses incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section. Each Selling
Stockholder agrees to pay or cause to be paid (i) all taxes, if any, on the
transfer and sale, if any, of the Shares and (ii) all underwriting discounts and
commissions relating to their Shares. In addition, the Company shall not be
liable for the fees, disbursements and expenses of the counsel to Martin
Varsavsky. It is understood, however, that except as provided in this Section,
Section 9 entitled "Indemnity and Contribution," and the last paragraph of
Section 11 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.

9. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter, each Selling Stockholder and each person, if
any, who controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter either directly or
through you expressly for use therein; PROVIDED, FURTHER, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities
<PAGE>

purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendment or supplement thereto) was not sent or given by or on behalf of
such Underwriter to such person, (i) if such Underwriter shall have received its
copy of the Prospectus with reasonable time for delivery of the Prospectus to
such person, (ii) if required by law to have been so delivered, at or prior to
the written confirmation of the sale of the Shares sold by the Company to such
person, and (iii) if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages or liabilities.

(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter, the Company, its directors, its
officers who sign the Registration Statement and each person, if any, who
controls the Underwriter or the Company, as the case may be, within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only with
reference to information relating to such Selling Stockholder furnished in
writing by or on behalf of such Selling Stockholder expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto; PROVIDED, HOWEVER, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendment or supplement
thereto) was not sent or given by or on behalf of such Underwriter to such
person, (i) if such Underwriter shall have received its copy of the Prospectus
with reasonable time for delivery of the Prospectus to such person, (ii) if
required by law to have been so delivered, at or prior to the written
confirmation of the sale of the Shares sold by the Company to such person, and
(iii) if the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such losses, claims, damages or liabilities. In addition,
each Selling Stockholder shall not be liable under this paragraph 9(b) for any
amount which exceeds the aggregate proceeds received by such Selling Stockholder
in connection with the offering of the Shares.

(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Selling Stockholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the
<PAGE>

Company or any Selling Stockholder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act from and against any and
all losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter either directly or through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.

(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9(a), 9(b) or 9(c), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party, and any others the
indemnifying party may designate in such proceeding, and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Selling Stockholders and all persons, if any, who control
any Selling Stockholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by
<PAGE>

Morgan Stanley & Co. Incorporated. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. In the case of any such
separate firm for the Selling Stockholders and such control persons of any
Selling Stockholders, such firm shall be designated in writing by the persons
named as attorneys-in-fact for the Selling Stockholders. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 60 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.

(e) To the extent the indemnification provided for in Section 9(a), 9(b)
or 9(c) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(e)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(e)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Sellers on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
<PAGE>

fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.

(f) The Sellers and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 9 were determined by PRO RATA
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 9(e). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, (i) no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and (ii) no Selling Stockholder shall be required to
contribute an amount in excess of the amount by which net proceeds of the
offering received by the Selling Stockholder exceeds the amount of any damages
that such Selling Stockholder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Section 9 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law or in
equity.

(g) The indemnity and contribution provisions contained in this Section 9
and the representations, warranties and other statements of the Company and the
Selling Stockholders contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Stockholder or any person controlling
any Selling Stockholder, or the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.

10. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the
<PAGE>

Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse, and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.

11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.

If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 11 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Stockholders for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders. In any such
case either you or the relevant Sellers shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. If, on the Option
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such
<PAGE>

default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, such Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.

14. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.

15. CONSENT. To the extent that the transactions contemplated by
this Agreement contravene any provision of any prior "lock-up" agreement entered
into between any Selling Stockholder and the Company which is in full force and
effect as of the date hereof (each, an "Existing Lock-Up Agreement"), the
Company hereby consents to all such transaction or transactions by the Selling
Stockholder who is a party to such Existing Lock-Up Agreement.

[The rest of this page is intentionally left blank.]
<PAGE>

Very truly yours,

VIATEL, INC.

By:_______________________
Name:
Title:

The Selling Stockholders named in Schedule
III hereto, acting severally:

By:_______________________
Attorney-in-Fact

By:_______________________
Attorney-in-Fact
for Martin Varsavksy
<PAGE>

Accepted as of the date hereof

MORGAN STANLEY & CO. INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON SMITH BARNEY INC.
ING BARING FURMAN SELZ LLC

Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.

