GLOBAL TELESYSTEMS GROUP INC, SC 14D1, 1999-02-02

GLOBAL TELESYSTEMS GROUP INC
SC 14D1, 1999-02-02
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934

ESPRIT TELECOM GROUP PLC
(Name of Subject Company)

GLOBAL TELESYSTEMS GROUP INC.
(Bidders)

ORDINARY SHARES, NOMINAL VALUE OF ONE PENCE PER SHARE,
AND
AMERICAN DEPOSITARY SHARES, EACH REPRESENTING 7 ORDINARY SHARES
(Title of Class of Securities)

29665W104
(American Depositary Shares)
(CUSIP Number of Class of Securities)

GRIER C. RACLIN
1751 PINNACLE DRIVE
NORTH TOWER-12TH FLOOR
MCLEAN, VA 22102
(703) 918-4573
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Bidder)

Copies to:
ALFRED J. ROSS, JR.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 848-7056

CALCULATION OF FILING FEE

<TABLE>
<CAPTION>
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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<S> <C>
$574,783,773* $159,791
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</TABLE>

[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.

Amount Previously Paid: $137,832
Form or Registration No.: 333-68511
Filing Party: Global TeleSystems Group, Inc.
Date Filed: December 8, 1998

Amount Previously Paid: $21,959
Form or Registration No.: 333-68511
Filing Party: Global TeleSystems Group, Inc.
Date Filed: February 1, 1999

* Note: The proposed maximum aggregate offering price was determined as follows:
(i) the market value per share of the Esprit Telecom Ordinary Shares
(determined as one-seventh of the market value per Esprit Telecom ADS)
multiplied by the maximum number of Esprit Telecom Ordinary Shares which may
be exchanged in the Offer described herein for shares of GTS Common Stock,
plus (ii) the market value per Esprit Telecom ADS, multiplied by the number of
Esprit Telecom ADSs which may be exchanged in the Offer described herein for
shares of GTS Common Stock. Pursuant to Rule 457(c), the market value per
Esprit Telecom ADS is based on the average of the bid and asked price on the
NASDAQ National Market on January 28, 1999. $137,832 of the filing fee was
paid on December 8, 1998. The market value per Esprit Telecom ADS used to
calculate the proposed maximum aggregate offering price for the portion of the
filing fee paid on December 8, 1998 was based on the average of the bid and
asked price on the NASDAQ National Market on December 3, 1998.

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CUSIP NO. 14D-1 PAGE OF PAGES
---------------------- --- ---

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1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Person Above
Global TeleSystems Group, Inc.
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2. Check the appropriate Box if a member of a Group (a)[ ]
(b)[ ]
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3. SEC Use Only
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4. Source of Funds
OO
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5. Check Box if Disclosure of Legal Proceedings is Required
Pursuant to Items 2(e) or 2(f)[ ]
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6. Citizenship or Place of Incorporation
Delaware
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7. Aggregate Amount Beneficially Owned by Each Reporting Person
None
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8. Check Box if the Aggregate Amount in Row (7) Excludes
Certain Shares[ ]
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9. Percent of Class Represented by Amount in Row (7)
None.
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10. Type of Reporting Person
CO.
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<PAGE> 3

This Tender Offer Statement on Schedule 14D-1 (the "Statement") relates to
the offer by Global TeleSystems Group, Inc., a Delaware corporation ("GTS"),
upon the terms and conditions set forth in the Offering Circular/Proxy
Statement/Prospectus dated February 2, 1999 and in the related Form of
Acceptance, Letter of Transmittal and Notice of Guaranteed Delivery (the
"Offering Circular/Proxy Statement/ Prospectus" the "Form of Acceptance,"
"Letter of Transmittal," and "Notice of Guaranteed Delivery" respectively,
together constituting the "Offer"), to exchange (i) each outstanding Ordinary
Share, nominal value of one pence each, of Esprit Telecom (as defined below)
(the "Esprit Telecom Ordinary Shares"), and (ii) each outstanding American
Depository Share of Esprit Telecom representing seven Esprit Telecom Ordinary
Shares, (the "Esprit Telecom ADSs"), for new shares of Common Stock, par value
$0.10 per share, of GTS (the "Common Stock"), based on an exchange ratio of (i)
0.1271 of a share of Common Stock for each Esprit Telecom Ordinary Share, and
(ii) 0.89 of a share of Common Stock for each Esprit Telecom ADS. The Esprit
Telecom Ordinary Shares and the Esprit Telecom ADSs are collectively referred to
herein as the "Esprit Telecom Securities." All capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in the Offering
Circular/Proxy Statement/Prospectus.

ITEM 1. SECURITY AND SUBJECT COMPANY.

(a) The name of the subject company is Esprit Telecom Group plc, a public
limited company incorporated under the laws of England and Wales ("Esprit
Telecom"), which has its principal executive offices at Minerva House, Valpy
Street, Reading RG1 1AR, United Kingdom.

(b) The equity securities being sought are all outstanding (i) Esprit
Telecom Ordinary Shares, and (ii) Esprit Telecom ADSs. As of October 15, 1998,
there were 125,528,528 Esprit Telecom Ordinary Shares outstanding, and
10,797,449 Esprit Telecom ADSs (equivalent to 75,582,143 Esprit Telecom Ordinary
Shares or approximately 60.2% of the total outstanding Esprit Telecom Ordinary
Shares). The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the captions "The Offer -- General" and "-- Terms of
the Offer" is incorporated herein by reference.

(c) The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the caption "Comparative Market Price and Dividend
Information" is incorporated herein by reference.

ITEM 2. IDENTITY AND BACKGROUND.

(a) - (d) and (g) This Statement is filed by GTS. The information
concerning the name, state or other place of organization, principal business
and address of the principal office of GTS is set forth in the Offering
Circular/Proxy Statement/Prospectus under the caption "Summary -- The
Companies," which is incorporated herein by reference. The information
concerning the name, business address, present principal occupation or
employment and the name, principal business and address of any corporation or
other organization in which such employment or occupation is conducted, material
occupations, positions, offices or employments during the last five years and
citizenship of each of the executive officers and directors of GTS are set forth
in the Offering Circular/Proxy Statement/Prospectus under the caption "Certain
Information Concerning GTS -- Directors and Executive Officers of GTS", which is
incorporated herein by reference.

(e) and (f) During the last five years, none of GTS, or, to the best
knowledge of GTS, none of the persons listed in the Offering Circular/Proxy
Statement/Prospectus has been (i) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (ii) a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such laws.

ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.

(a) - (b) The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the captions "Background of and Reasons for the
Offer -- Background of the Offer," " -- Purpose of the Offer; Plans for Esprit
Telecom," "The Offer -- Interests of Certain Persons in the Offer," "The Offer
Agreement," "Agreements with Certain Securityholders and Directors" and Annexes
B and E through N is incorporated herein by reference.
<PAGE> 4

ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

(a) - (c) The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the caption "The Offer -- General" is incorporated
herein by reference.

ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDERS.

(a) - (e) The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the captions "The Offer -- General," " -- Terms of
the Offer," "Background of and Reasons for the Offer -- Purpose of the Offer;
Plans for Esprit Telecom," " -- The Offer Agreement" and "Additional Information
Required Under UK Law -- Management and Employees" is incorporated herein by
reference.

(f) - (g) The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the caption "The Offer -- Possible Effects of the
Offer on the Market for Esprit Telecom ADSs" is incorporated herein by
reference.

ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.

(a) - (b) The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the caption "The Offer -- Certain Information
Concerning GTS" is incorporated herein by reference.

ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.

The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the captions "The Offer Agreement," "Agreements with
Certain Securityholders and Directors" and "Additional Information Required
Under UK Law" is incorporated herein by reference.

ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.

The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the captions "Background of and Reasons for the
Offer -- Opinion of Lehman Brothers" and " -- Opinion of Bear Stearns" and "The
Offer -- General," and "-- Fees and Expenses of the Offer" is incorporated
herein by reference.

ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.

The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the captions "Summary Selected Financial
Data -- Selected Unaudited Pro Forma Combined Financial Information,"
"Description of GTS," "Selected Historical Consolidated Financial Data of GTS,"
"Financial Information Concerning GTS" and "GTS Management's Discussion and
Analysis of Financial Condition and Results of Operations" is incorporated
herein by reference.

ITEM 10. ADDITIONAL INFORMATION.

(a) The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the captions "The Offer -- Interests of Certain
Persons in the Offer," "The Offer Agreement" and "Additional Information
Required Under UK Law" is incorporated herein by reference.

(b) - (c) The information set forth in the Offering Circular/Proxy
Statement/Prospectus under the captions "Risk Factors -- Risks Relating to
Regulatory Approvals" and "The Offer -- Certain Regulatory Approval and Legal
Matters" is incorporated herein by reference.

(d) None.

(e) None.

(f) The information set forth in the Offering Circular/Proxy
Statement/Prospectus and the related Form of Acceptance, Letter of Transmittal
and Notice of Guaranteed Delivery is incorporated herein by reference in its
entirety.
<PAGE> 5

ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.

<TABLE>
<C> <S>
(a)(1) -- Offering Circular/Proxy Statement/Prospectus.
(a)(2) -- Form of Proxy.
(a)(3) -- Form of Acceptance with respect to Esprit Telecom
Ordinary Shares.
(a)(4) -- Form of Letter of Transmittal with respect to Esprit
Telecom ADSs.
(a)(5) -- Form of Notice of Guaranteed Delivery.
(a)(6) -- Form of Letter from Bear Stearns International Limited
and Bear, Stearns & Co. Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and other Nominees.
(a)(7) -- Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees to Clients.
(a)(8) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(9) -- Letter to securityholders of Esprit Telecom (included in
Exhibit (a)(1) hereto).
(a)(10) -- Press Announcement issued by GTS and Esprit Telecom on
December 8, 1998.
(a)(11) -- Press Release issued by GTS and Esprit Telecom on
December 8, 1998.
(a)(12) -- Press Release issued by GTS and Esprit Telecom on
December 9, 1998.
(a)(13) -- Summary Advertisement in the Wall Street Journal dated
February 2, 1999.
(a)(14) -- Press Release issued by GTS, dated February 2, 1999,
announcing the mailing of the Offering Circular/Proxy
Statement/Prospectus to GTS stockholders and Esprit
Telecom securityholders.
(b) -- None.
(c)(1) -- Offer Agreement, dated as of December 8, 1998, among GTS
and Esprit Telecom (included in Exhibit (a)(1) hereto as
Annex B).
(d) -- None.
(e) -- Offering Circular/Proxy Statement/Prospectus (included as
Exhibit (a)(1) hereto).
(f) -- None.
</TABLE>
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After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.

February 2, 1999

Global TeleSystems Group, Inc.

By: /s/ GRIER C. RACLIN
----------------------------------
Name: Grier C. Raclin
Title: Senior Vice President and
General Counsel
<PAGE> 7

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
(a)(1) -- Offering Circular/Proxy Statement/Prospectus
(a)(2) -- Form of Proxy
(a)(3) -- Form of Acceptance with respect to Esprit Telecom
Ordinary Shares
(a)(4) -- Form of Letter of Transmittal with respect to Esprit
Telecom ADSs
(a)(5) -- Form of Notice of Guaranteed Delivery
(a)(6) -- Form of Letter from Bear Stearns International Limited
and Bear, Stearns & Co. Inc. to Brokers, Dealers,
Commercial Banks, Trust Companies and other Nominees
(a)(7) -- Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees to Clients
(a)(8) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
(a)(9) -- Letter to securityholders of Esprit Telecom (included in
Exhibit (a)(1) hereto)
(a)(10) -- Press Announcement issued by GTS and Esprit Telecom on
December 8, 1998
(a)(11) -- Press Release issued by GTS and Esprit Telecom on
December 8, 1998
(a)(12) -- Press Release issued by GTS and Esprit Telecom on
December 9, 1998
(a)(13) -- Summary Advertisement in the Wall Street Journal dated
February 2, 1999
(a)(14) -- Press Release issued by GTS, dated February 2, 1999,
announcing the mailing of the Offering Circular/Proxy
Statement/Prospectus to GTS stockholders and Esprit
Telecom securityholders
(b) -- None
(c)(1) -- Offer Agreement, dated as of December 8, 1998, among GTS
and Esprit Telecom (included in Exhibit (a)(1) as Annex
B)
(d) -- None
(e) -- Offering Circular/Proxy Statement/Prospectus (included as
Exhibit (a)(1) hereto)
(f) -- None
</TABLE>

<PAGE> 1

EXHIBIT (a)(1)

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in
any doubt about the action you should take, you are recommended to seek
financial advice immediately from an appropriately authorized independent
financial advisor or, if you are in the United Kingdom, an independent financial
advisor authorized under the UK Financial Services Act 1986.

OFFERING CIRCULAR/PROXY STATEMENT/PROSPECTUS

[BEAR STEARNS INTERNATIONAL LIMITED LETTERHEAD]
FEBRUARY 2, 1999

To holders of Esprit Telecom Group plc ordinary shares and ADSs and, for
information only, to participants in the
Esprit Telecom Share Option Schemes:

Bear, Stearns International Limited and Bear, Stearns & Co. Inc. hereby
offer, on behalf of Global TeleSystems Group, Inc., to acquire all the ordinary
shares of 1 pence each (including those represented by ADSs) of Esprit Telecom
Group plc in exchange for new shares of common stock of GTS on the following
basis:

- for each Esprit Telecom ordinary share, 0.1271 of a share of GTS common
stock; and

- for each Esprit Telecom ADS, 0.89 of a share of GTS common stock.

Based on the Nasdaq closing price of $62.63 per share of GTS common stock on
January 29, 1999 (the latest practicable date prior to the publication of this
document) the offer values each Esprit Telecom ordinary share at $7.96 (L4.84),
each Esprit Telecom ADS at $55.74 (L33.87) and the entire issued share capital
of Esprit Telecom, on a fully diluted basis, at approximately $1.136 billion
(L690 million) (based on an exchange rate of L1.00 to $1.6457). This represents
a premium of approximately 84.25% over the middle market price of an Esprit
Telecom ADS on Nasdaq at the close of business on December 7, 1998, the last
business day prior to the announcement of the offer.

The terms and conditions of the offer are contained in this Offering
Circular/Proxy Statement/Prospectus.

TO ACCEPT THE OFFER, THE FORM OF ACCEPTANCE (FOR ESPRIT TELECOM ORDINARY
SHARES) OR THE LETTER OF TRANSMITTAL (FOR ESPRIT TELECOM ADSS) MUST BE COMPLETED
AND RETURNED AS SOON AS POSSIBLE AND, IN ANY EVENT, SO AS TO BE RECEIVED BY NO
LATER THAN 3:00 P.M. (LONDON TIME), 10:00 A.M. (NEW YORK CITY TIME), ON MARCH 4,
1999. THE PROCEDURE FOR ACCEPTANCE OF THE OFFER IS SET OUT ON PAGES 72 TO 79 OF
THIS DOCUMENT AND IN THE ACCOMPANYING FORM OF ACCEPTANCE AND LETTER OF
TRANSMITTAL.

Upon the offer being declared unconditional in all respects, the offer will
be extended for a subsequent offer period of at least 14 calendar days. Holders
of Esprit Telecom ordinary shares and Esprit Telecom ADSs, as the case may be,
will have withdrawal rights prior to the offer being declared unconditional in
all respects but, except in limited circumstances, not during the extended offer
period.

FOR FURTHER INFORMATION REGARDING THE OFFER, PLEASE CAREFULLY READ THIS
DOCUMENT AND, SPECIFICALLY, THE "RISK FACTORS" BEGINNING ON PAGE 17. If you have
more questions about the offer or would like additional copies of this Offering
Circular/Proxy Statement/Prospectus, you should contact: Georgeson & Company,
the information agent for the offer, at (800) 223-2064 (toll-free), in the US,
and (44) 171 335 8600 (collect), outside of the US.

Yours sincerely,

/s/ RICHARD STRANG /s/ H. ANDREW DECKER
Richard Strang H. Andrew Decker
Senior Managing Director Senior Managing Director
Bear, Stearns International Limited Bear, Stearns & Co. Inc.
</TABLE>

NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED THE SHARES OF
GTS COMMON STOCK TO BE ISSUED UNDER THIS OFFERING CIRCULAR/PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS OFFERING CIRCULAR/PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

This Offering Circular/Proxy Statement/Prospectus is dated February 2, 1999
and is first being mailed to stockholders on or about February 2, 1999.
<PAGE> 2

IF YOU HAVE SOLD OR OTHERWISE TRANSFERRED all of your Esprit Telecom ordinary
shares or Esprit Telecom ADSs, please send this document, the accompanying Form
of Acceptance or Letter of Transmittal and Notice of Guaranteed Delivery as soon
as possible to the purchaser or transferee or to the stockbroker, bank or other
agent through whom the sale or transfer was effected, for transmission to the
purchaser or transferee. However, such documents should not be forwarded or
transmitted in or into Canada, Japan or Australia.

The offer is not being made, directly or indirectly, in or into, nor is the
offer capable of acceptance from, Canada, Australia or Japan. Accordingly,
neither this document nor the Form of Acceptance or Letter of Transmittal and
Notice of Guaranteed Delivery are to be mailed or otherwise distributed or sent
in or into Canada, Australia or Japan.