By: Morgan Stanley & Co. Incorporated

By:___________________________
Name:
Title:

MORGAN STANLEY & CO. INTERNATIONAL LIMITED
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
ING BARINGS LIMITED, as agent for ING Bank N.V., London branch

Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.

By: Morgan Stanley & Co. International Limited

By:____________________________
Name:
Title:
<PAGE>

SCHEDULE I
U.S. UNDERWRITERS

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

Number of Firm Shares
Underwriter To Be Purchased
----------- ---------------------

Morgan Stanley & Co. Incorporated.............

Credit Suisse First Boston Corporation

Salomon Smith Barney Inc.

ING Baring Furman Selz LLC

Total U.S. Firm Shares.......................
<PAGE>

SCHEDULE II
INTERNATIONAL UNDERWRITERS

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

Number of Firm Shares
Underwriter To Be Purchased
----------- ---------------------

Morgan Stanley & Co. International Limited

Credit Suisse First Boston (Europe) Limited

Salomon Brothers International Limited

ING Barings Limited
as agent for ING Bank N.V., London branch

Total International Firm Shares......................
<PAGE>

SCHEDULE III
SELLING STOCKHOLDERS

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

Number of Firm Shares
Selling Stockholder To Be Sold
------------------- ---------------------

Michael J. Mahoney 70,000

Allan L. Shaw 5,000

Lawrence G. Malone 10,000

Sheldon M. Goldman 10,000

Francis J. Mount 17,000

Martin Varsavsky 588,000

--------

TOTAL 700,000

========
<PAGE>

EXHIBIT A

[FORM OF LOCK-UP AGREEMENT]

June ___, 1999

MORGAN STANLEY & CO. INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON SMITH BARNEY INC.
ING BARING FURMAN SELZ LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

MORGAN STANLEY & CO. INTERNATIONAL LIMITED
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
ING BARINGS LIMITED, as agent for ING Bank N.V., London branch
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England

Dear Sirs and Mesdames:

The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Morgan Stanley & Co. International Limited ("MSIL")
propose to enter into an Underwriting Agreement (the "Underwriting Agreement")
with Viatel, Inc., a Delaware corporation (the "Company"), and certain selling
stockholders named therein (the "Selling Stockholders") providing for the public
offering (the "Public Offering") by the several Underwriters, including Morgan
Stanley and MSIL (the "Underwriters"), of 4,700,000 shares (5,405,000 shares if
the Underwriters' over-allotment option is exercised in full) of common stock,
par value $.01 per share, of the Company (the "Common Stock").

To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, he will not, during the period commencing
on the date hereof and ending 120 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or
<PAGE>

warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement, or (b) transactions relating to shares
of Common Stock or other securities acquired in open market transactions after
the completion of the Public Offering. In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley, on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 120 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.

Whether or not the Public Offering actually occurs depends on a
number of factors, including market conditions. Any Public Offering will only be
made pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation among the Company, the Selling Stockholders and the Underwriters.

Very truly yours,

_____________________
(Name)

_____________________
(Address)
<PAGE>

EXHIBIT B

SUBSIDIARIES OF VIATEL, INC.

Name of Subsidiary Jurisdiction of Incorporation or Organization
- ------------------ ---------------------------------------------
Viatel U.K. Limited England and Wales
Viatel Belgium Limited England and Wales
Viatel Spain Limited England and Wales
Viatel (I) Limited England and Wales
Viatel UK Holdings Ltd.
(formerly, Viatel Staines Limited) England and Wales
Viatel Global Communications S.p.A.
(formerly Viaphone S.R.L.) Italy
Viatel S.R.L. Italy
Viatel Operations, S.A. France
Viatel S.A. France
VPN S.A.R.L. France
Viafon Dat Iberica, S.A. Spain
Viatel Global Communications Espana S.A. Spain
Viatel Belgium NV/SA Belgium
Viaphone NV/SA Belgium
Viatel GmbH Germany
Viaphone GmbH Germany
Viatel AG Switzerland
Viaphone AG Switzerland
Viatel Global Communications B.V. Netherlands
Viafoperations Communications B.V. Netherlands
Viacol Ltda. Colombia
Viatel Colombia Management, Inc. Delaware
Viatel Colombia Holdings, Inc. Delaware
Viatel Sales U.S.A., Inc. Delaware
YYC Communications, Inc. Delaware
Viatel Nebraska, Inc. Delaware
Viatel Sweden, Inc. Delaware
Viatel Finland, Inc. Delaware
Viatel Argentina Holdings, Inc. Delaware
Viatel Argentina Management, Inc. Delaware
Viatel Brazil Management, Inc. Delaware
Viatel Brazil Holdings, Inc. Delaware
Viatel Development Company Delaware
Viatel Circe Cable System, Limited Delaware
Viatel Finance Company L.L.C. Delaware
Viatel Global Communications, Ltd. Delaware
Viatel New Jersey, Inc. Delaware
<PAGE>

EXHIBIT C

FORM OF OPINION FOR
KELLEY DRYE & WARREN LLP

Pursuant to Section 6(c) of the Underwriting Agreement, Kelley Drye
& Warren LLP shall deliver an opinion to the effect that:

(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
full corporate power and corporate authority to own its properties and to
conduct its business as described in the Prospectus and is duly qualified
to transact business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
Material Adverse Effect (as defined below) on the Company and its
Subsidiaries (as defined below), taken as a whole.

(ii) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.

(iii) The shares of Common Stock (including the Shares to be sold by the
Selling Stockholders) outstanding prior to the issuance of the Shares to
be sold by the Company have been duly authorized and are validly issued,
fully paid and non-assessable.

(iv) The Shares to be sold by the Company have been duly authorized and,
when issued and delivered in accordance with the terms of the Underwriting
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.

(v) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.

(vi) The Power of Attorney and Custody Agreement between the Company and
the Selling Stockholders (other than Martin Varsavsky) has been duly
authorized, executed and delivered by the Company, and will constitute a
valid and legally binding obligation of the Company, enforceable against
the Company in accordance with its terms.
<PAGE>

(vii) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, the Transaction Documents will not
contravene (i) the DGCL or any U.S. federal or New York State law,
statute, ordinance, rule, regulation, judgment, order or decree applicable
to the Company or any of its assets or properties, whether owned or
leased, (ii) the certificate of incorporation or by-laws of the Company,
as amended to date, (iii) any agreement or other instrument binding upon
the Company or any of its Subsidiaries that is material to the Company and
its Subsidiaries, taken as a whole, or (iv) any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the
Company or any Subsidiary, except, in the case of clauses (i), (iii) and
(iv), for such contraventions which would not have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole and, except
(x) as may be required under applicable state securities or Blue Sky laws
of the various states in connection with the offer and sale of the Shares,
no consent, approval, authorization or order of, or qualification with,
any U.S. federal or New York or Delaware state governmental body or agency
is required for the performance by the Company of its obligations under
the Transaction Documents.

(viii) The statements (A) in the Prospectus under the captions "Business
-- Legal Proceedings," "Description of Capital Stock" and "Underwriters"
and (B) in the Registration Statement in Item 15, in each case insofar as
such statements constitute summaries of the legal matters, documents or
proceedings referred to therein, constitute accurate summaries of the
matters described therein in all material respects.

(ix) To the best knowledge of such counsel, there is no legal or
governmental proceeding, now pending or threatened, to which the Company
or any of its Subsidiaries is a party or to which any of the properties of
the Company or any of its Subsidiaries is or may be subject that is
required to be described in the Registration Statement or the Prospectus
and are not so described or of any statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required, or which could
reasonably be expected to have a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole, or on the ability of the Company
to perform its obligations under the Transaction Documents or to
consummate the transactions contemplated by the Prospectus.

(x) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
<PAGE>

(xi) The statements in the Prospectus under the caption "Certain United
States Federal Tax Consequences for Non-U.S. Investors," insofar as such
statements constitute summaries of certain U.S. federal income tax laws
and regulations, constitute accurate summaries of the matters described
therein in all material respects.