Application has been made for the new GTS common stock to be quoted on EASDAQ
and will be made for it to be quoted on Nasdaq, under the symbol "GTSG". It is
expected that the listings will become effective and that dealings, for normal
settlement, will commence on Nasdaq and EASDAQ in the new GTS common stock on
the first trading day following the day on which the offer becomes or is
declared unconditional in all respects (except only, for the quotation of such
shares on Nasdaq and EASDAQ becoming effective).

Bear, Stearns International Limited, which is regulated in the United Kingdom by
The Securities and Futures Authority Limited in the conduct of its investment
business in the United Kingdom, and Bear, Stearns & Co. Inc. are acting
exclusively for GTS and no one else in connection with the offer and will not be
responsible under the regulations of The Securities and Futures Authority
Limited to anyone other than GTS for providing the protections afforded to
customers of either Bear Stearns entity nor for giving advice in relation to the
offer. The provisions of this paragraph are not intended to disclaim any
liability of either Bear Stearns entity under U.S. securities laws.

Lehman Brothers International (Europe), which is regulated in the United Kingdom
by The Securities and Futures Authority Limited in the conduct of its investment
business in the United Kingdom, is acting exclusively for Esprit Telecom and no
one else in connection with the offer and will not be responsible under the
regulations of The Securities and Futures Authority Limited to anyone other than
Esprit Telecom for providing the protections afforded to customers of Lehman
Brothers International (Europe) nor for giving advice in relation to the offer.
The provisions of this paragraph are not intended to disclaim any liability of
Lehman Brothers International (Europe) under U.S. securities laws.

WARNING TO ALL ESPRIT TELECOM SECURITYHOLDERS IN RELATION TO THE BELGIAN LAW
ASPECTS OF THIS OFFER: NUMEROUS ASPECTS OF THIS OFFER ARE BEING CARRIED OUT
PURSUANT TO APPLICABLE US AND UK RULES AND PROCEDURES. THE ATTENTION OF ALL
ESPRIT TELECOM SECURITYHOLDERS IN BELGIUM WISHING TO RESPOND TO THIS OFFER
SHOULD BE DRAWN TO THE FACT THAT THE US AND UK RULES AND PROCEDURES DIFFER IN
VARIOUS WAYS FROM THE PROCEDURES AND RULES PROVIDED FOR IN THE BELGIAN ROYAL
DECREE OF NOVEMBER 8, 1989 ON PUBLIC TAKEOVER BIDS AND CHANGES IN CONTROL OF
COMPANIES.
<PAGE> 3

QUESTIONS AND ANSWERS ABOUT THE OFFER

Q: WHAT ARE THE BENEFITS OF THE TRANSACTION?

A: GTS believes that the businesses of GTS and Esprit Telecom are
complementary and that benefits will result from combining them. GTS
expects the combination will assist the companies in realizing their mutual
goals of becoming the pre-eminent providers of carrier's carrier and
business communications services throughout Europe.

Q: WHAT DO I NEED TO DO NOW?

A: After you read and consider carefully the information included in this
mailing, please fill out and sign the enclosed form of acceptance (for
Esprit Telecom ordinary shares) or letter of transmittal or notice of
guaranteed delivery (for Esprit Telecom ADSs) and return the relevant
documentation to the appropriate address shown on page 76.

Q: HOW SOON AFTER RECEIVING MY NEW GTS STOCK MAY I SELL SUCH STOCK?

A: All new GTS stock received by Esprit Telecom securityholders will be freely
transferable immediately. However, Esprit Telecom securityholders who may
be deemed to be affiliates of Esprit Telecom prior to the offer may be
subject to restrictions under US securities laws and such persons may be
permitted to resell new GTS stock only in transactions permitted by the
resale provisions of Rule 145 or another available exemption under the
Securities Act.

Q: CAN I WITHDRAW ANY SHARES OR ADSs THAT I HAVE TENDERED?

A: You will have the right to withdraw any tendered Esprit Telecom ordinary
shares or Esprit Telecom ADSs at any time prior to the time the offer
becomes or is declared unconditional in all respects and in certain other
limited circumstances. To review the detailed provisions in respect of your
rights of withdrawal, see page 78.

Q: WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED?

A: GTS is working towards completing the transaction as soon as possible. For
the transaction to occur, it must be approved by the stockholders of GTS
and the other conditions to the offer must be satisfied. If the
stockholders of GTS approve the transaction GTS expects to complete the
transaction promptly after the GTS special meeting, which will be held on
March 3, 1999.

Q: WHAT ARE THE TAX CONSIDERATIONS OF THE TRANSACTION?

A: The transaction generally will be tax-free to Esprit Telecom
securityholders for US Federal income tax purposes. The holders of Esprit
Telecom securities will be entitled to receive "roll-over" treatment for UK
tax purposes.

WHO CAN HELP ANSWER MY OTHER QUESTIONS?

If you have more questions about the transaction, you should contact the
information agent:

LOGO

Wall Street Plaza
New York, New York 10005
Banks and Brokers call: (212) 440-9800 (collect)
All others call: (800) 223-2064 (toll-free)

For holders outside the United States call:
(44) 171 335 8600 (collect)
<PAGE> 4

OFFERING CIRCULAR/PROXY STATEMENT/PROSPECTUS

FEBRUARY 2, 1999 [GLOBAL TELESYSTEMS GROUP, INC. LETTERHEAD]

To Global TeleSystems Group, Inc. stockholders:

We are pleased to inform you that the Boards of Global TeleSystems Group,
Inc. and Esprit Telecom Group plc have agreed to an offer whereby GTS will
acquire all Esprit Telecom ordinary shares (including those represented by
Esprit Telecom ADSs) in exchange for new shares of common stock of GTS. The
Boards of both companies have unanimously recommended the transaction to their
stockholders. Under the offer, Esprit Telecom securityholders will receive
0.1271 of a share of new GTS stock for each Esprit Telecom ordinary share and
0.89 of a share of new GTS stock for each Esprit Telecom ADS.

GTS believes that the businesses of GTS and Esprit Telecom are
complementary and that benefits will result from combining them. GTS expects
that combination will assist the companies in their mutual goals of becoming the
pre-eminent providers of carrier's carrier and business communications services
throughout Europe.

The terms and conditions of the offer are contained in this Offering
Circular/Proxy Statement/Prospectus.

The transaction is subject to approval by GTS stockholders of resolutions
authorizing the issuance of shares in the offer, the acceptance of the offer by
the holders of 90% of the Esprit Telecom ordinary shares (including those
represented by Esprit Telecom ADSs) outstanding (or at GTS' discretion
acceptance by holders of any percentage not less than 50%) and certain other
customary conditions.

The initial offer period for the offer will expire at 3:00 p.m. (London
time), 10:00 a.m. (New York City time), on March 4, 1999, unless extended. Upon
expiration of the initial offer period, if all of the conditions to the offer
have been satisfied or, where permitted, waived, the offer will be extended for
a subsequent offer period of at least 14 calendar days. Holders of Esprit
Telecom ordinary shares and Esprit Telecom ADSs, as the case may be, will have
withdrawal rights prior to the satisfaction or waiver of all the conditions to
the offer, but not during the extended offer period.

WE URGE YOU TO VOTE IN FAVOR OF THE RESOLUTIONS TO BE PROPOSED IN
CONNECTION WITH THE OFFER. Even if you plan to attend the special meeting in
person, please complete, sign, date and promptly return the enclosed proxy card
in the enclosed postage-prepaid envelope.

FOR FURTHER INFORMATION REGARDING THE OFFER, PLEASE CAREFULLY READ THIS
DOCUMENT AND, SPECIFICALLY, "RISK FACTORS" BEGINNING ON PAGE 17. If you have
more questions about the offer or would like additional copies of the
accompanying Offering Circular/Proxy Statement/Prospectus, you should contact:
Georgeson & Company, GTS' solicitation agent, at (800) 223-2064 (toll-free), in
the US, and (44) 171 335 8600 (collect), outside of the US.

Sincerely,

/s/ ALAN B. SLIFKA /s/ GERALD W. THAMES
Alan B. Slifka Gerald W. Thames
Chairman of the Board President and Chief Executive Officer
</TABLE>

This Offering Circular/Proxy Statement/Prospectus is dated February 2, 1999
and is first being mailed to stockholders on or about February 2, 1999.
<PAGE> 5

[GLOBAL TELESYSTEMS GROUP, INC. LETTERHEAD]

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 3, 1999

To the Stockholders of
Global TeleSystems Group, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Global
TeleSystems Group, Inc., a Delaware corporation, will be held on Wednesday,
March 3, 1999, at the offices of GTS at 1751 Pinnacle Drive, North Tower, 12th
Floor, McLean, VA 22102 commencing at 10:00 a.m., local time, for the following
purposes:

1. To consider and vote upon a proposal to issue new common stock to
acquire all the issued Esprit Telecom Group plc ordinary shares and
ADSs.

2. To transact such other business as may properly be brought before the
special meeting or any adjournment or postponement of the special
meeting.

Stockholders of record at the close of business on January 29, 1999 are
entitled to notice of, and to vote at, the special meeting and any adjournment
or postponement of the special meeting. A complete list of stockholders entitled
to vote at the special meeting will be available for inspection by any
stockholder for any purpose germane to the special meeting for ten days prior to
the special meeting during ordinary business hours at the headquarters of GTS
located at 1751 Pinnacle Drive, North Tower -- 12th Floor, McLean, VA 22102.

All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to
complete, sign, date and return the enclosed proxy card as promptly as possible
in the enclosed postage-prepaid envelope.

By Order of the Board of Directors,

GRIER C. RACLIN
Corporate Secretary

McLean, Virginia
February 2, 1999

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. DO
NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
<PAGE> 6

QUESTIONS AND ANSWERS ABOUT THE OFFER

Q: WHAT ARE THE BENEFITS OF THE TRANSACTION?

Q: WHAT DO I NEED TO DO NOW?

A: After you read and consider carefully the information included in this
mailing, please fill out and sign your proxy card. Then mail your signed
proxy card in the enclosed return envelope as soon as possible so that your
shares may be represented at the GTS special meeting.

Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?

A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. If you abstain or do not
instruct your broker how to vote, this will have the same effect as a vote
against the proposal.

Q: CAN I CHANGE MY VOTE OR REVOKE MY PROXY AFTER I HAVE MAILED MY SIGNED PROXY
CARD?

A: You can change your vote at any time before your proxy is voted at the GTS
special meeting. You can do this in one of three ways.

First, you can send a written notice stating that you would like to revoke
your proxy. Second, you can complete and submit a new proxy card. If you
choose either of these methods, you must timely submit your notice of
revocation or your new proxy card to the company and at the address shown
below. Third, you can attend the GTS special meeting and vote in person.
Simply attending a meeting, however, will not revoke your proxy. If you
have instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.

Q: WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED?

A: GTS is working towards completing the transaction as soon as possible. For
the transaction to occur, it must be approved by the stockholders of GTS
and the other conditions to the offer must be satisfied. If the
stockholders of GTS approve the transaction we expect to complete the
transaction promptly after the GTS special meeting, which will be held on
March 3, 1999.

Q: WHAT ARE THE TAX CONSIDERATIONS OF THE TRANSACTION?

A: Because you are not receiving or exchanging any securities, the transaction
should have no effect to you for US federal income tax purposes. To review
the tax considerations of the transaction in greater detail, see pages 89
through 93 and pages 230 through 232.

WHO CAN HELP ANSWER MY OTHER QUESTIONS?

If you have more questions about the transaction, you should contact the
solicitation agent:

LOGO

Wall Street Plaza
New York, New York 10005
Banks and Brokers call: (212) 440-9800 (collect)
All others call: (800) 223-2064 (toll-free)

For holders outside the United states call:
(44) 171 335 8600 (collect)
<PAGE> 7

TABLE OF CONTENTS

<TABLE>
<S> <C>
SUMMARY.......................................... 1
SUMMARY SELECTED FINANCIAL DATA.................. 8
Selected Historical Financial Information of
GTS.......................................... 8
Supplemental Information -- Summary Historical
Financial Information of GTS -- Combined
Equity Investments........................... 9
Selected Historical Financial Information of
Esprit Telecom............................... 10
Summary Unaudited Pro Forma Combined Financial
Information.................................. 11
Comparative Per Share Information.............. 12
Comparative Market Price and Dividend
Information.................................. 13
CERTAIN UK AND US REGULATORY INFORMATION......... 15
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS..................................... 16
RISK FACTORS..................................... 17
Risks Relating to the Offer and Combined
Operations of the Companies.................. 17
Risks Relating to the Combined Business and the
Industry..................................... 18
Risks Specific to GTS.......................... 19
Risks Specific to Esprit Telecom............... 39
BACKGROUND OF AND REASONS FOR THE OFFER.......... 53
Background of the Offer........................ 53
The Esprit Telecom Board's Reasons for
Recommending the Offer; Recommendation of
Esprit Telecom Board......................... 55
Opinion of Lehman Brothers..................... 56
The GTS Board's Reasons for the Offer;
Recommendation of the GTS Board.............. 61
Opinion of Bear Stearns........................ 62
Purpose of the Offer; Plans for Esprit
Telecom...................................... 67
Possible Effects of the Offer on the Market for
Esprit Telecom ADSs.......................... 67
Change of Control Consent Solicitation......... 67
THE OFFER........................................ 68
General........................................ 68
Conditions to the Offer........................ 68
Terms of the Offer............................. 69
Interests of Certain Persons in the Offer...... 70
Procedures for Accepting the Offer -- All
Holders of Esprit Telecom Securities......... 72
Dividends and Distributions.................... 79
Compulsory Acquisition; Appraisal Rights....... 79
Fees and Expenses of the Offer................. 80
Certain Regulatory Approvals and Legal
Matters...................................... 80
Accounting Treatment........................... 81
U.S. Federal Securities Laws................... 81
New GTS Stock.................................. 81
Certain Information Concerning GTS............. 82
THE GTS SPECIAL MEETING OF STOCKHOLDERS.......... 82
General; Date, Time and Place.................. 82
Purpose of the Special Meeting................. 82
Recommendation of the GTS Board................ 82
Stockholders Entitled to Vote; Vote Required... 82
Proxies........................................ 83
THE OFFER AGREEMENT.............................. 84
AGREEMENTS WITH CERTAIN SECURITYHOLDERS AND
DIRECTORS...................................... 86
TAX CONSEQUENCES OF THE OFFER AND COMPULSORY
ACQUISITION.................................... 89
United States Federal Income Tax
Consequences................................. 89
United Kingdom Tax Consequences................ 91
UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS..................................... 94
EXCHANGE RATES................................... 102
DESCRIPTION OF CERTAIN GTS INDEBTEDNESS.......... 102
DESCRIPTION OF GTS CAPITAL STOCK................. 106
COMPARATIVE RIGHTS OF SHAREHOLDERS............... 111
LEGAL MATTERS.................................... 117
EXPERTS.......................................... 118
CERTAIN INFORMATION CONCERNING GTS............... 119
Description of GTS............................. 119
Selected Historical Consolidated Financial Data
of GTS....................................... 169
Supplemental Information -- Selected Historical
Financial Data of GTS -- Combined Equity
Investments.................................. 170
GTS Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 172
Directors and Executive Officers of GTS........ 190
Executive Compensation and Other Information... 197
Certain Related Party Transactions............. 201
Principal GTS Stockholders..................... 204
CERTAIN INFORMATION CONCERNING ESPRIT TELECOM.... 207
Description of Esprit Telecom.................. 207
Selected Historical Financial Data of Esprit Telecom... 208
WHERE YOU CAN FIND MORE INFORMATION.............. 210
ADDITIONAL INFORMATION REQUIRED UNDER UK LAW..... 212
SUPPLEMENTAL INFORMATION REQUIRED BY BELGIAN
REGULATIONS.................................... 229
DEFINITIONS...................................... 234
INDEX TO FINANCIAL INFORMATION CONCERNING GTS.... F-1
INDEX TO FINANCIAL INFORMATION CONCERNING ESPRIT
TELECOM........................................ F-54
ANNEXES.......................................... A-1
Annex A -- Conditions and Further Terms of the Offer
Annex B -- The Offer Agreement
Annex C -- Opinion of Bear Stearns
Annex D -- Opinion of Lehman Brothers
Annex E -- Irrevocable Undertaking by Walter Anderson
Annex F -- Irrevocable Undertaking by Apax Funds
Nominees Limited
Annex G -- Irrevocable Undertaking by Gold & Appel
Transfer S.A.
Annex H -- Irrevocable Undertaking by Warburg, Pincus
Ventures, L.P.
Annex I -- Irrevocable Undertaking by Sir Robin Biggam
Annex J -- Irrevocable Undertaking by John McMonigall
Annex K -- Irrevocable Undertaking by Roy Merritt
Annex L -- Irrevocable Undertaking by David Oertle
Annex M -- Irrevocable Undertaking by Michael Potter
Annex N -- Irrevocable Undertaking by Dominic Shorthouse
Annex O -- Certain Provisions of the Companies Act 1985
of the United Kingdom
</TABLE>

(i)
<PAGE> 8

SUMMARY

This Summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the offer
fully and for a more complete description of the legal terms of the offer, you
should read carefully this entire document and the documents to which we have
referred you. See "Where You Can Find More Information" (page 210). We encourage
you to read this entire document and the documents incorporated by reference in
this document. FOR THE DEFINITIONS OF CAPITALIZED TERMS USED IN THIS OFFERING
CIRCULAR/PROXY STATEMENT/PROSPECTUS, PLEASE SEE "DEFINITIONS" (PAGE 234).

THE COMPANIES (PAGES 119 THROUGH 209)

GLOBAL TELESYSTEMS GROUP, INC.
1751 Pinnacle Drive
North Tower -- 12th Floor
McLean, Virginia 22102
U.S.A.

GTS is a provider of a broad range of telecommunications services to
businesses, other telecommunication service providers and consumers in Western
Europe, the Commonwealth of Independent States and Central Europe. GTS recently
began a restructuring of its operations into five primary lines of business: GTS
Carrier Services, which through Hermes Europe Railtel B.V. ("HER") provides
cross-border transport in Europe to other telecommunications companies; GTS
Access Services, which provides facilities-based access services to businesses
throughout Europe; GTS Business Services -- Western Europe, which offers voice,
data, Internet and other telecommunications services to businesses; GTS Business
Services -- CIS, where GTS is an alternative provider of high quality
telecommunications services in Moscow, Kiev, St. Petersburg and other cities in
Russia and the CIS through its Sovintel, TCM, Sovam and TeleRoss ventures; and
GTS Mobile Services -- CIS, which operates cellular businesses in Russia and the
Ukraine. To date, most of GTS' revenues have been derived from its operations in
Russia and other CIS countries. See "Risk Factors -- Risks Specific to
GTS -- Risks Relating to Operations in Russia and the CIS" (page 27).
Headquartered in the metropolitan Washington DC area, GTS' affiliates have
offices in London, Brussels, Moscow, Budapest, Kiev, Prague and Paris.
ESPRIT TELECOM GROUP plc
Minerva House
Valpy Street
Reading RG1 1AR
United Kingdom

Esprit Telecom is a rapidly growing European telecommunications company,
providing high quality, competitively priced, international and national long
distance telecommunications services to retail customers and other
telecommunication service providers. Esprit Telecom has 31 switches or points of
presence in eight countries in Europe, as well as Washington, D.C. and New York
through arrangements with US carriers. Esprit Telecom has initiated a program to
own and control the key elements of the Esprit Network infrastructure including
building five resilient SDH broadband fiber rings in Europe.

THE ESPRIT TELECOM BOARD'S REASONS FOR RECOMMENDING THE OFFER; RECOMMENDATION OF
THE ESPRIT TELECOM BOARD (PAGES 55 THROUGH 56)

The Esprit Telecom board of directors, which has been advised by Lehman
Brothers, has determined that the terms of the offer are fair and reasonable to,
and in the best interests of, Esprit Telecom and the holders of Esprit Telecom
ordinary shares and ADSs. In making this determination, the Esprit Telecom board
of directors considered a number of factors, including, without limitation, the
following:

- that the respective businesses of each company are complementary and a
range of economic, strategic and operational benefits could arise from
combining them;

- that the offer should enable all holders of Esprit Telecom ordinary
shares and ADSs to realize a substantial premium over the average price
at which the Esprit Telecom ADSs were trading during the past year prior
to the announcement of the offer and

1
<PAGE> 9

an opportunity to retain an equity interest in the combined business; and

- the written opinion of Lehman Brothers that, from a financial point of
view the exchange ratio was fair to holders of Esprit Telecom ordinary
shares and ADSs.

THE BOARD OF DIRECTORS OF ESPRIT TELECOM UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF ESPRIT TELECOM ORDINARY SHARES AND ESPRIT TELECOM ADSs ACCEPT THE
OFFER.

THE GTS BOARD'S REASONS FOR THE OFFER; RECOMMENDATION OF THE GTS BOARD (PAGES 61
THROUGH 62)

The GTS board of directors has determined that the terms of the offer are
fair to, and in the best interests of, GTS and its stockholders. In making this
determination, the GTS board of directors considered a number of factors,
including the following:

- its belief that the businesses of GTS and Esprit Telecom are
complementary and that a range of economic, strategic and operational
benefits will result from combining them;

- its view that the combination with Esprit Telecom should strengthen the
combined business position as the most developed pan-European carrier's
carrier;

- the fact that key members of Esprit Telecom will remain through a
transition period or longer;

- the reputation of Esprit Telecom in the markets where it operates; and

- the written opinion of Bear Stearns that the exchange ratio is fair, from
a financial point of view, to the holders of GTS common stock.

THE BOARD OF DIRECTORS OF GTS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF
GTS VOTE IN FAVOR OF THE RESOLUTIONS TO BE PROPOSED AT THE SPECIAL MEETING OF
GTS TO ISSUE GTS COMMON STOCK TO ACQUIRE ALL ISSUED ESPRIT TELECOM ORDINARY
SHARES AND ESPRIT TELECOM ADSs.

THE OFFER

WHAT HOLDERS OF ESPRIT TELECOM ORDINARY SHARES AND ESPRIT TELECOM ADSs WILL
RECEIVE IN THE OFFER (PAGE 68)
Under the offer, holders of Esprit Telecom ordinary shares and ADSs will
receive:

- 0.1271 of a new share of common stock in GTS for every Esprit Telecom
ordinary share; and

- 0.89 of a new share of common stock in GTS for every Esprit Telecom ADS
(one Esprit Telecom ADS equals seven Esprit Telecom ordinary shares).

The exchange ratio was determined as a result of arm's-length negotiations
between Esprit Telecom and GTS. See the section entitled "Background of and
Reasons for the Offer" in this document for a discussion of the matters
considered by, and the negotiations between, the parties.

As of December 7, 1998, the last trading day before the announcement of the
offer, the offer represented a premium of approximately 22.8% over the middle
market price of an Esprit Telecom ADS on Nasdaq at the close of business on such
date. As of January 29, 1999, the last practicable date before the mailing of
this document, the offer represented a premium of approximately 84.25% over the
middle market price of an Esprit Telecom ADS on Nasdaq at the close of business
on December 7, 1998.

As of January 29, 1999, the offer values the entire issued share capital of
Esprit Telecom, on a fully diluted basis, at approximately $1.136 billion (L640
million).

Fractional shares of new GTS common stock will not be issued to holders of
Esprit Telecom ordinary shares and ADSs but will be aggregated and sold in the
market. The proceeds of such sale will be paid to holders of Esprit Telecom
ordinary shares and Esprit Telecom ADSs, except if any person is entitled to
cash in an amount less than $2, such amount will not be paid but will be
retained by GTS.

Esprit Telecom option holders will have the opportunity to roll over their
Esprit Telecom options into GTS stock options substantially on the same terms as
the existing Esprit Telecom

2
<PAGE> 10

options and on the same exchange ratio as the offer.

GTS stockholders will not receive or exchange any securities pursuant to
the offer.

TERMS AND CONDITIONS TO THE OFFER (PAGES 68 THROUGH 70)

GTS' obligation to complete the offer is subject to the satisfaction or
waiver of several conditions. These conditions include:

- the receipt by GTS of valid acceptances representing not less than 90%
(or such lesser percentage above 50% as GTS may decide prior to the offer
being declared unconditional) of Esprit Telecom ordinary shares
(including those represented by ADSs). If GTS agrees that it will accept
a lesser percentage of Esprit Telecom securities as a condition to the
offer, GTS will announce that it will do so at least five US business
days in advance thereof and in any event, no later than five US business
days in advance of the offer being declared unconditional. Holders of
Esprit Telecom ordinary shares and Esprit Telecom ADSs should be prepared
to withdraw their acceptances promptly following such announcement if
they are unwilling to accept such lesser percentage;

- the approval by GTS' stockholders of resolutions authorizing the issuance
of GTS shares in the offer; and

- certain conditions relating to Esprit Telecom, including that there has
been no material adverse change in the business, assets or prospects of
Esprit Telecom.

The offer will be open for acceptance for an initial offer period, during
which time, all conditions to the offer must have been satisfied or waived. Upon
the satisfaction or waiver of the conditions, the offer will be declared
unconditional and the initial offer period will expire. The offer will then be
extended for a subsequent offer period of at least 14 calendar days, as required
by the rules of the UK City Code on Takeovers and Mergers, during which time
holders of Esprit Telecom ordinary shares and ADSs who have not tendered such
securities may do so.

To review the entire set of terms and conditions relating to the offer, see
Annex A.

RIGHTS OF WITHDRAWAL (PAGE 78)

Holders of Esprit Telecom securities will be able to withdraw their
acceptances at any time prior to the expiration of the initial offer period, but
not during the subsequent offer period, except in certain limited circumstances.
In order to withdraw their acceptances, holders of Esprit Telecom securities
must submit a written notice of withdrawal to the receiving agent, for ordinary
shares, and to the US depositary for Esprit Telecom ADSs.

PROCEDURES FOR ACCEPTING THE OFFER (PAGES 72 THROUGH 79)

In order to tender their shares, holders of Esprit Telecom ordinary shares
must complete the Form of Acceptance and return the completed form to the
Receiving Agents, together with the relevant share certificate(s) or other
documents of title. Holders of Esprit Telecom ordinary shares may direct
questions concerning the procedures for accepting the offer to the receiving
agent, 44 181-639-2188 in the UK.

Holders of Esprit Telecom ADSs may accept the offer by doing one of the
following:

- completing the Letter of Transmittal, together with any required
signature guarantees, and sending the completed forms, together with the
Esprit Telecom ADRs evidencing the Esprit Telecom ADSs, to the US
Depositary; or

- tendering the ADRs through a financial institution which is an eligible
institution, by completing a Notice of Guaranteed Delivery and sending
the completed form to the US Depositary or the Belgian Receiving Agent
(where applicable), and then sending the Esprit Telecom ADRs evidencing
the Esprit Telecom ADSs, together with a completed Letter of Transmittal,
to the US Depositary or the Belgian Receiving Agent (where applicable),
to arrive within three Nasdaq trading days of delivery of the Notice of
Guaranteed Delivery.

3
<PAGE> 11

Holders of Esprit Telecom ADSs may direct all questions concerning the
procedures for accepting the offer to Georgeson & Company, the information agent
for the offer, at (800) 223-2064 (toll free), in the US, and (44) 171 335 8600
(collect), outside of the US.

Holders of Esprit Telecom ordinary shares and Esprit Telecom ADSs may
direct all other questions concerning the offer to Georgeson & Company at the
telephone numbers listed above.

Holders of Esprit Telecom ordinary shares and ADSs do not need to take any
action in order to reject the offer.

COMPULSORY ACQUISITION (PAGES 79 THROUGH 80)

If, on or before June 2, 1999, GTS acquires Esprit Telecom ordinary shares
and Esprit Telecom ADSs representing in the aggregate at least 90% of the issued
share capital of Esprit Telecom, GTS intends to compel the exchange (and a
holder of any remaining Esprit Telecom ordinary shares or Esprit Telecom ADSs
may compel the exchange) of the remainder of the issued share capital of Esprit
Telecom on the same terms as the offer, in accordance with UK law.

IMPACT OF THE OFFER ON THE ESPRIT ADS MARKET

The Esprit Telecom ADSs are presently listed and traded on Nasdaq and
EASDAQ. Upon completion of the offer and compulsory acquisition, GTS intends, if
it has not already occurred, to seek the delisting of Esprit Telecom ADSs from
Nasdaq and EASDAQ and their deregistration under the Exchange Act. The Esprit
Telecom ordinary shares are not listed on any exchange.

GTS PLANS FOR ESPRIT TELECOM (PAGE 67)

After acquiring all of the outstanding ordinary shares and ADSs of Esprit
Telecom, GTS plans to integrate Esprit Telecom into GTS' overall business and
corporate structure. As part of its integration strategy, GTS may engage in
certain transactions, including contributing assets, such as the recently
acquired NetSource Europe ASA, purchasing assets from Esprit Telecom and
effecting an exchange offer with respect to Esprit Telecom's outstanding bonds.

PURPOSE OF THE GTS SPECIAL MEETING (PAGE 82)

The purpose of the special meeting is to consider and vote upon:

- a proposal to issue new common stock to acquire all issued Esprit Telecom
ordinary shares and Esprit Telecom ADSs not already owned by GTS; and

- such other business as may properly be brought before the special
meeting.

DATE, TIME AND PLACE OF THE GTS SPECIAL MEETING (PAGE 82)

The special meeting will be held on Wednesday, March 3, 1999, at 1751
Pinnacle Drive, North Tower, 12th Floor, McLean, VA 22102, commencing at 10:00
a.m., local time.

STOCKHOLDERS ENTITLED TO VOTE AT THE GTS SPECIAL MEETING; VOTES REQUIRED (PAGE
82)

The close of business on January 29, 1999 is the record date for the
special meeting. Only GTS stockholders on the record date are entitled to notice
of and to vote at the special meeting. On the record date, there were 64,988,680
shares of GTS common stock outstanding. Each share of GTS common stock will be
entitled to one vote on each matter to be acted upon at the special meeting.

A vote by holders of a majority of the shares of GTS common stock
outstanding on the record date is required to adopt the proposal at the special
meeting to issue new common stock in the offer. If a GTS stockholder abstains or
does not instruct his or her broker how to vote, this will have the same effect
as a vote against the proposal.

GTS stockholders may direct all questions concerning the special meeting or
the offer to Georgeson & Company, GTS' solicitation agent, at (800) 223-2064
(toll-free), in the US, and (44) 171 335 8600 (collect), outside of the US.

INTERESTS OF CERTAIN PERSONS/STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
OF ESPRIT TELECOM (PAGES 70 THROUGH 72)

If you are a holder of Esprit Telecom ordinary shares or Esprit Telecom
ADSs, in considering the Esprit Telecom board's recommendation and in
determining whether or not to tender your Esprit Telecom ordinary shares and
Esprit Telecom ADSs, you should be aware that certain officers and directors of
Esprit Telecom

4
<PAGE> 12

may have interests in the offer that are different from your and their interests
as holders of Esprit Telecom ordinary shares or Esprit Telecom ADSs. These
include the following:

- - The principal holders of Esprit Telecom ordinary shares or Esprit Telecom ADSs
entered into irrevocable agreements requiring them to accept the offer with
respect to 81,968,270 Esprit Telecom ordinary shares (including those
represented by ADSs) beneficially owned by them, representing 65% of the
issued share capital of Esprit Telecom.

- - The directors of Esprit Telecom irrevocably agreed that to the extent any of
their respective Esprit Telecom options become exercisable and they exercise
such options, they would tender such shares in the offer.

- - For a period of six years after the offer becomes unconditional, GTS will
maintain the level of directors and officers liability coverage currently
provided to directors and officers of Esprit Telecom. GTS may, however,
substitute policies of at least the same coverage and amounts. GTS has also
entered into other indemnification arrangements with directors and officers of
Esprit Telecom.

To review the irrevocable agreements, see Annexes E to N.

ESPRIT TELECOM'S AND GTS' AGREEMENT TO TAKE CERTAIN ACTIONS PRIOR TO AND AFTER
THE CLOSING OF THE OFFER (THE OFFER AGREEMENT) (PAGES 84 THROUGH 85)

GTS and Esprit Telecom entered into an offer agreement whereby each party
agreed to take certain actions in connection with the offer.

Esprit Telecom agreed to, among other things:

- not solicit or (subject to director fiduciary duties) engage in
negotiations with respect to an acquisition by a third party of Esprit
Telecom; and

- refrain from discussing the terms of the offer with any third party
without the consent of GTS.

The boards of each of GTS and Esprit Telecom have recommended (subject to
director fiduciary duties) the offer to their respective stockholders and agreed
to cooperate with each other to facilitate the completion of the offer.

To review the offer agreement, see Annex B.

OPINION OF FINANCIAL ADVISORS (PAGES 56 THROUGH 66)

BEAR STEARNS

In deciding to approve the offer, the board of directors of GTS considered
the opinion of its financial advisor, Bear Stearns, as to the fairness of the
exchange ratio from a financial point of view to the holders of GTS common
stock.

In arriving at their opinion, Bear Stearns reviewed various documents, as
well as had discussions with GTS management regarding, among other things,
certain financial information and other data relating to the business and
financial prospects of GTS and Esprit Telecom; certain estimates of revenue
enhancements, cost savings and other combination benefits or synergies expected
to result from the offer; and certain historical stock prices, trading activity
and valuation parameters of GTS common stock, Esprit Telecom ordinary shares and
Esprit Telecom ADSs. The written opinion of Bear Stearns is not a recommendation
as to how GTS stockholders should vote in regard to the resolutions authorizing
the issuance of GTS common stock in connection with the offer. GTS ENCOURAGES
YOU TO READ THE OPINION OF BEAR STEARNS IN ITS ENTIRETY.

LEHMAN BROTHERS

In deciding to accept and recommend the offer to its securityholders, the
Esprit Telecom board considered the opinion of its financial advisor, Lehman
Brothers, as to the fairness of the exchange ratio from a financial point of
view to the holders of Esprit Telecom ordinary shares and Esprit Telecom ADSs.