(xii) Such counsel (A) is of the opinion that the Registration Statement
and Prospectus (except for financial statements and schedules and other
financial data included therein as to which such counsel need not express
any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the Securities
and Exchange Commission thereunder, (B) has no reason to believe that
(except for financial statements and schedules and other financial data as
to which such counsel need not express any belief) the Registration
Statement and the Prospectus included therein at the time the Registration
Statement became effective contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (C) has no
reason to believe that (except for financial statements and schedules and
other financial data as to which such counsel need not express any belief)
the Prospectus when issued contained or as of the date such opinion is
delivered contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
<PAGE>

EXHIBIT D

FORM OF OPINION FOR
KELLEY DRYE & WARREN LLP
AS COUNSEL FOR CERTAIN SELLING STOCKHOLDERS

Pursuant to Section 6(d) of the Underwriting Agreement, Kelley Drye
& Warren LLP, in its capacity as counsel for certain Selling Stockholders, shall
deliver an opinion to the effect that:

(i) The Underwriting Agreement has been duly executed and delivered by or
on behalf of each of the Selling Stockholders.

(ii) The Power of Attorney and Custody Agreement between the Company and
the Selling Stockholders (other than Martin Varsavsky) (together with the
Underwriting Agreement, collectively, the "Transaction Documents") has
been duly executed and delivered by such Selling Stockholders and is a
valid and binding agreement of such Selling Stockholders enforceable in
accordance with its terms.

(iii) The execution and delivery by such Selling Stockholder the
Transaction Documents applicable to such Selling Stockholder, and the
performance by such Selling Stockholder of its obligations under the
Transaction Documents applicable to such Selling Stockholder, will not
contravene (A) the DGCL or any U.S. federal or New York State law,
statute, ordinance, rule, regulation, judgment, order or decree applicable
to such Selling Stockholder or any of its assets or properties, whether
owned or leased, (B) to the best of such counsel's knowledge, any material
agreement or other instrument binding upon the such Selling Stockholder,
or (C) any judgment, order or decree of any federal or New York
governmental body, agency or court having jurisdiction over such Selling
Stockholder and no consent, approval, authorization or order of, or
qualification with, any federal or New York governmental body or agency is
required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Power of Attorney and Custody
Agreement of such Selling Stockholder, except such as may be required by
the securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares.

(iv) Each of the Selling Stockholders has valid title to the Shares to be
sold by such Selling Stockholder and the legal right and power, and all
authorization and approval required by law, to enter into the Transaction
Documents, and to sell, transfer and deliver the Shares to be sold by such
Selling Stockholder.
<PAGE>

(v) Delivery of the Shares to be sold by each Selling Stockholder pursuant
to the Underwriting Agreement will pass title to such Shares free and
clear of any security interests, claims, liens, equities and other
encumbrances, assuming that each Underwriter purchases the Shares in good
faith without notice of any adverse claim.

(vi) With respect to statements or omissions from the Registration
Statement and the Prospectus based upon information relating to any
Selling Stockholder furnished to the Company by such Selling Stockholder,
such counsel (A) is of the opinion that the Registration Statement and the
Prospectus (except for financial statements and schedules and other
financial data included therein as to which such counsel need not express
any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the Securities
and Exchange Commission thereunder, (B) has no reason to believe that
(except for financial statements and schedules and other financial data as
to which such counsel need not express any belief) the Registration
Statement and the prospectus included therein at the time the Registration
Statement became effective contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (C) has no
reason to believe that (except for financial statements and schedules and
other financial data as to which such counsel need not express any belief)
the Prospectus when issued contained or as of the date such opinion is
delivered contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
<PAGE>

EXHIBIT E

FORM OF OPINION
FOR
PAUL, WEISS, RIFKIND, WHARTON & GARRISON

Pursuant to Section 6(d) of the Underwriting Agreement, Paul, Weiss,
Rifkind, Wharton & Garrison, as counsel to Martin Varsavsky, a Selling
Stockholder (the "Selling Stockholder"), shall deliver an opinion to the effect
that:

(i) The Underwriting Agreement and the Power of Attorney and Custody
Agreement entered into by the Selling Stockholder (collectively, the
"Transaction Documents") have been duly executed and delivered by or on
behalf of the Selling Stockholder.