In connection with delivering its opinion, Lehman Brothers performed a
variety of financial analyses. These analyses included examining the historical
trading price of Esprit Telecom ADSs and GTS common stock, respectively, and
comparing the trading history of each company with that of other relevant
companies, comparing financial terms of the offer with financial terms of recent
relevant transactions and comparing GTS and Esprit Telecom to other relevant
companies.

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<PAGE> 13

The written opinion of Lehman Brothers is not a recommendation as to whether
holders of Esprit Telecom ordinary shares and Esprit Telecom ADSs should tender
their securities in the offer. ESPRIT TELECOM ENCOURAGES YOU TO READ THE OPINION
OF LEHMAN BROTHERS IN ITS ENTIRETY.

REGULATORY APPROVALS (PAGE 80)

Other than in connection with US securities laws or the UK City Code on
Takeovers and Mergers, GTS and Esprit Telecom do not expect that the offer will
require the approval of any governmental authority which, if not received, would
prevent the completion of the offer.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (PAGES 89 THROUGH 91)

The offer and compulsory acquisition generally will be tax free for US
federal income tax purposes to holders of Esprit Telecom ordinary shares and
Esprit Telecom ADSs. Since GTS stockholders are not receiving or exchanging
securities, the offer should have no effect on such stockholders for US federal
income tax purposes.

THE TAX CONSEQUENCES OF THE OFFER AND COMPULSORY ACQUISITION TO YOU MAY
DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISORS
FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE OFFER TO YOU.

UNITED KINGDOM TAX CONSEQUENCES
(PAGES 91 THROUGH 93)
The acceptance of the offer by, or compulsory acquisition from, any holder
of Esprit Telecom ordinary shares (including those represented by Esprit Telecom
ADSs) will be entitled to receive "roll-over" treatment for UK tax purposes.

ACCOUNTING TREATMENT (PAGE 81)

It is expected that, for accounting and financial reporting purposes, the
transaction will be accounted for as a pooling-of-interests transaction, which
means that the companies will be treated as though they had always been
combined.

RISK FACTORS (PAGES 17 THROUGH 52)

There are risk factors that should be considered by you in evaluating how
to vote at the special meeting, if you are a GTS stockholder, or whether to
tender your shares, if you are a holder of Esprit Telecom ordinary shares
(including those represented by Esprit Telecom ADSs). Such risk factors include
the following:

- a fixed exchange ratio despite potential changes in relative stock
prices;

- risks generally associated with combining the operations of two existing
companies;

- risks inherent in the industry or particular to GTS and Esprit Telecom,
including those related to each company's need for additional capital,
the substantial debt of each company, rollout of the HER and Esprit
Telecom networks, implementation of GTS' European services strategy,
competition, government regulation, operations in emerging markets and
changes in technology; and

- risks relating to the instability of the telecommunications market and
political situation in Russia and the Commonwealth of Independent States
which could adversely affect GTS and the market price of GTS stock.

See "Risk Factors" for a discussion of certain factors that should be
considered by GTS stockholders and holders of Esprit Telecom ordinary shares
(including those represented by Esprit Telecom ADSs).

CHANGE OF CONTROL CONSENT SOLICITATION
(PAGE 67)

There were several pre-conditions that had to be satisfied or waived prior
to GTS making the offer. One pre-condition was that Esprit Telecom obtain the
waiver by the holders of certain Esprit Telecom debt of the rights of such
holders under change of control provisions in the instruments governing such
debt to require Esprit Telecom to repurchase their debt upon the consummation of
the offer. Binding waivers were sought and obtained from holders of a majority
in principal amount of such Esprit Telecom debt. All other pre-conditions to GTS
making the offer have been satisfied.

RECENT DEVELOPMENTS (PAGES 120 THROUGH 121)

On November 30, 1998, GTS completed the acquisition of NetSource Europe ASA
for consideration consisting of both cash and stock. Based

6
<PAGE> 14

on the Company's preliminary purchase accounting analysis, the aggregate initial
purchase price paid by GTS for NetSource was $145.4 million. NetSource is a
pan-European provider of long-distance telecommunications services focusing
primarily on small- to medium-sized businesses, with operations in Norway,
Sweden, Germany and Ireland, as well as in the Netherlands, Belgium and Denmark.
The acquisition of NetSource provides the GTS Business Services -- Western
Europe line of business with a customer and revenue base in several key Western
European countries, a portfolio of licenses and interconnection agreements and
an entrepreneurial management team.

On January 4, 1999, HER issued in a private placement $200 million
principal amount of 10 3/8% Senior Notes due 2009 and Euro 85,000,000 principal
amount of 10 3/8% Senior Notes due 2006. The net proceeds of this offering,
approximately $289.7 million, will be used to finance the cost of HER network
assets, to expand the HER network beyond the originally contemplated scope,
including by adding transatlantic capacity, enhancing the speed of the HER
network and continuing the buildout of the HER network.

On January 13, 1999, GTS, through its subsidiary GTS Transatlantic Holdings
Ltd., entered into an agreement with FLAG Telecom to form a 50/50 joint venture,
to be known as FLAG Atlantic Limited, that will build and operate a transoceanic
fiber optic link between Europe and the United States. FLAG Atlantic Limited's
link is designed to carry voice, high-speed data and video traffic at speeds of
1.28 terabits per second, a 25-fold increase over current transatlantic cable
systems. By interconnecting to FLAG Atlantic Limited, GTS Carrier Services and
its subsidiary HER will be able to provide their carrier and Internet service
provider customers with high-capacity cable access from major European cities to
New York City. The project is subject to financing, the execution of related
agreements and other conditions.

LISTING OF COMMON STOCK RECEIVED

The new GTS stock that is intended to be issued will be listed on the
Nasdaq and the EASDAQ markets.

APPRAISAL RIGHTS (PAGE 79)

Holders of Esprit Telecom ordinary shares and ADSs do not have appraisal
rights. In the event that GTS acquires Esprit Telecom ordinary shares and Esprit
Telecom ADSs representing in the aggregate at least 90% of the issued share
capital of Esprit Telecom, holders of Esprit Telecom ordinary shares and Esprit
Telecom ADSs whose securities were not exchanged in the offer will be entitled
to certain rights, under the UK Companies Act 1985, including the right to
compel GTS to exchange such securities on the same terms as the offer.

To review your rights under the UK Companies Act 1985, see Annex O.

7
<PAGE> 15

SUMMARY SELECTED FINANCIAL DATA

The summary below sets forth selected historical financial data. You should
read this together with the historical financial statements and notes thereto
contained in the GTS 1997 Annual Report on Form 10-K and the Esprit Telecom 1998
Annual Report on Form 20-F. See "Where You Can Find More Information."

SELECTED HISTORICAL FINANCIAL INFORMATION OF GTS

Selected Historical Financial Data of GTS. The selected historical
financial data of GTS set forth below comes from financial statements of GTS as
they appeared in GTS's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended December 31, 1997 and GTS' Quarterly Report on Form 10-Q filed
with the SEC for the nine month period ending September 30, 1998.

Under US generally accepted accounting principles, a majority of GTS'
ventures are accounted for by the equity method of accounting. Under this
method, the operating results of the ventures are included in its Consolidated
Statement of Operations as a single line item, "Equity in earnings (losses) of
ventures." GTS recognizes 100% of the losses in ventures where GTS bears all of
the financial risk (which includes all of its significant ventures except for
Sovintel and, historically, HER). Also, the assets, liabilities and equity of
GTS' ventures are included in our Consolidated Balance Sheets as a single line
item, "Investments in and advances to ventures." See Note 3 to GTS' audited
Consolidated Financial Statements and "GTS Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Overview." Financial
information about GTS' equity ventures is included below under "Supplemental
Information -- Summary Historical Financial Information of GTS -- Combined
Equity Investments."

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1995 1996 1997(1) 1997 1998
-------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net........................................... $ 8,412 $ 24,117 $ 47,098 $ 30,216 $ 117,299
Gross margin............................................ 16 5,176 4,379 1,864 35,232
Operating expenses...................................... 41,016 52,955 78,410 53,732 94,243
Equity in earnings (losses) of ventures................. (7,871) (10,150) (14,599) (18,234) 4,142
Other income (expense).................................. 11,034 (8,729) (29,551) (16,902) (34,857)
Loss before extraordinary loss.......................... (40,400) (67,991) (116,986) (87,872) (88,131)
Extraordinary loss(2)................................... -- -- -- -- (12,704)
Net loss................................................ (40,400) (67,991) (116,986) (87,872) (100,835)
Loss per share before extraordinary loss................ (1.70) (2.33) (3.26) (2.49) (1.65)
Extraordinary loss per share(2)......................... -- -- -- -- (0.24)
Net loss per share...................................... (1.70) (2.33) (3.26) (2.49) (1.89)
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------- AT SEPTEMBER 30,
1995 1996 1997(1) 1998
-------- -------- -------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................... $ 9,044 $ 57,874 $318,766 $ 993,928
Property and equipment, net................................. 29,523 35,463 236,897 436,019
Investments in and advances to ventures..................... 56,153 104,459 76,730 61,705
Total assets................................................ 115,621 237,378 780,461 1,814,893
Total debt.................................................. 27,454 85,547 639,359 1,208,533
Minority interest and stock subject to repurchase........... 5,273 6,248 31,255 59,600
Shareholders' equity........................................ 55,322 113,668 26,967 351,409
</TABLE>

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

(1) As a result of GTS' increase in ownership interest and amendment to the
agreement among HER shareholders that was completed on July 16, 1997, GTS
accounts for its ownership interest in HER under the consolidation method of
accounting. Prior to this date, GTS accounted for HER under the equity
method of accounting.

(2) GTS recognized a $12.7 million extraordinary charge to earnings in the first
quarter of 1998, as a result of GTS' early extinguishment of certain related
party debt obligations. The nature of the charge is comprised of the
write-off of $11.6 million of unamortized debt discount and $1.1 million of
unamortized debt issuance costs that were deferred as financing costs and
were being amortized over the original maturity of the debt.

8
<PAGE> 16

SUPPLEMENTAL INFORMATION -- SUMMARY HISTORICAL
FINANCIAL INFORMATION OF GTS -- COMBINED EQUITY INVESTMENTS

The following unaudited summary historical financial data -- equity
investments for the years ended December 31, 1995, 1996 and 1997, and for the
nine months ended September 30, 1997 and 1998 are derived from financial records
of GTS as they appeared in GTS' Annual Report on Form 10-K filed with the SEC
for fiscal year ended December 31, 1997 and GTS' Quarterly Report on Form 10-Q
filed with the SEC for the nine month period ended September 30, 1998. This
financial data is intended to supplement the summary historical consolidated
financial data, which were derived from GTS' audited Consolidated Financial
Statements.

GTS believes that this information will provide you with additional insight
into GTS' unconsolidated equity method investments. US generally accepted
accounting principles prescribe the inclusion of revenues and expenses for
consolidated interests (generally interests of more than 50%, absent some other
factors), but not for equity interests (generally interests of 20% to 50%) and
cost interests (generally interests of less than 20%). Further, equity
accounting ordinarily results in the same net income as consolidation; however,
the net operating results are reflected on one line within the income statement.
More detailed financial information about our equity investments is included
under "Supplemental Information -- Selected Historical Financial Data of
GTS -- Combined Equity Investments."

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------------
1995 1996 1997 1997 1998
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net............................................. $54,051 $143,472 $226,160 $159,006 $187,544
Cost of revenues.......................................... 33,011 80,426 127,732 87,694 110,475
Operating expenses........................................ 22,958 55,018 74,845 60,447 40,870
Net (loss) income......................................... (6,380) (5,220) 4,330 (3,680) 13,480
Income (loss) recognized by GTS........................... (7,871) (10,150) (14,599) (18,234) 4,142
ADJUSTMENTS FOR INTER-AFFILIATE TRANSACTIONS(1):
Revenues, net............................................. (2,270) (15,385) (24,927) (17,049) (25,001)
Cost of revenues.......................................... (2,215) (13,562) (23,250) (15,853) (23,960)
Operating expenses........................................ (6,967) (8,083) (8,357) (11,105) 1,493
</TABLE>

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

(1) The adjustment amounts represent the effect of inter-affiliate transactions
between our consolidated and equity method ventures. More detailed
information about inter-affiliate transactions is included under "GTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Accounting Methodology."

9
<PAGE> 17

Selected Historical Financial Information of Esprit Telecom. The selected
historical financial data of Esprit Telecom set forth below comes from the
financial statements of Esprit Telecom as they appeared in Esprit Telecom's
Annual Report on Form 20-F filed with the SEC for the fiscal year ended
September 30, 1998, which is incorporated herein by reference, and included
herein. See "Esprit Telecom Consolidated Financial Statements." The Esprit
Telecom Consolidated Financial Statements were prepared in accordance with UK
GAAP, which differs in certain respects with US GAAP. See Note 30 to the Esprit
Telecom Consolidated Financial Statements.

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1995 1996 1997 1998 1998
------- ------- ------- -------- --------
L L L L $(1)
(IN THOUSANDS, EXCEPT PER ORDINARY SHARE AND PER
ADS AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2)
UK GAAP
Revenue, net................................................ 13,950 24,880 45,466 82,588 140,350
Gross margin................................................ 3,310 6,124 7,517 16,759 28,480
Operating expenses.......................................... 5,490 11,015 19,070 47,191 80,196
Operating loss before interest.............................. (2,180) (4,891) (11,553) (30,432) (51,716)
Profit on sale of investment................................ -- -- -- 200 340
Net interest (expense)/income............................... (222) (203) 695 (12,213) (20,755)
Loss on ordinary activities before taxation................. (2,402) (5,094) (10,858) (42,445) (72,131)
Taxation on loss on ordinary activities..................... -- -- (2) (2) (3)
Loss for the financial year................................. (2,402) (5,094) (10,860) (42,447) (72,134)
Loss per Ordinary Share..................................... (0.05) (0.07) (0.10) (0.34) (0.58)
Loss per ADS(3)............................................. (0.35) (0.49) (0.70) (2.38) (4.04)
US GAAP
Net loss.................................................... (2,423) (5,325) (10,852) (42,447) (72,134)
Net loss per Ordinary Share................................. (0.05) (0.08) (0.10) (0.34) (0.58)
Net loss per ADS(3)......................................... (0.35) (0.56) (0.70) (2.38) (4.04)
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------------------------
1995 1996 1997 1998 1998
------ ------- ------- -------- --------
L L L L $
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
UK GAAP
Bank balances, cash, restricted securities and short term
deposits and investments.................................. 5,615 6,430 24,525 184,749 313,962
Fixed assets, net........................................... 3,514 8,005 17,727 154,100 261,878
Total assets................................................ 13,178 24,101 59,543 394,537 670,476
Creditors: amounts falling due within one year.............. (7,045) (12,122) (25,295) (72,930) (123,937)
Creditors: amounts falling due in more than one year........ (631) (1,968) (2,874) (328,806) (558,773)
Total shareholders' funds................................... 5,502 10,011 31,374 (7,199) (12,234)
US GAAP
Total assets................................................ 13,178 24,101 59,543 394,537 670,476
Long term debt.............................................. (631) (1,968) (2,874) (328,806) (558,773)
Redeemable preference shares................................ 673 673 -- -- --
Shareholders' equity........................................ 4,829 9,338 31,374 (7,199) (12,234)
</TABLE>

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

(1) Solely for the convenience of the reader, pounds sterling amounts have been
translated into US dollars at the Noon Buying Rate on September 30, 1998 of
$1.6994 per L1.00.

(2) Esprit Telecom's financial information has been restated from that published
prior to December 1997 in order to give effect to a change in UK GAAP
relating to the granting of employee stock options at a discount to the
market price. The financial value of such discounts are now recognized as
employee compensation and charged against net income. As required by UK
GAAP, this accounting change has been effected by restating the results of
previous periods. This change in accounting has no impact on the US GAAP
financials.

(3) Loss per Esprit Telecom ADS and net loss per Esprit Telecom ADS are
calculated by adjusting loss per Esprit Telecom Ordinary Share and net loss
per Esprit Telecom Ordinary Share, respectively, for the ratio of Esprit
Telecom Ordinary Shares per Esprit Telecom ADS.

10
<PAGE> 18

SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following selected unaudited pro forma financial information presents
financial information of GTS and Esprit Telecom as if the GTS/Esprit Telecom
merger had occurred at the beginning of the periods indicated. The GTS/Esprit
Telecom merger will be treated as a pooling of interests for financial
accounting purposes. You should read this together with the consolidated
financial statements and accompanying notes of GTS and Esprit Telecom included
in the documents described under "Where You Can Find More Information" and the
unaudited pro forma combined financial statements and accompanying discussion
and notes set forth under "Unaudited Pro Forma Combined Financial Information"
included herein. The pro forma amounts in the table below are presented for your
information and do not necessarily indicate what the financial position or the
results of operations of the combined company would have been had the merger
date occurred as of the dates or for the periods presented. The pro forma
amounts also do not necessarily indicate what the financial position or future
results of operations of the combined company will be. No adjustment has been
included in the pro forma amounts for any anticipated cost savings or other
synergies. See "Unaudited Pro Forma Combined Financial Information."