(ii) The execution and delivery by such Selling Stockholder of the
Transaction Documents applicable to such Selling Stockholder, and the
performance by such Selling Stockholder of its obligations under the
Transaction Documents, will not violate (A) the DGCL or any U.S. federal
or New York State law, statute, ordinance, rule or regulation thereunder
which, in the experience of such counsel, are normally applicable to the
transactions contemplated by the Transaction Documents (the "Applicable
Law"), or any judgment, order or decree of any governmental body, agency
or court known to such counsel to be applicable to the Selling Stockholder
or any of his assets or properties or (B) any material agreement or other
instrument binding upon the such Selling Stockholder which has been
identified to such counsel as such by such and is listed on Schedule I to
the opinion1, and no consent, approval, authorization or order of, or
qualification with, any federal or New York governmental body or agency is
required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Power of Attorney and Custody
Agreement of such Selling Stockholder, except (x) such as may be required
by the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares and (y) such as may be required by
federal and state securities laws with respect to the such Selling
Stockholder's obligations under the this Agreement or the Power of
Attorney and Custody Agreement of such Selling Stockholder.

(iii) The Power of Attorney and Custody Agreement of each Selling
Stockholder has been duly executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder enforceable in accordance with its terms.
<PAGE>

(iv) Upon delivery of the Shares to be sold by the Selling Stockholder and
payment of the purchase price for such Shares pursuant to the Underwriting
Agreement, the Underwriters will acquire good and valid title to such
Shares free and clear of any security interests, claims, liens, equities
and other encumbrances (collectively, the "Liens"), except for any Liens
created by them.

(v) Solely with respect to statements or omissions from the Registration
Statement and the Prospectus based upon information relating to any
Selling Stockholder furnished to the Company by such Selling Stockholder,
although we have not independently verified the accuracy or completeness
of, or otherwise verified the statements made in the Registration
Statement and the Prospectus (other than as expressly provided above),
nothing has come to our attention that has led us to believe that the
Registration Statement and the Prospectus (A) except for financial
statements and schedules and other financial data as to which such counsel
need not express any belief, failed to comply as to form in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder, (B) except for financial statements and
schedules and other financial data as to which such counsel need not
express any belief, the Registration Statement and the Prospectus included
therein at the time the Registration Statement became effective contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (C) except for financial statements and
schedules and other financial data as to which such counsel need not
express any belief, the Prospectus when issued contained, or as of the
date such opinion is delivered contains, any untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

In connection with the opinion in paragraphs (i) and (iii) above,
counsel to the Selling Stockholder may assume that the Power of Attorney and
Custody Agreement have been duly executed and delivered under the laws of Spain.

In connection with the opinion in paragraph (iv) above, counsel to
the Selling Stockholder may assume that the Underwriters have no knowledge or
notice of any "adverse claim" to the Shares within the meaning of the Uniform
Commercial Code as in effect in the State of New York.
<PAGE>

EXHIBIT F

FORM OF FOREIGN LOCAL COUNSEL OPINION

(A) (the "Company") has been duly incorporated, is validly
existing as a company under the laws of [Name of Country], has the corporate
power and authority to own its property and to conduct its business as described
in the Prospectus of Viatel, Inc. dated June , 1999 (the "Prospectus") and
is duly qualified to transact business in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification (except to the extent that the failure to be so qualified would
not in our view have a material adverse effect on the Company and its
subsidiaries taken as a whole).

(B) The Company has no subsidiaries.

(C) The Company has all materially necessary certificates, orders,
permits, licenses, authorizations, consents and approvals of and from, and has
made all declarations and filings with all relevant governmental authorities,
all self-regulatory organizations and all relevant courts and tribunals, to own,
lease, license and use its properties and assets and to conduct its business in
the manner described in the Prospectus, and, to the best of our knowledge, after
due inquiry has not received any notice of proceedings relating to revocation or
modification of any such certificates, orders, permits, licenses,
authorizations, consents or approvals, nor is the Company in violation of, or in
default under, any federal, state, local, national or regional law, regulation,
rule, decree, order or judgment applicable to the Company, the effect of which,
singly or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings, business or
operations of the Company, except as described herein or in the Prospectus.

(D) The statements in the Prospectus under the caption "Business --
Government Regulation -- " are accurate in all material respects and
fairly summarize all matters referred to therein.

(E) There are no restrictions (legal, contractual or otherwise) on the
ability of the Company to declare and pay any dividend or make any payment or
transfer of property or assets to its stockholders other than those described in
the Prospectus and such restrictions as would not have a material adverse effect
on the prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Company and such descriptions, if any, fairly
summarize such restrictions.
<PAGE>

EXHIBIT G

FORM OF U.S. REGULATORY COUNSEL OPINION

Pursuant to Section 6(f) of the Underwriting Agreement, Morrison &
Foerster LLP, U.S. communications counsel for the Company, shall furnish an
opinion to the effect that:

(A) (1) the execution and delivery of the Underwriting Agreement by the
Company and the consummation of the transactions contemplated thereby do not
violate (i) the Federal Communications Act of 1934, as amended, the
Telecommunications Act of 1996, or any rules or regulations of the Federal
Communications Commission ("FCC") applicable to the Company (collectively,
the "Communications Act"), (ii) any state telecommunications law, rules or
regulations ("State Law") applicable to the Company, and (iii) to the best of
such counsel's knowledge, any decree from any court, and (2) no consent,
approval, authorization or order of or filing with the FCC or any state
authority overseeing telecommunications matters ("State Authority"), is
necessary for the execution and delivery of the Underwriting Agreement by the
Company and except to the extent that the failure to obtain such consents,
approvals, authorizations or orders or to make filings with, the FCC or any
State Authority would not, individually or in the aggregate, have a material
adverse effect on the prospects, condition (financial or otherwise) or in the
earnings, business or operations of the Company and the subsidiaries listed
in Exhibit B to the Underwriting Agreement (the "Subsidiaries") taken as a
whole;

(B) except as indicated in this paragraph B, to the best of our knowledge,
(1) the Company and its Subsidiaries have made all reports and filings, and
paid all fees, required by the FCC and the State Authorities, and have all
certificates, orders, permits, licenses, authorizations, consents and
approvals of and from, and have made all filings and registrations, with the
FCC and the State Authorities necessary to own, lease, license and use its
properties and assets and to conduct its respective business in the manner
described in the Prospectus, except for those filings, fees, and approvals
the failure to obtain or file of which would not have material adverse effect
on the financial condition, or on the earnings, business, or operations of
the Company and its Subsidiaries, taken as a whole; (2) has not received any
notice of proceedings relating to the violation, revocation or modification
of any such certificates, orders, permits, licenses, authorizations, consents
or approvals, or the qualification or rejection of any such filing or
registration, the effect of which, singly or in the aggregate, would have a
material adverse effect on the prospects, condition, financial or otherwise,
or in the earnings, business or operations of the Company, taken as a whole;
and (3) neither the Company nor its Subsidiaries is in violation of, or in
default under, the Communications Act or State Law, the effect of which,
singly or in the aggregate, would have a material adverse effect on the
prospects,
<PAGE>

condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole;

(C) to the best of such counsel's knowledge after due inquiry (i) no
adverse judgment, decree or order of the FCC or any State Authority has been
issued against the Company or its Subsidiaries and (ii) no litigation,
proceeding, inquiry or investigation has been commenced or threatened against
the Company or its Subsidiaries before or by the FCC or any State Authority
which, if decided adversely to the interests of the Company or its
Subsidiaries would have a material adverse effect on the Company and its
Subsidiaries, taken as a whole; and

(D) the statements in the Prospectus under the captions "Risk Factors --
We Are Subject to Substantial Government Regulation Which May Affect Our
Ability to Offer Certain Services and Which May Be Changed in a Manner
Adverse to Viatel" and "Business -- Government Regulation," insofar as such
statements constitute a summary of the legal matters, documents or
proceedings of the FCC and State Authorities with respect to
telecommunications regulation referred to therein, fairly summarize the
matters referred to therein.