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
GTS/ESPRIT TELECOM PRO FORMA COMBINED
Revenues.................................................... $ 162,248 $ 272,193
Loss from operations........................................ (161,344) (142,610)
Net loss before extraordinary items:
Total............................................. (215,969) (204,919)
Per share......................................... (3.87) (2.80)

Total assets................................................................ 2,636,167
Long-term debt.............................................................. 1,680,032
Shareholders' equity........................................................ 437,909
</TABLE>

11
<PAGE> 19

COMPARATIVE PER SHARE INFORMATION

The following table shows actual ("historical") per share information and
information as if the companies had been combined for the periods shown ("pro
forma combined"), calculated assuming an Exchange Ratio of 0.89 shares of GTS
common stock for every Esprit Telecom ADS and 0.1271 shares of GTS common stock
for every Esprit Telecom ordinary share. The historical data is based on the
historical consolidated financial statements and related notes of each of GTS
and Esprit Telecom. You should read this together with the historical financial
statements of GTS and Esprit Telecom and related notes thereto. The data
presented does not indicate what GTS/Esprit Telecom's future results of
operations will be or the actual results that would have necessarily occurred if
the completion date had occurred at the beginning of the periods indicated. No
adjustment has been included for any anticipated cost savings or other
synergies. See "Where You Can Find More Information."

<TABLE>
<CAPTION>
GTS/ESPRIT
TELECOM
GTS PRO FORMA
HISTORICAL COMBINED(1)
---------- -----------
<S> <C> <C>
Book value per common share:
December 31, 1997......................................... $ 0.72 N/A
September 30, 1998........................................ 5.81 $ 5.44
Net loss per common share before extraordinary loss:
Year ended December 31, 1997.............................. $(3.26) (3.87)
Nine months ended September 30, 1998...................... (1.65) $(2.80)
</TABLE>

<TABLE>
<CAPTION>
ESPRIT
TELECOM
HISTORICAL
----------
<S> <C>
Book value per common share:
September 30, 1997........................................ $ 0.43
September 30, 1998........................................ (0.10)
Net loss per common share
before extraordinary loss:
Year ended September 30, 1997............................. $(0.16)
Year ended September 30, 1998............................. (0.58)
</TABLE>

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

(1) See "-- Unaudited Pro Forma Combined Financial Information."

12
<PAGE> 20

COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION

MARKET PRICES AND DIVIDENDS

Shares of GTS common stock are traded on Nasdaq and EASDAQ under the symbol
"GTSG." Esprit Telecom ADSs are traded on EASDAQ under the symbol "ESPR" and on
Nasdaq under the symbol "ESPRY." The Nasdaq is the principal trading market for
both the GTS shares and the Esprit Telecom ADSs. The following table sets forth
the high and low closing sales prices per share (rounded to two decimal points)
of such securities as reported on Nasdaq and EASDAQ, as applicable, based on
published financial sources, for the periods indicated. GTS common stock
commenced trading on Nasdaq and EASDAQ on February 5, 1998 and February 6, 1998,
respectively. Esprit Telecom ADSs commenced trading on Nasdaq and EASDAQ on
March 4, 1997. No cash dividends have been paid on the shares of GTS common
stock or the Esprit Telecom ordinary shares or ADSs. The per share information
presented below and elsewhere in this Offering Circular/Proxy
Statement/Prospectus has been adjusted to reflect all stock splits of GTS and
Esprit Telecom.

<TABLE>
<CAPTION>
GTS ESPRIT TELECOM
COMMON STOCK ADSs(3)
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
NASDAQ:
1997:
First Quarter(1)...................................... N/A N/A $12.13 $11.88
Second Quarter........................................ N/A N/A 11.88 5.00
Third Quarter......................................... N/A N/A 8.38 5.63
Fourth Quarter........................................ N/A N/A 11.50 4.75
1998:
First Quarter(2)...................................... $49.13 $25.94 18.13 10.75
Second Quarter........................................ 51.38 35.00 19.06 15.75
Third Quarter......................................... 62.19 27.38 42.38 18.13
Fourth Quarter........................................ 58.88 22.09 49.31 11.75
1999:
First Quarter (through January 29, 1999).............. 66.00 55.13 56.75 46.50
EASDAQ:
1997:
First Quarter(1)...................................... N/A N/A 12.38 12.25
Second Quarter........................................ N/A N/A 12.00 5.25
Third Quarter......................................... N/A N/A 8.00 5.75
Fourth Quarter........................................ N/A N/A 11.63 5.00
1998:
First Quarter......................................... 48.38 25.50 17.98 10.63
Second Quarter........................................ 49.00 35.63 20.25 16.13
Third Quarter(2)...................................... 62.50 26.00 46.00 18.13
Fourth Quarter........................................ 57.38 20.50 47.00 12.50
1999:
First quarter (through January 29, 1999).............. 65.50 54.75 55.25 46.16
</TABLE>

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

(1) Partial Period data for Esprit Telecom (from March 4, 1997).

(2) Partial Period data for GTS (from February 5, 1998).

(3) Each Telecom ADS represents seven Esprit Telecom ordinary shares.

13
<PAGE> 21

Set forth below are the last reported sale prices (rounded to two decimal
points) on Nasdaq and EASDAQ of shares of GTS common stock and Esprit Telecom
ADSs for the first trading day in each of the six months immediately prior to
the date of this document, December 7, 1998, the last trading day prior to the
announcement of the offer and January 29, 1999, the last practicable trading day
for which information was available prior to the date of this Offering
Circular/Proxy Statement/Prospectus.

<TABLE>
<CAPTION>
ESPRIT
GTS TELECOM
COMMON STOCK ADSs
------------ -------
<S> <C> <C>
NASDAQ:
July 1, 1998................................................ $47.00 $18.63
August 3, 1998.............................................. 53.50 27.75
September 1, 1998........................................... 31.31 18.13
October 1, 1998............................................. 28.56 20.00
November 2, 1998............................................ 40.69 21.88
December 1, 1998............................................ 41.75 26.75
December 7, 1998............................................ 41.75 30.25
January 4, 1999............................................. 56.00 47.25
January 29, 1999............................................ 62.63 54.00
EASDAQ:
July 1, 1998................................................ $49.00 $18.50
August 3, 1998.............................................. 52.00 28.13
September 1, 1998........................................... 31.15 18.13
October 1, 1998............................................. 34.00 21.00
November 3, 1998............................................ 40.38 21.00
December 1, 1998............................................ 42.50 27.25
December 7, 1998............................................ 41.50 29.59
January 4, 1999............................................. 55.50 46.99
January 29, 1999............................................ 58.75 50.25
</TABLE>

The following table presents the high and low trading information for GTS
common stock and Esprit Telecom ADSs on December 7, 1998, the last full trading
day prior to GTS' and Esprit Telecom's announcement of the Offer.

<TABLE>
<CAPTION>
GTS ESPRIT TELECOM
COMMON STOCK ADSs
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
NASDAQ:
December 7, 1998................................... $42.56 $41.38 $31.00 $28.00

EASDAQ:
December 7, 1998................................... $41.62 $41.50 $30.74 $28.00
</TABLE>

GTS stockholders and Esprit Telecom securityholders are urged to obtain
current market information for shares of GTS common stock and Esprit Telecom
ADSs. No assurance can be given as to what the market prices of shares of GTS
common stock or Esprit Telecom ADSs will be at the completion of the offer.
There is no minimum or maximum initial value for the consideration to be
received by Esprit Telecom securityholders. See "Risk Factors -- Risk Relating
to the Offer and Combined Operations of the Companies -- Fixed Exchange Ratio."

14
<PAGE> 22

CERTAIN UK AND US REGULATORY INFORMATION

RULE 8 OF THE CITY CODE

The announcement, dated December 8, 1998, by GTS of its intention to make
an offer for Esprit Telecom commenced an offer period for the purposes of the UK
City Code on Takeovers and Mergers, which is published and administered by the
UK Panel on Takeovers and Mergers. An offer period is deemed to commence at the
time which an announcement is made of a proposed or possible offer, with or
without terms. Both Esprit Telecom and GTS have equity securities traded on
Nasdaq and EASDAQ. The UK Panel on Takeovers and Mergers has requested that
Esprit Telecom and GTS draw to the attention of member firms of Nasdaq and
EASDAQ certain UK dealing disclosure requirements that arise following
announcement of an intention to make an offer.

The disclosure requirements are set out in Rule 8 of the UK City Code on
Takeovers and Mergers. In particular, Rule 8.3 requires public disclosure of any
trading during an offer period by persons who own or control, or who would as a
result of any transaction own or control, directly or indirectly, 1% or more of
any class of relevant securities of GTS or Esprit Telecom. Trading by GTS,
Esprit Telecom or "associates" of GTS or Esprit Telecom (within the meaning of
the UK City Code on Takeovers and Mergers) in any class of securities of GTS or
Esprit Telecom during the initial offer period must also be disclosed. In the
case of the offer for Esprit Telecom, this requirement will apply until the
offer becomes or is declared wholly unconditional or lapses.

Disclosure should be made on an appropriate form before 12 noon (London
time) on the business day following the date of the dealing transaction. These
disclosures should be sent to The London Stock Exchange Limited (Company
Announcements Office), in typed format by fax (fax number: +44(0)-171-588-605)
and into the Panel (fax number: +44(0)-171-256 9383). Copies of appropriate
disclosure forms may be obtained on request by faxing Bear Stearns on
+44(0)-171-516 6933 (Richard Strang).

The Panel requests that member firms advise those of their clients who wish
to deal in the securities of GTS and/or Esprit Telecom, in the US and/or
Belgium, that they may be affected by these requirements. If there is any doubt
as to their application, the Panel should be consulted (telephone number:
+44(0)-171-382 9026, fax number: +44(0)-171- 638 1554).

RULE 10b-13 UNDER THE EXCHANGE ACT

If, on or before June 1, 1999, as a result of the offer, GTS acquires
Esprit Telecom ordinary shares and Esprit Telecom ADSs representing at least 90%
of the Esprit Telecom ordinary shares (including those represented by Esprit
Telecom ADSs) to which the offer relates, then (i) GTS will be entitled and
intends to effect a compulsory acquisition to compel the exchange of the
remainder of the outstanding Esprit Telecom ordinary shares and Esprit Telecom
ADSs on the same terms as the offer in accordance with sections 428 through 430F
of the UK Companies Act 1985; and/or (ii) a holder of Esprit Telecom ordinary
shares and Esprit Telecom ADSs may require GTS to exchange his or her Esprit
Telecom ordinary shares and Esprit Telecom ADSs on the same terms as the offer
in accordance with sections 430A and 430B of the UK Companies Act 1985. GTS has
applied to the staff of the SEC for relief under Rule 10b-13 under the Exchange
Act to allow GTS to acquire any outstanding Esprit Telecom ordinary shares and
Esprit Telecom ADSs in the compulsory acquisition.

OFFER IN AND OUTSIDE THE US

The offer is being made in the US by Bear, Stearns & Co. Inc. and outside
the US by Bear, Stearns International Limited on behalf of GTS. References in
this Offering Circular/Proxy Statement/Prospectus to Bear Stearns should be read
accordingly.

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<PAGE> 23

TENDERS AND ACCEPTANCES

As used in this Offering Circular/Proxy Statement/Prospectus, the term
"acceptance" when used in relation to the offer shall be synonymous with
"tender" and the term "purchase" shall include an acquisition by an exchange of
shares.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

In this document, we make forward-looking statements that include
assumptions as to how GTS and Esprit Telecom may perform in the future. You will
find many of these statements in the following sections:

- "Risk Factors" beginning on page 17;

- "Certain Information Concerning GTS" beginning on page 119;

- "Certain Information Concerning Esprit Telecom" beginning on page 207;

- "The Offer -- GTS Board's Reasons for the Offer; Recommendation of the
GTS Board" beginning on page 61.

- "Opinion of Lehman Brothers" beginning on page 56;

- "The Offer -- The Esprit Telecom Board's Reasons for Recommending the
Offer; Recommendation of Esprit Telecom Board" beginning on page 55; and

- "Opinion of Bear Stearns" beginning on page 62.

Also, when we use words like "may," "may not," "believes," "does not
believe," "expects," "does not expect," "anticipates," "does not anticipate" and
similar expressions, we are making forward-looking statements. Such statements
should be viewed with caution.

The risk factors described herein and other factors, many of which are
beyond our control, could cause actual results or outcomes to differ materially
from those expected in any forward-looking statements of Esprit Telecom or GTS,
and investors, therefore, should not place undue reliance on any such
forward-looking statements. Any forward-looking statement denotes only GTS
management's good faith projections without representation or warranty
whatsoever that such projections will actually occur and speaks only as of the
date on which such statement is made, and neither Esprit Telecom nor GTS
undertakes any obligation to update any forward-looking statement or statements
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events. New factors emerge
from time to time, and it is not possible for management to predict all of such
factors or their effect on such projections. Furthermore, management cannot
assess the impact of each such factor on the business of Esprit Telecom or GTS
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.

In addition, you should consider carefully the forward-looking statements
set forth under the captions "Business," "Legal Proceedings," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Quantitative and Qualitative Disclosures About Market Risk" and "Taxation" in
Esprit Telecom's Annual Report on Form 20-F for the fiscal year ended September
30, 1998, which sections are incorporated by reference herein. Neither GTS nor
Esprit Telecom assumes any obligation to update these forward-looking statements
to reflect actual results, changes in assumptions or changes in other factors
affecting such forward-looking statements.

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<PAGE> 24

RISK FACTORS

You should consider the following risk factors, in addition to the other
information contained or incorporated by reference in this document, in
determining how to vote at the special meeting, if you are a GTS stockholder, or
whether to tender your Esprit Telecom Ordinary Shares or Esprit Telecom ADSs, if
you are a holder of Esprit Telecom Securities.

RISKS RELATING TO THE OFFER AND COMBINED OPERATIONS OF THE COMPANIES

Fixed Exchange Ratio. At the completion of the offer and the compulsory
acquisition, each Esprit Telecom Ordinary Share tendered will be exchanged for
0.1271 of a new share of GTS Stock and each Esprit Telecom ADS tendered will be
exchanged for 0.89 of a new share of GTS Stock. The exchange ratio is fixed and
will not be adjusted should any increase or decrease occur in the price of any
Esprit Telecom Ordinary Shares, Esprit Telecom ADSs or GTS Stock. The market
value of shares of GTS Stock, Esprit Telecom Ordinary Shares and Esprit Telecom
ADSs may fluctuate significantly throughout the offering period until the
completion of the offer and the compulsory acquisition due to:

- market perception of the synergies and cost savings expected to be
achieved by the offer;

- changes in the business, operations or prospects of GTS or Esprit
Telecom;

- market assessments of the likelihood that the offer will be consummated
and the timing of the consummation of the offer;

- currency fluctuations; and

- general market and economic conditions.

Because the exchange ratio will not be adjusted to reflect changes in the
relative market values of GTS Stock, Esprit Telecom Ordinary Shares and Esprit
Telecom ADSs, the relative market values of shares of GTS Stock issued in the
offer and the Esprit Telecom Ordinary Shares and ADSs tendered in the offer may
be higher or lower than the relative market values of such shares at the time
the offer was negotiated.

Nonrealization of Synergies. The combination of GTS and Esprit Telecom
involves the integration of separate companies that have previously operated
independently. The process of combining the companies may be disruptive to the
businesses and may cause an interruption of, or a loss of momentum in, the
businesses as a result of a number of obstacles such as:

- loss of key employees or customers;

- possible inconsistencies in standards, controls, procedures and policies
among the companies being combined and the need to implement common
company-wide financial, accounting, information, billing and other
systems;

- failure to maintain the quality of customer service that such companies
have historically provided;

- the need to coordinate geographically diverse organizations;

- incompatible equipment;

- limitations under existing Esprit Telecom debt covenants; and

- the resulting diversion of management's attention from the day-to-day
business of GTS and the need to hire management personnel to address such
obstacles.

In addition to issues related to the integration of Esprit Telecom, the
recent acquisition of NetSource in November 1998 may present some of the
obstacles described above. The integration of NetSource is still in its
preliminary phase and GTS is not yet in a position to specify or quantify such
risks. It is possible, however, that issues related to inconsistencies in
standards, controls and procedures and the coordination of geographically
diverse organizations will be presented by the NetSource acquisition. GTS does
not expect there to be significant difficulties with respect to the last three
bullet points described above in connection with the NetSource acquisition. See
"-- Risks Specific to GTS -- Integration of Recent Acquisitions" (page 23).

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<PAGE> 25

GTS may fail to realize the expected cost savings, synergies and revenue
enhancements from such integration and may suffer material adverse short and
long-term effects on its operating results and financial condition.

Even if GTS is able to integrate the operations of the companies
successfully, there can be no assurance that GTS will realize the expected cost
savings, synergies or revenue enhancements from such integration or that GTS
will realize such benefits within the time frame that GTS currently expects.

- Whether GTS achieves expected economies of scale depends, in part, on
negotiations with third party providers of goods and services, the
results of which are difficult to predict. Accordingly, the amount and
timing of the resulting cost savings are inherently difficult to
estimate.

- Any cost savings and other synergies from the transaction will be offset
by costs incurred in integrating the companies.

- The cost savings and other synergies may also be offset by increases in
other expenses, by operating losses or by problems unrelated to the
transaction.