<PAGE>

Exhibit 5.1

Kelley Drye & Warren LLP
101 Park Avenue
New York, New York 10178

June 21, 1999

Viatel, Inc.
685 Third Avenue
New York, New York 10017

Re: Registration Statement on Form S-3 (File No. 333-78855) for
5,405,000 Shares of Common Stock
-----------------------------------------------------------

Ladies and Gentlemen:

We have acted as counsel to Viatel, Inc., a Delaware corporation (the
"Company"), in connection with the proposed public offering of 4,700,000 shares
(the "Firm Shares") of the Company's common stock, $0.01 par value per share,
(the "Common Stock"), and up to an additional 705,000 shares (the "Option
Shares") of Common Stock subject to an over-allotment option granted to the
several underwriters of such public offering. The Firm Shares and the Option
shares are hereinafter referred to collectively as the "Shares." The Shares are
being offered by the Company and by Martin Varsavsky, Michael J. Mahoney, Allan
L. Shaw, Lawrence G. Malone, Sheldon M. Goldman and Francis J. Mount
(collectively, the "Selling Stockholders"). The Company has filed a Registration
Statement on Form S-3 (File No. 333-78855) (the "Registration Statement") with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Act"), with respect to the public
offering of the Shares. As such counsel, you have requested our opinion as to
the matters described herein relating to the issuance of the Shares.

In connection with this opinion, we have examined and relied upon
copies certified or otherwise identified to our satisfaction of: (i) an executed
copy of the Registration Statement, and each amendment thereto through the date
hereof, together with the exhibits and schedules thereto, in the form filed with
the Commission; (ii) the Company's Certificate of Incorporation and By-laws,
each as amended to date; and (iii) the minute books and other records of
corporate proceedings of the Company through the date hereof, as made available
to us by officers of the Company; and (iv) we have reviewed such matters of law
and fact as we have deemed necessary or appropriate for the purpose of rendering
this opinion.

For purposes of this opinion we have assumed the authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of all documents submitted to us as copies. We
have also assumed the legal capacity of all natural persons, the genuineness
of all signatures on all documents examined by us, the authority of such
persons signing on behalf of parties thereto other than the Company or any
Selling Stockholder (except for Martin Varsavsky), as the case may be, and
the due authorization, execution and delivery of all documents by the parties
thereto other than the Company and the Selling Stockholders. As to certain
factual matters material to the opinion

<PAGE>

expressed herein, we have relied, to the extent we deemed proper, upon
representations, warranties and statements as to factual matters of officers and
other representatives of the Company and the Selling Stockholders. Our opinion
expressed below is subject to the qualification that we express no opinion as to
any law of any jurisdiction other than law of the State of New York, the
corporate law of the State of Delaware and the federal laws of the United States
of America. Without limiting the foregoing, we express no opinion with respect
to the applicability thereto or effect of municipal laws or the rules,
regulations or orders of any municipal agencies within any such state.

Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, it is our opinion that:

(1) The Firm Shares have been duly authorized and, when issued and
paid for as contemplated by the Registration Statement and countersigned by a
transfer agent and duly registered by a registrar for the Common Stock, the
Shares will be validly issued, fully paid and non-assessable; and

(2) The Option Shares have been duly authorized and validly issued
and are fully paid and non-assessable.

This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York, the corporate law of the State of Delaware or the
federal laws of the United States of America be changed by legislative action,
judicial decision or otherwise.

We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to our Firm in the Prospectus
included therein under the caption "Legal Matters." In giving such consent, we
do not admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
promulgated thereunder.

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

Very truly yours,

/s/ KELLEY DRYE & WARREN LLP

<PAGE>
EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

The Board of Directors and Stockholders
Viatel, Inc.:

We consent to the use of our reports included herein and to the reference to our
firm under the heading "Selected Consolidated Financial Data" and "Experts" in
the registration statement.

/s/ KPMG LLP

New York, New York
June 22, 1999