RISKS RELATING TO THE COMBINED BUSINESS AND THE INDUSTRY

ADDITIONAL CAPITAL REQUIREMENTS

The combined business will need substantial capital to:

- implement GTS' European Services Strategy,

- develop and expand the Esprit Telecom and HER networks,

- open new sales offices,

- introduce new telecommunications services,

- fund operating losses and net cash outflows, and

- make future acquisitions and investments in joint ventures.

As part of its business strategy, GTS regularly evaluates potential
acquisitions and joint ventures. GTS believes that additional attractive
acquisition opportunities currently exist in its markets in Western and Central
Europe and the Commonwealth of Independent States. GTS continuously considers a
number of potential transactions, some of which may involve GTS contributing
some of its Russian businesses in exchange for an interest of equal or greater
value in the surviving entity and, if consummated, may be material to its
operations and financial condition. GTS does not have a definitive agreement
with respect to any material acquisition or joint venture, although it
periodically has discussions with other companies to assess opportunities on an
on-going basis. GTS may need to raise additional capital to fund such
acquisitions or joint ventures.

The amount of the combined business' future capital requirements will
depend upon the performance of its business, the rate and manner in which it
expands, develop and increases customer growth, its decision to acquire or
divest business or invest in joint ventures and other factors that are not
within its control, including competitive conditions, regulatory or other
government actions and capital costs. The actual amount and timing of its future
capital needs, however, may differ materially from GTS' estimates as a result of
the following factors:

- The accuracy of its estimates of future capital needs is subject to
changes and fluctuations in its revenues, operating costs and development
expenses. Actual revenues and costs may vary materially from expected
amounts and depend on:

- Esprit Telecom and HER's abilities to effectively and efficiently manage
the expansion of their networks and operations;

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<PAGE> 26

- HER's ability to obtain infrastructure contracts, rights-of-way,
licenses and other regulatory approvals that it needs to complete and
operate its network;

- the combined business' ability to purchase equipment for building
networks which support products and services and to negotiate favorable
contracts with suppliers, including large volume discounts on its
purchases of capital equipment;

- the combined business' ability to access targeted customers and markets,
attract sufficient numbers of customers and provide and develop services
for which customers will subscribe; and

- factors outside the combined business' control, such as political and
economic developments and trends, regulatory changes, changes in
technology, increased competition, strikes, weather, performance by
third parties and other factors in connection with its operations.

- If the combined business expands its operations at an accelerated rate
or acquires any businesses, its funding needs may increase, possibly to
a significant degree, and the combined business may spend its cash
balances sooner than currently expected.

- As a result of acquiring a majority interest in Ebone on June 24, 1998,
HER may need to fund Ebone if Ebone is not able to self-fund in
accordance with its business plan.

- As a result of acquiring a majority interest in NetSource on November
30, 1998, the combined company may need to fund NetSource if NetSource
is not able to self-fund its business plan.

GTS cannot estimate with any degree of certainty the amount and timing of
its future capital requirements to implement such strategy. GTS anticipates that
the amount of capital it needs to continue to implement its European Services
Strategy will depend on several factors including, among others, the demand for
its services, the markets in which it builds or buys networks and regulatory,
technological and competitive developments. As a result of the foregoing, in the
event that the combined business' plans or assumptions change or that its
capital resources prove to be insufficient to fund growth and operations in the
manner and at the rate it currently anticipates, the combined business may be
required to raise additional capital. If the combined business decides to raise
additional funds by incurring debt, it may become subject to additional or even
more restrictive financial covenants (as a result of the assumption of Esprit
Telecom's outstanding debt securities) and its cash interest expense obligations
may increase. If the combined business decides to raise additional funds by
issuing equity, your ownership of the combined business' stock may be diluted.
GTS cannot assure you that additional financing will be available to it on
favorable terms or at all. If the combined business fails to generate sufficient
funds in the future, whether from operations or by raising additional debt or
equity capital, it may have to delay or abandon some or all of its development,
expansion and acquisition plans, or it may have to sell assets. As a result, it
may not have the ability to develop the necessary geographic reach, networks,
offer products, services and compete as effectively as contemplated. These
outcomes could have a material adverse effect on GTS' operations and on the
market price of its stock. See "-- Government Regulation" (page 32),
"-- Competition" (page 33), "-- Changes in Technology" (page 36), "-- HER
Network Roll-out" (page 21), "GTS Management's Discussion and Analysis of
Financial Condition and Results of Operations" (page 172), "Description of
GTS -- Western Europe -- HER" (page 123), and "--Risks Specific to Esprit
Telecom -- Need for Additional Financing" (page 41).

RISKS SPECIFIC TO GTS

SIGNIFICANT INDEBTEDNESS AND INTEREST PAYMENT OBLIGATIONS; RESTRICTIONS IN
DEBT AGREEMENTS ON GTS' OPERATIONS

GTS is, and will continue to be, highly leveraged as a result of the
substantial indebtedness it has incurred and intends to incur to implement its
business plans. GTS had approximately $1.2 billion of debt outstanding at
September 30, 1998. Upon consummation of the offer, GTS will assume Esprit
Telecom's debt, which was $554.9 million at September 30, 1998. GTS' debt
instruments permit GTS and its subsidiaries to incur certain additional
indebtedness to fund expansion of its businesses and for other permitted
purposes. In addition, GTS contemplates that it will raise additional debt
financing to implement its European Services Strategy. On

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<PAGE> 27

January 4, 1999, HER issued in a private placement US$200 million aggregate
principal amount of 10 3/8% Senior Notes due 2009 and Euro 85 million aggregate
principal amount of 10 3/8% Senior Notes due 2006. GTS, however, has not yet
decided on the size and timing of any additional financing. Esprit Telecom's
debt instruments permit Esprit Telecom, and upon consummation of the offer, will
permit GTS, to incur certain additional indebtedness, including indebtedness
incurred to finance the expansion of Esprit Telecom's network.

The high level of GTS's indebtedness could have important consequences on
its operations, including that it:

- will need significant cash to service its debt, thereby reducing funds
available for operations, future business opportunities and investments
in new or developing technologies and making GTS more vulnerable to
adverse economic conditions;

- may have difficulty refinancing GTS' existing debt or may be restricted
from obtaining additional financing to fund future working capital,
capital expenditures, debt service requirements, acquisitions or other
general corporate requirements;

- may have less flexibility in planning for, or reacting to, changes in
GTS' business and in the telecommunications industry;

- may have less flexibility in responding to changes which affect how GTS
implements its financing, construction or operating plans;

- will be more highly leveraged than some of GTS' competitors, which may
place it at a competitive disadvantage with respect to such competitors;
and

- will limit GTS' ability to withstand adverse economic conditions or take
advantage of significant business opportunities that may arise.

In addition, GTS will be required to comply with certain financial
covenants and other restrictions contained in GTS's existing debt agreements.
Certain of the covenants included in Esprit Telecom's debt agreements are more
restrictive than those in GTS' existing debt agreements. Upon consummation of
the offer, GTS will assume Esprit Telecom's debt, and any GTS businesses
contributed to Esprit Telecom will become subject to these more restrictive
covenants. Among other things, the GTS financial covenants limit GTS' ability
to:

- incur additional indebtedness,

- make capital expenditures,

- pay dividends, make distributions on GTS Stock or make certain other
restricted payments,

- create certain liens upon assets,

- dispose of certain assets, or

- enter into certain transactions with affiliates.

GTS cannot assure you that such covenants will not materially and adversely
affect its ability to finance its future operations or capital needs or to
engage in other business activities which it deems to be in its interest.

GTS will need to substantially increase net cash flow in order to pay the
principal of and interest on its debt, including debt assumed as a result of the
Esprit Telecom acquisition, and GTS cannot assure you that it will be able to
meet such obligations. If GTS is unable to generate sufficient cash flow or to
otherwise obtain the funds necessary to make required payments, or if it
otherwise fails to comply with the various covenants under the debt, it would be
in default under the terms of such debt. A default under such debt may permit
the holders thereof to accelerate the maturity of such debt, which in turn could
cause defaults under GTS, other indebtedness. GTS cannot assure you that under
these circumstances it would have sufficient funds or other resources to satisfy
all such obligations, on a timely basis or otherwise. Such default or
acceleration would also be likely to adversely affect the market price of GTS
Stock.

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<PAGE> 28

HISTORY OF OPERATING LOSSES

GTS has historically sustained substantial operating and net losses. For
the following periods, GTS' reported net losses of:

<TABLE>
<CAPTION>
PERIOD NET LOSS
------ --------
<S> <C>
Year ended December 31, 1995................................ $ 40.4 million
Year ended December 31, 1996................................ $ 68.0 million
Year ended December 31, 1997................................ $117.0 million
Nine months ended September 30, 1998........................ $100.8 million
Inception through September 30, 1998........................ $343.7 million
</TABLE>

GTS' net losses in the first three quarters of 1998 exceeded those in the
comparable prior period in 1997. GTS expects to suffer losses in the fourth
quarter of 1998. On a pro forma basis giving effect to the consummation of the
offer for the shares of Esprit Telecom as if such consummation had occurred on
January 1, 1997 and January 1, 1998, respectively, GTS' net losses for the year
ended December 31, 1997 and the nine months ended September 30, 1998 would have
been $216.0 million and $204.9 million, respectively. Further development of its
business, including its European end-user services business, will require
significant additional expenditures, and GTS expects that it will have
significant operating and net losses and will record significant net cash
outflow, before financing, in coming years. GTS cannot assure you that its
operations, including its European end-user services business, will achieve or
sustain profitability or positive cash flow in the future. If GTS cannot achieve
and sustain operating profitability or positive cash flow from operations, it
may not be able to meet its debt service obligations or working capital
requirements, which would have a material adverse effect on its operations, and
would adversely affect the market price of GTS Stock. See "GTS Management's
Discussion and Analysis of Financial Condition and Results of Operations" (page
172).

HER NETWORK ROLL-OUT

Risks Relating to Completing HER Network

HER's ability to achieve its strategic objective will depend in large part
on the successful, timely and cost-effective completion of the HER network. HER
currently operates commercially over a portion of the network linking Brussels,
Antwerp, Rotterdam, Amsterdam, London, Paris, Frankfurt, Strasbourg, Zurich,
Geneva, Stuttgart, Dusseldorf, Munich, Milan, Berlin, Copenhagen and Stockholm.
However, various factors, uncertainties and contingencies may delay or adversely
affect the development of the remainder of the network. Many of these factors,
such as strikes, natural disasters and other casualties, are beyond HER's
control. In addition, HER will need to negotiate and conclude additional
agreements with various parties regarding, among other things, rights-of-way and
development and maintenance of the network infrastructure and equipment. GTS
cannot assure you that HER will conclude necessary agreements. Any delays in
concluding such agreements would materially and adversely affect the speed or
successful completion of the network. The successful and timely completion of
the network will also depend on, among other things, (i) third parties
performing their contractual obligations to engineer, design and construct
portions of the network on a timely basis and (ii) HER's ability to obtain and
maintain applicable governmental approvals.

HER is operating its network in Belgium, The Netherlands, the UK, France,
Germany, Switzerland, Italy, Denmark and Sweden, and HER expects that the 25,000
kilometer network will be operational by the end of the year 2000. HER believes
that its cost estimates and the build-out schedule are reasonable. However, the
actual construction costs or time required to complete the network build-out
could substantially exceed current estimates. Any significant delay or increase
in the costs to develop the HER network could have a material adverse effect on
HER and GTS' operations.

Development of the HER network is capital intensive. HER expects that
approximately $835 million in additional capital expenditures, including capital
lease obligations, will be incurred through the end of the year 2000 in
connection with the buildout of the HER network. HER believes that the net
proceeds from the issuance of the New HER Notes and its current indebtedness,
combined with HER's projected internally generated funds, should be sufficient
to fund HER's expected capital expenditures. However, the accrual

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<PAGE> 29

amount and timing of HER's future capital requirements may differ materially
from management's estimates. Thus, additional financing may be needed to
construct the HER network, and GTS cannot assure you that such additional
financing will be available on terms acceptable to HER or at all. Failure to
obtain necessary financing may require HER to delay or abandon its plans for
deploying the remainder of the HER network, which may have a material adverse
effect on HER and GTS. However, the actual amount and timing of HER's future
capital requirements may differ materially from GTS' estimates. HER may need
additional financing to construct the HER network. GTS cannot assure you that
such additional financing will be available to HER on favorable terms or at all.
If HER fails to obtain necessary financing, HER might have to delay or abandon
its plans for deploying the remainder of the network, which would adversely
affect the viability of HER. HER's failure to obtain financing might also
require GTS to make additional capital contributions to HER at the expense of
its other operations. Either of these two outcomes could have a material adverse
effect on its operations and would adversely affect the value of GTS Stock.

Risks Relating to HER's Operations

HER's revenues and the cost of deploying its network and operating its
business will depend upon a variety of factors including:

- HER's ability to effectively and efficiently manage the expansion of its
network and operations;

- HER's ability to negotiate favorable contracts with suppliers;

- HER's ability to obtain additional licenses, regulatory approvals,
rights-of-way and infrastructure contracts to complete and operate the
network;

- HER's ability to access markets and attract sufficient customers;

- HER's ability to provide and develop services for which customers will
subscribe; and

- strikes, weather, performance by third parties and other factors that are
outside of HER's control.

Due to the uncertainty of these factors, actual costs and revenues may vary
from expected amounts, possibly to a material degree, and such variations would
likely affect HER's future capital requirements. See "GTS Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" (page 184).

HER must obtain additional agreements for the long-term lease of dark
fiber, rights-of-way and other permits to install fiber optic cable from
railroads, utilities and governmental authorities (known as infrastructure
providers) to build out the network. GTS cannot assure you that HER will be able
to maintain all of its existing agreements, rights and permits. Nor can GTS
assure you that HER will be able to obtain and maintain the additional
agreements, rights and permits it needs to implement its business plan on
acceptable terms. If HER lost substantial agreements, rights and permits or
failed to enter into and maintain required arrangements for the HER networks,
such events would have a material adverse effect on HER's business. In addition,
HER depends on third parties for leases of dark fiber for substantial portions
of its network. If HER is unable to enter into or maintain such leases, this
could have a material adverse effect on HER's business, as well as on GTS'
operations and the market price of GTS Stock.

GTS cannot assure you that the HER network will achieve the technical
specifications for which it was designed. HER also may be unable to upgrade the
network as technological improvements are introduced.

Falling Prices/Depressed Gross Margins

Prices in the European long distance industry have declined over the past
few years. GTS expects that prices will continue to decline as competition
increases and that continuing price cuts in certain retail markets will affect
the gross margins of certain of its customers. This, in turn, could affect HER's
gross margins, if not offset by increases in volume and reductions in costs.

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<PAGE> 30

Risks Relating to Regulatory Approvals

To construct and operate the network in accordance with current plans, HER
must obtain the necessary regulatory approvals. Licenses, authorizations or
registrations have been obtained in Belgium, Denmark, France, Germany, Italy,
The Netherlands, Spain, Sweden, Switzerland, the UK and the United States. HER
intends to file applications in other countries (including Austria, Croatia,
Czech Republic, Hungary, Poland, Portugal, Slovakia and Russia) in anticipation
of service launch in accordance with the roll-out plan. With the exception of
Austria and Portugal, which are members of the European Union and whose laws
must comply with European Commission directives, these other countries have not
generally liberalized their telecommunications sectors. There can be no
assurance that they will do so in a timely manner or at all.

In addition, the terms and conditions of the licenses, authorizations or
registrations granted to HER may limit or otherwise affect HER's scope of
operations. There can be no assurances that HER will be able to obtain, maintain
or renew licenses, authorizations or registrations to provide the services it
currently provides and plans to provide, that such licenses, authorizations or
registrations will be issued or renewed on terms or with fees that are
commercially viable or that the licenses, authorizations or registrations
required in the future can be obtained by HER. The loss of, or failure to
obtain, these licenses, authorizations or registrations or a substantial
limitation upon the terms of these licenses, authorizations or registrations
could have a material adverse effect on HER and could adversely affect the
market price of GTS Stock. See "Description of GTS -- Western Europe
- -- HER -- Licenses and Regulatory Issues" (page 132).

INTEGRATION OF RECENT ACQUISITIONS

GTS acquired NetSource in November 1998 and, upon the consummation of the
offer, will acquire Esprit Telecom, which in turn acquired Plusnet in May 1998
and three other telecommunications businesses in 1997. In order to integrate
these businesses, GTS must continue to develop its financial and management
controls and information systems. The integration of these acquisitions has
required and will continue to require additional expenditures. Although GTS
expects these acquisitions to result in operating synergies, it cannot assure
you that these acquisitions will achieve the expected benefits or that such
benefits will be realized within the time frames that it contemplates. See
"-- Risks Relating to the Offer and Combined Operations of the
Companies -- Nonrealization of Synergies" (page 17).

RISKS RELATING TO EUROPEAN SERVICES STRATEGY

Early Stage of European Services Strategy. Although GTS has recently
completed the acquisition of NetSource, hired certain key personnel and filed
certain licensing applications, GTS is still in the early stages of implementing
its European Services Strategy. GTS' decision to proceed with the European
Services Strategy will depend on its ability to assess potential markets, obtain
required governmental authorizations, franchises and permits, identify
appropriate additional acquisition candidates, implement efficient information
processing systems for billing and customer service and develop a sufficient
customer base. If GTS fails to achieve any of the foregoing, it may need to
modify, delay or abandon some or all of its European Services Strategy. GTS
cannot estimate with certainty the amount and timing of its future capital
requirements to implement such strategy. See "-- Additional Capital
Requirements" (page 18), "GTS Management's Discussion and Analysis of Financial
Condition and Results of Operations" (page 172), and "Description of
GTS -- Western Europe -- European Services Strategy" (page 121).

Regulatory. Because GTS plans to provide, through GTS Business
Services -- Western Europe and GTS Access Services, an expanded array of
telecommunications services in Europe, it will become subject to significant
additional regulation at the European Union, national and local levels. GTS has
applied for licenses to operate as a competitive local exchange carrier in seven
cities in Germany and has submitted a draft application to the French regulatory
authorities, pursuant to which informal discussions have been conducted

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<PAGE> 31

with respect to the greater Paris metropolitan area. Delays in receiving
regulatory approvals, or the enactment of adverse regulations or regulatory
requirements, may have the following adverse consequences:

- delay or prevent GTS from offering its end-user services in certain
European markets;

- restrict the types of end-user services GTS can offer;

- restrict GTS from deploying its local networks; and

- otherwise adversely affect GTS' operations.

GTS cannot assure you that it will be able to obtain the necessary
regulatory approvals on a timely basis or that it will not otherwise be affected
by regulatory developments, any of which may have a material adverse effect.

Competition. The business of providing telecommunications services in
Europe is extremely competitive. GTS' success will depend upon its ability to
compete with a variety of telecommunications providers in each of its markets.
Competitors will include large established national carriers, alliances among
telecommunications companies (such as Global One, an alliance among Sprint,
Deutsche Telekom AG and France Telecom SA, and KPN/Qwest, an alliance between
KPN N.V. and Qwest Communications International, Inc.), facilities-based
competitors (including MCI WorldCom, Inc., Viatel, Inc., Econophone, Inc.,
Primus Telecommunications Group, Incorporated and Cable & Wireless, plc),
resellers, data providers, Internet service providers and other providers of
bundled services. GTS may also face competition in one or more of its markets
from competitors using new or alternative technologies or new applications of
existing technologies. These competitors include cable television companies,
wireless telephone companies, microwave carriers and satellite companies. Many
competitors will have established customer bases and extensive brand name
recognition. Many competitors will have greater financial, management and other
resources.

GTS will compete primarily on the basis of price and, to a lesser extent,
on the type and quality of services offered. Many potential competitors are able
to use their substantial financial resources to cause severe price competition
in the markets in which GTS plans to operate, which would force GTS to lower its
prices to remain competitive. GTS also expects to lose a significant number of
customers as a result of the highly competitive nature of the markets. It may be
difficult for GTS to attract and retain a sufficient number of customers to
sustain its business. GTS cannot assure you that it will be able to effectively
market its expanded service offerings or that competitive pressures will not
have a material adverse effect.

Entering New Markets. GTS will have to make additional significant
operating and capital investments to implement the European Services Strategy.
GTS will need to develop new products and services and to establish direct
and/or indirect sales channels to market its offerings. Sophisticated
information and processing systems will be vital to its success, and it will
need to implement and integrate the necessary provisioning, billing and
collection systems for its services. Prior to its acquisition of NetSource, GTS
had no prior experience in offering expanded services in Europe or in targeting
European business and government customers. GTS may also rely on third party
vendors and contractors for network buildouts and information systems upgrades
and will need to obtain rights-of-way and other consents to develop its
networks. It cannot assure you that it will be able to implement the European
Services Strategy on a timely basis or at all. Any delays in establishing its
business in one or more of its targeted markets may have a material adverse
effect.

Reliance on Other Telecommunications Service Providers. To implement the
European Services Strategy, GTS will need to enter into interconnection
agreements with large established national carriers and other local service
providers operating in its target markets. GTS may also need to enter into
collocation agreements with, and lease trunking capacity from, such third
parties. GTS cannot assure you that it will be able to enter into these
interconnection and other agreements on terms that are satisfactory.

With respect to long distance and international services, GTS will need to
enter into resale agreements with long distance and international carriers.
These agreements often contain minimum volume commitments. GTS may be obligated
to pay underutilization charges if it overestimates its need for transmission
capacity. If GTS underestimates its need for transmission capacity, it may need
to pay more for the extra capacity needed.

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Acquisition-Related Risks. GTS may enter its targeted markets through
additional acquisitions following the NetSource and Esprit Telecom acquisitions.
Buying businesses will subject it to certain risks, including, among others:

- acquired operations and personnel may be difficult to integrate into its
operations;

- GTS' ongoing operations may be disrupted;

- integrating the acquired business may divert resources and management
time from running GTS' ongoing business; and

- changes in management may impair relationships with employees and
customers.

In addition, GTS' high level of debt (which, upon consummation of the
offer, will include the assumed debt of Esprit Telecom) and the terms of its
outstanding debt agreements may limit its ability to consummate additional
acquisitions. GTS cannot assure you that it will close any such acquisitions or
that it will be able to obtain any additional financing needed to finance such
acquisitions. Nor can GTS assure you that if GTS closes any acquisitions, the
acquired business will be successfully integrated into its operations or will
perform as expected.

Potential Adverse Impact on HER. Many of the services GTS plans to offer in
its European end-user services business will compete with the services offered
by the customers HER targets as an independent carriers' carrier. If GTS
Business Services -- Western Europe and GTS Access Services contract with HER
for capacity, GTS expects that they will enter into such arrangements on an
arms-length basis. However, the European Services Strategy could affect the
perception of HER as an independent operator and could negatively impact HER's
ability to attract and retain customers, which could, in turn, have a material
adverse effect on HER's operations.

RISKS RELATING TO REORGANIZATION OF RUSSIAN TELECOMMUNICATIONS INDUSTRY

The Russian government established Svyazinvest in 1994 to hold the
government's interest in 88 regional telecommunication companies. In April 1997,
President Yeltsin approved the transfer of additional government-owned
telecommunications assets to Svyazinvest. This transfer included the
government's 51% stake in Rostelecom (the government controlled international
and long distance operator). On July 30, 1997, Mustcom Ltd., a Cyprus-based
company that represents the interests of a consortium which includes ICFI
Cyprus, Renaissance International Ltd., Deutsche Morgan Grenfell, Morgan
Stanley, and certain entities affiliated with an affiliate of George Soros,
purchased a 25% stake in Svyazinvest for $1.87 billion. The President had also
authorized the sale of another 24% of Svyazinvest at a future date. This sale
was scheduled to occur in the second half of 1998. However, in view of the
deterioration of the Russian economy and political instability, the sale was
first cancelled and then rescheduled to take place by July 1999. See "-- Risks
Relating to Operations in Russia and the CIS -- Political" (page 27) and
"-- Economic" (page 28).

As a result of the government's actions, a single entity, Svyazinvest, now
owns a majority interest in most of GTS' principal venture partners and other
telecommunication service providers in Russia. These companies together provide
a range of international and domestic long distance and local telecommunications
services throughout Russia. The consolidation of many of its partners under
Svyazinvest and the possible sale of a significant interest in Svyazinvest to
foreign and/or Russian investors is likely to make Svyazinvest a stronger
competitor, and may lead to material adverse changes in the business
relationships between GTS and its Russian partners. The continuing privatization
of Svyazinvest and the evolution of Russia's government policy regarding
Svyazinvest and Rostelecom may have a material adverse effect on GTS and its
Russian ventures.

MANAGING RAPID GROWTH

GTS continues to construct segments of the HER network, expand its existing
operations and expand into additional geographic and service markets when
business and regulatory conditions warrant. GTS cannot assure you that it will
be able to construct and operate the entire HER network as currently planned,
that it will be able to expand with the markets in which its ventures are
currently operating or into additional markets

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at the rate it presently plans or that any existing regulatory barriers to such
expansion will be reduced or eliminated.

As a result of past and expected continued growth and expansion,
significant demands have been placed on GTS' management, operational and
financial resources and on its systems and controls. In order to manage GTS'
growth effectively, including growth resulting from acquisitions, GTS must
continue to implement and improve its operational and financial systems and
controls, purchase and utilize additional telecommunications facilities and
expand, train and manage the employee base. Inaccuracies in GTS' forecasts of
market demand could result in insufficient or excessive telecommunications
facilities and disproportionate fixed expenses for certain of its operations. As
GTS proceeds with its development and expansion, there will be additional
demands on its customer support, sales and marketing and administrative
resources and network infrastructure. GTS cannot assure you that GTS and its
ventures' operating and financial control systems and infrastructure will be
adequate to maintain and effectively manage future growth. If GTS fails to
continue to upgrade its administrative, operating and financial control systems
or unexpected expansion difficulties arise, there could be a material adverse
effect on its business, results of operations and financial condition.

RISKS RELATING TO OPERATIONS IN EMERGING MARKETS

GTS derives substantial revenues from its operations in emerging markets.
Emerging markets subject GTS to numerous risks, including the following:

- underdeveloped and unstable banking systems;

- corruption;

- unexpected changes in regulatory requirements, tariffs, customs and
duties and other trade barriers;

- difficulties in staffing and managing foreign operations;

- foreign exchange controls, which may restrict or prohibit funds from
being exchanged into US dollars and/or transferred abroad;

- potential adverse tax consequences from operating in multiple
jurisdictions with different tax laws;

- problems in collecting accounts receivable and devaluation of accounts
receivable in an inflationary economy;

- political risks and expropriation;

- technology export and import restrictions and prohibitions;

- delays from customs brokers or government agencies;

- seasonal reductions in business activity; and

- fluctuations in currency exchange rates.

The emerging market risks described above could have a material adverse
effect on business, results of operations and financial condition of GTS.

The political systems of many of the emerging market countries in which GTS
operates or plans to operate are slowly emerging from an extended period of
totalitarian rule. Political conflict and, in some cases, civil unrest and
ethnic strife may continue in some of these countries for a period of time. Many
of the economies of these countries are weak, volatile and reliant on
substantial foreign assistance and investment. Expropriation of private
businesses in such jurisdictions remains a possibility. Seizures of businesses
or assets may take the form of an outright taking, a ban on the exercise of
foreclosure rights, a confiscatory tax, refusal to renew licenses or other
policies. Such factors or actions to expropriate or seize its operations could
have a material adverse effect on GTS or its operations or frustrate or deny the
exercise of its rights. GTS cannot assure you that free market reforms
undertaken in certain of the emerging market countries in which it operates will
continue to proceed, let alone succeed, and signs of economic instability,
retrenchment and

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scapegoating are evident. These factors may reduce and delay business activity,
economic development and foreign investment.

Judicial officials operating in legal systems in emerging market countries
frequently have little or no experience with commercial transactions between
private parties. The extent to which GTS' contracts and other obligations owed
to GTS will be honored and enforced in emerging market countries is uncertain.
GTS may not be able to protect and enforce its rights in emerging market
countries, which could have a material adverse effect upon its operations.
Additionally, its businesses operate in uncertain regulatory environments. The
laws and regulations applicable to its activities in emerging market countries
are in general new and subject to change and, in some cases, inconsistent and
incomplete. GTS cannot assure you that local laws and regulations will become
stable in the future. Changes to such laws and regulations could materially
adversely affect operations and GTS' ability to pay its debts. Such changes
could adversely affect the value of GTS Stock. See "Description of GTS" (page
119).

RISKS RELATING TO OPERATIONS IN RUSSIA AND THE CIS

To date, GTS has earned substantially all of its revenue from operations in
Russia and the CIS. Foreign companies conducting operations in the former Soviet
Union face significant political, economic, and legal risks. GTS continuously
evaluates a number of potential transactions, some of which may involve the
contribution of certain of its Russian businesses in exchange for an interest of
equal or greater value in the surviving entity. The completion of any such
transaction could be material to operations and financial condition and could
increase GTS' exposure to such risks.

Political. The political systems of Russia and the other independent
countries of the CIS are in a stage of transition. These systems have been and
may become more unstable due to political gridlock, as well as the populace's
dissatisfaction with reform, social and ethnic unrest, economic difficulties and
changes in government policies. Such instability could lead to events that could
have a material adverse effect on operations in these countries.

In recent years, Russia has been undergoing a substantial political
transformation. During this transformation, the Russian parliament enacted
legislation to protect private property against expropriation and
nationalization. However, due to the lack of experience in enforcing these
provisions during the period they have been in effect and due to potential
political changes in the future, GTS cannot assure you that such protections
would be enforced. Expropriation or nationalization of all or a portion of its
business or its assets, whether by an outright taking, a ban on the exercise of
foreclosure rights or by confiscatory tax or other policies potentially without
adequate compensation, would have a material adverse effect on operations and
the market price of GTS Stock.

The various government institutions in Russia and the other independent
countries of the CIS and the relations between them, as well as the government's
policies and the political leaders who formulate and implement them, are subject
to rapid and potentially violent change. Any major changes in, or rejection of,
previous policies favoring political and economic reform by the President may
have a material adverse effect.

In March 1998, President Yeltsin dismissed his entire cabinet, including
Prime Minister Victor Chernomyrdin, citing, among other things, a need for more
dynamism and initiative in the Russian government. At that time, President
Yeltsin directed the formation of a new government led by Sergei Kireyenko, the
young Prime Minister committed to continuing political and economic reforms.
Since March 1998, dramatic political changes have occurred in Russia. In August
1998, Yeltsin dismissed the Kireyenko government and engaged in a struggle with
Parliament over leadership of the new government. Ultimately, under pressure
from Parliament, Yeltsin withdrew his nomination of Victor Chernomyrdin and
accepted Yevgeny Primakov as a compromise candidate. Primakov rapidly received
approval from the Duma.

Primakov has formed his government and is seeking to develop and implement
policies to address Russia's current economic crisis. Primakov is not expected
to follow the pro-market reform policies of his predecessors. His appointments
and policy pronouncements to date are mixed, suggesting that he favors lower
value-added and profit taxes, greater government intervention in the economy,
deficit spending and stricter

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currency controls. It is too soon to determine what impact Prime Minister
Primakov's policies will have on GTS' business in Russia. The political
situation remains very unsettled, especially in view of President Yeltsin's
deteriorating health and erratic stewardship of the country. In addition, it is
uncertain whether the resolution of these and other issues could have a material
adverse effect on the operations of GTS.

Furthermore, the political and economic changes in Russia have resulted in
significant dislocations of authority. As a result of the turmoil at the federal
government level and the continuing absence of a strong central government, the
regions of Russia are exercising more independence in both political and
economic policies. Significant organized criminal activity and high levels of
corruption among government officials exist where GTS operates. While GTS does
not believe it has been adversely affected by these factors to date, organized
or other crime could in the future have a material adverse effect.

Economic. Russia's serious economic crisis places at risk the economic
reforms the Russian government has enacted. In particular, the government has
suffered serious setbacks in reducing inflation and stabilizing the currency.
These reforms were designed to create the conditions for a more market-oriented
economy. For some time, Russia has experienced generally rising unemployment and
underemployment, high government debt relative to gross domestic product and
high levels of corporate insolvency. Russia continues to experience chronic
problems in its tax collection policies. Low tax receipts, coupled with the
recent downturn in commodity prices on world markets, have created a serious
liquidity problem. According to the International Finance Corporation, the
Russian stock market lost approximately 87% of its value in 1998 over concerns
about Russia's economy and political instability. Under these circumstances, GTS
cannot assure you that (i) reform policies will continue to be implemented and,
if implemented, will be successful, (ii) Russia will remain receptive to foreign
trade and investment or (iii) the economy will not suffer additional substantial
setbacks. If the Russian economy does not improve, it is likely this will have a
material adverse effect on the demand for GTS' services offered in Russia.

In response to these economic problems, in May and early June 1998, the
Russian Central Bank and other Russian governmental authorities adopted a number
of measures, including increasing the inter-bank lending rate charged by the
Russian Central Bank and the rate offered on sovereign debt obligations, in
order to maintain the value of the ruble and reduce the risk of the flight of
foreign capital from the Russian economy. On July 13, 1998, the International
Monetary Fund, the World Bank and the Japanese government announced a plan to
lend Russia $22.6 billion by the end of 1999. Since its disbursement of a first
tranche of $4.8 billion at the end of July 1998, the International Monetary Fund
has refused to release additional funds until the Russian government implements
a number of economic reforms, including measures to enhance tax collections and
narrow the budget deficit. The World Bank and the Japanese government appear to
be following the International Monetary Fund's lead with respect to their
remaining commitments under the $22.6 billion loan. The measures taken in May,
June and July 1998 failed to stabilize the economy and to provide adequate
liquidity.

On August 17, 1998, the Russian government and the Central Bank of Russia
announced emergency steps to improve liquidity (the "August 17 Decision").
Pursuant to this decision, the ruble's value was allowed to float between 6.0
and 9.5 rubles to the US Dollar. Also, a 90-day moratorium was placed on the
payment of foreign exchange to meet certain obligations of Russian entities.
Finally, the Russian government announced that it intended to restructure the
payment terms of certain treasury bills. Since the August 17 Decision, the
ruble's value has declined substantially below the 9.5 ruble/US Dollar floor set
in the August 17 Decision. As a result, GTS' financial performance has been
negatively affected. GTS recorded a $13.1 million pre-tax charge for the quarter
ended September 30, 1998, which consisted primarily of foreign currency exchange
losses for ruble-denominated net monetary assets. The remainder of the charge
consists of estimates for uncollectible accounts receivable and unrecoverable
cash deposits in certain Russian banks.

In addition, the Russian government has defaulted on payments, and proposed
a restructuring, of certain commercial and sovereign debt obligations which has
been criticized by Western holders of such obligations. As a result, it is
likely that the Russian government and Russian businesses will have difficulty
accessing Western financial markets for the foreseeable future.

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Although the 90-day moratorium has not been extended, the consequences of
the August 17 Decision and its aftermath remain unclear. GTS cannot assure you
that these emergency measures, coupled with the policies of Russia's new
government, will be sufficient to stabilize the currency, enhance liquidity,
avoid hyperinflation, improve the collections, narrow the budget or prevent
further economic dislocation. In particular, there is a risk that there could be
a further significant and sudden decline in the value of the ruble resulting in
additional exchange-related losses for GTS and increased loss of investor
confidence in the Russian economy. Such consequences could have a material
adverse effect on GTS and its financial condition and results of operations and
the Russian economy generally. See "-- Risks of Conducting Business in Foreign
Currencies" (pages 34 through 35).

The International Monetary Fund and the G-7 have thus far refused to
advance emergency funds to Russia to address the recent liquidity crisis. In
addition, the International Monetary Fund has decided not to disburse the
remaining portions of the $22.6 billion loan referenced above, and in
considering the disbursement of a $1 billion to $1.5 billion loan, subject to
the adoption of an appropriate budget for 1999, among other conditions of such
loan. This underscores the extent to which Russia, the CIS and other emerging
countries in which GTS operates are dependent upon substantial financial
assistance from several foreign governments and international organizations. If
any of this financial assistance is reduced or eliminated, economic development
in Russia and such other countries of the CIS may be adversely affected.

Russian and CIS businesses have a limited operating history in
market-oriented conditions. The relative infancy of the business culture is
reflected in the Russian banking system's under-capitalization and lack of
liquidity. Many Russian banks continue to have cash shortages. The Russian
Central Bank has reduced banks' reserve requirements in order to inject more
liquidity into the Russian financial system, but has stressed that it will not
bail out the weaker banks. Many of these banks are expected to disappear over
the next several years as a result of bank failure and anticipated consolidation
in the industry. A general Russian banking crisis could have a material adverse
effect on GTS' financial performance and the viability of GTS' receivables, GTS'
ability to recover funds deposited in Russian banks and on GTS' operations. The
banking crisis could also adversely affect the value of GTS Stock.

Regulation of the Telecommunications Industry. The Russian
telecommunications system is currently regulated largely through the issuance of
licenses. There is currently no comprehensive legal framework with respect to
the provision of telecommunications services in Russia, although a number of
laws, decrees and regulations govern or affect the telecommunications sector. As
a result, ministry officials have a fairly high degree of discretion to regulate
the industry. Although telecommunication licenses may not be transferred under
Russian law, Goskomsvyaz, the successor of the Russian Ministry of
Communications, has adopted the position that licensees may enter into
agreements with third parties to provide services under the licensee's license.
However, Goskomsvyaz does not generally review agreements entered into by
licensees. Current or future regulation of the Russian telecommunications
industry could have a material adverse effect.

Current Russian legislation governing foreign investment activities does
not prohibit or restrict foreign investment in the telecommunications industry.
However, press reports from Russia reveal that certain factions of the Russian
government are considering nationalizing certain strategic industries and
imposing foreign ownership restrictions as a result of the August 17 Decision
and its aftermath. Nationalization of industries or future regulation of foreign
investment in the telecommunications industry could have a material adverse
effect.

In addition, members of the Russian government cannot agree on the manner
and scope of government control over the telecommunications industry. Because
the telecommunications industry is widely viewed as strategically important to
Russia, GTS cannot assure you that government policies liberalizing control over
the telecommunications industry will continue. Any change in or reversal of such
governmental policies could have a material adverse effect. See "Description of
GTS -- Russia and the CIS -- Licenses and Regulatory Issues" (page 163).

Legal Risks. The Russian and CIS governments have made an effort to
transform their economies into more market-oriented economies. In particular,
they have rapidly introduced laws, regulations and legal structures intended to
give participants in the economy a greater degree of confidence in the legal
validity and

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enforceability of their obligations. Risks associated with the legal systems of
Russia and the other independent republics of the CIS include:

- the untested nature of the independence of the judiciary and its immunity
from economic, political or nationalistic influence;

- the relative inexperience of judges and courts in commercial dispute
resolutions and legal interpretation;

- inconsistencies among laws, presidential edicts, government decrees and
ministerial orders;

- the lack of legislative, judicial or administrative guidance on
interpreting the applicable rules;

- a high degree of discretion on the part of government authorities and
arbitrary decision making which increases, among other things, the risk
of property expropriation; and

- problems in enforcing judicial and administrative decisions.

The result has been considerable legal confusion, particularly in areas
such as company law, commercial and contract law, securities and antitrust law,
foreign trade and investment law and tax law. Accordingly, GTS cannot assure you
that it will be able to enforce its rights in any disputes with its joint
venture partners or other parties in Russia or the other independent republics
of the CIS. In addition, GTS cannot assure you that its ventures will be able to
enforce their respective rights in any disputes with partners, customers,
suppliers, regulatory agencies or other parties in these jurisdictions or that
it will be found to be in compliance with all applicable laws, rules and
regulations.

Taxes. Generally, taxes payable by Russian companies are substantial. In
addition, taxes payable by Russian companies are numerous and include taxes on
profits, revenue, assets and payroll as well as sales and value-added tax. In
addition, statutory tax returns of Russian companies are not consolidated and
therefore, each company must pay its own Russian taxes. Because there is no
consolidation provision, dividends are subject to Russian taxes at each level
that they are paid. Currently, dividends are taxed at 15% and the payor is
required to withhold the tax when paying the dividend, except with respect to
dividends to foreign entities that qualify for an exemption under treaties on
the avoidance of double taxation. To date, the system of tax collection has been
relatively ineffective, resulting in the continual imposition of new taxes in an
attempt to raise government revenues. This history, plus the existence of large
government budget deficits, raises the risk of a sudden imposition of arbitrary
or onerous taxes, which could adversely affect GTS.

Because of uncertainties associated with the laws and regulations of the
Russian tax system and the increasingly aggressive interpretation, enforcement
and collection activities of the Russian tax authorities, GTS' Russian taxes may
be in excess of the estimated amount expensed to date and accrued on GTS'
balance sheets. It is the opinion of GTS that the ultimate resolution of GTS'
Russian tax liability, to the extent not previously provided for, will not have
a material adverse effect on its Russian shareholding and financial condition.
However, depending on the amount and timing of an unfavorable resolution of this
contingency, it is possible that its future results of operations or cash flows
could be materially affected in a particular period.

In various foreign jurisdictions, GTS is obligated to pay value-added tax
on the purchase or importation of assets, and for certain other transactions. In
many instances, value-added tax liabilities can be offset against value-added
tax which GTS collects and otherwise would remit to the tax authorities, or may
be refundable. Because the law in some jurisdictions is unclear, the local tax
authorities could assert that GTS is obligated to pay additional amounts of
value-added tax. In the opinion of GTS, any additional value-added tax which GTS
may be obligated to pay would not be material.

ADEQUACY OF MANAGEMENT, LEGAL AND FINANCIAL CONTROLS IN EMERGING MARKETS

Many of the emerging market countries in which GTS operates, including
Russia and the other independent republics of the CIS, are deficient in
management and financial reporting concepts and practices, and lack modern
banking, computer and other control systems. GTS has also historically had
difficulty hiring

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and retaining a sufficient number of qualified employees to work in these
markets. As a result, GTS has had difficulty:

- establishing management, legal and financial controls;

- collecting financial data;

- preparing financial statements, books of account and corporate records;
and

- instituting business practices that meet Western standards.

GTS has a policy worldwide of complying with all applicable laws and
ensuring that all of its employees understand and comply with such laws. The
application of the laws of any particular country, however, is not always clear
or consistent. Emerging market countries often have commercial practices and
less developed legal and regulatory frameworks that differ significantly from
practices in the United States and other Western countries. In addition, some
practices, such as the payment of fees for the purpose of obtaining expedited
customs clearance and other commercial benefits that may be common methods of
doing business in these markets, might be unlawful under the laws of the United
States and other western countries. As a result of the difficulty GTS has
experienced in emerging markets in instituting business practices that meet
Western reporting and control standards, it has been unable to ascertain whether
certain practices by its ventures, which were not in accordance with GTS policy,
were in compliance with applicable US and foreign laws. If it were to be
determined that GTS or any of its ventures were involved in unlawful practices
and were the factual and legal issues relating thereto to be resolved adversely,
GTS or its ventures could be exposed, among other things, to significant fines,
risk of prosecution and loss of its licenses. See "-- Risks Relating to
Operations in Emerging Markets" (page 26) and "-- Government Regulation" (page
32).

In light of these circumstances, in the second half of 1996 GTS increased
its efforts to improve its management and financial controls and business
practices. GTS recruited a more experienced financial and legal team, including
a new Chief Financial Officer of GTS, a senior finance officer overseeing all of
the regions in which GTS operates, a senior finance officer for the CIS region,
and a senior legal officer for the CIS region. GTS also established a treasury
group and adopted a more rigorous Foreign Corrupt Practices Act compliance
program. GTS has developed and implemented a training program for employees
regarding US legal and foreign local law compliance. GTS also appointed a
Compliance Officer responsible for monitoring compliance with such laws and
training GTS personnel around the world. In connection with these developments,
GTS expanded its corporate business practices policy to include, in addition to
compliance with US laws such as the Foreign Corrupt Practices Act, compliance
with applicable local laws such as the conflict of interest rules under the 1996
Russian Joint Stock GTS Law, currency regulations and applicable tax laws.

In addition, in early 1997, GTS retained special outside counsel to conduct
a thorough review of certain of its business practices in the emerging markets
in which GTS operates to determine whether deficiencies existed that needed to
be remedied. As a result of this review, GTS replaced certain senior employees
in Russia and instituted additional and more stringent management and financial
controls. The review did not identify any violations of law that GTS believes
would have a material adverse effect on its financial condition. However, if GTS
were found by government authorities to have violated any law, depending on the
penalties assessed and the timing of any unfavorable resolution, future results
of operations and cash flows could be materially adversely affected in a
particular period.

Although GTS believes that the special counsel review was properly
conducted and was sufficient in scope, it cannot assure you that all potential
deficiencies have been identified or that the control procedures and compliance
programs initiated will be effective. GTS believes, however, that the actions
taken since the review to strengthen GTS' management, financial controls and
legal compliance will be adequate to address any possible deficiencies. In
addition, the Audit Committee of the GTS Board recently reviewed the legal
compliance procedures. The implementation of their recommendations and their
continued oversight of the compliance process in the future will help to ensure
that any problems in such procedures are addressed.

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DEPENDENCE ON CERTAIN LOCAL PARTIES; ABSENCE OF CONTROL

GTS developed many of its operations, including joint ventures under GTS
Business Services -- CIS, such as Sovintel, TeleRoss and GTS Cellular, in
cooperation or partnership with key local parties, such as regional telephone
companies. GTS is substantially dependent on its local partners to provide it
with marketing expertise and knowledge of the local regulatory environment. This
local knowledge helps facilitate the acquisition of necessary licenses and
permits. GTS' failure to form or maintain alliances with local partners, or the
preemption or disruption of such alliances by its competitors or otherwise,
could adversely affect its ability to penetrate and compete successfully in the
emerging markets in which it operates or plans to enter. In addition, in the
uncertain legal environments in which GTS operates, certain of its businesses
may be vulnerable to local government agencies or other parties who wish to
renegotiate the terms and conditions of, or terminate, their agreements or other
understandings with GTS.

Under the terms of various joint venture agreements, GTS has the right to
nominate key employees, direct the operations and determine the strategies of
such joint ventures' governance. However, its partners in some ventures have the
ability to frustrate the exercise of such rights. Significant actions by most
ventures, such as approving budgets and business plans, declaring and paying
dividends, and entering into significant corporate transactions effectively
require the approval of its local partners. Further, GTS would be unlikely as a
practical matter to want to take significant actions without the approval of its
joint venture partners. Accordingly, GTS' inability to unilaterally control the
operations of its joint ventures could have a material adverse effect on its
operations and on the market price of GTS Stock.

In addition, GTS frequently competes with venture partners in the same
markets. For example, Rostelecom, GTS' partner in Sovintel, is the dominant
international and domestic long distance carrier in Russia. Similarly, many of
GTS' regional telephone company partners in the TeleRoss Ventures offer cellular
services in direct competition with certain of the operations of GTS Cellular.
Such competition may lead to conflicts of interest for GTS or its partners in
the operations of these ventures. GTS cannot assure you that any such conflicts
will be resolved in its favor. See " -- Risks Relating to Reorganization of
Russian Telecommunications Industry" (page 25).

GOVERNMENT REGULATION

As a multinational telecommunications company, GTS is subject to varying
degrees of regulation in each of the jurisdictions in which its ventures provide
services. Local laws and regulations, and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which it operates.
Future regulatory, judicial and legislative changes could have a material
adverse effect. In addition, regulators or third parties may raise material
issues with regard to its compliance or noncompliance with applicable
regulations.

Many of GTS' ventures require telecommunications licenses, most of which
were granted for periods of 1 1/2 to 10 years. The terms and conditions of these
licenses may limit or otherwise affect the ventures' scope of operations. GTS
has had favorable experience obtaining, maintaining and renewing licenses in the
past. However, it cannot assure you that it will be able to obtain, maintain or
renew licenses to provide the services it currently provides and plans to
provide or that such licenses will be issued or renewed on terms or with fees
that are commercially viable. In addition, GTS cannot assure you that it can
obtain licenses required by future ventures. The loss of or a substantial
limitation upon the terms of these telecommunications licenses could have a
material adverse effect. See each section under "Description of GTS" entitled
"Licenses and Regulatory Issues" (pages 119 through 168).

A substantial portion of HER's strategy is based upon the timely
implementation of regulatory liberalization of the European Union
telecommunications market. This liberalization is occurring in accordance with
existing European Community directives. Although European Union member states
had a legal obligation to liberalize their markets in accordance with these
directives by January 1, 1998, further measures may be required to make markets
fully competitive. In addition, the European Commission granted Ireland,
Portugal, Spain, Luxembourg and Greece extensions from the January 1, 1998
deadline. Ireland and Spain, subsequently, liberalized on December 1, 1998.

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In order to give effect to European Community directives in each member
state, national governments must pass legislation implementing the directives.
Some European Union member states have yet to implement existing European
Community directives fully and similar delays may occur in the implementation of
any future directives. This could limit, constrain or otherwise adversely affect
HER's ability to provide certain services. Even if a European Union member state
adopts liberalization measures in a timely way, there may be significant
resistance to the implementation of such measures from established national or
regional telecommunications operators, regulators, trade unions and other
sources. Further, HER's provision of services in Europe may be materially
adversely affected if any European Union member state imposes greater
restrictions on international services between the European Union and other
countries than on international services within the European Union. These and
other potential obstacles to liberalization could have a material adverse effect
on HER's operations by preventing HER from establishing its network as currently
intended. These obstacles could also have a material adverse effect.

GTS cannot assure you that each European Union member state will proceed
with the expected liberalization on schedule, or at all, or that the trend
toward liberalization will not be stopped or reversed in any of the countries.
Accordingly, HER faces the risk that it will establish the HER network and make
capital expenditures in a given country in anticipation of regulatory
liberalization which may not occur.

COMPETITION

GTS faces significant competition in all of its existing telecommunications
businesses and for acquisition and development opportunities in both emerging
and Western European markets.

GTS' competitors in these markets include the following:

- established national or regional telecommunications operators,

- multinational telecommunications carriers,

- other telecommunications developers,

- certain niche telecommunications providers and

- joint venture partners.

In addition, as a result of the recent combination under Svyazinvest of the
Russian government's majority interest in Rostelecom and 85 of the regional
telephone companies, GTS may be subject to more coordinated competition from its
partners in the Russian telecommunications market in the future. Although GTS
believes it has a favorable and cooperative relationship with its joint venture
partners, GTS cannot assure you that these partners will continue to cooperate
with it in the future or that they will not increase competitive pressures. Any
measures taken by the partners that reduce their level of cooperation with GTS
could jeopardize its ability to participate in the management and operation of
its joint ventures and could have a material adverse effect.

The European and international telecommunications industries are
competitive. Various telecommunications companies, including MCI WorldCom, Inc.,
Viatel, Inc., KPN N.V., Qwest Communications International, Inc., Deutsche
Telekom AG and France Telecom S.A., Global Crossing Ltd. and British
Telecommunications plc, have announced plans to construct, have begun to
construct or are operating fiber optic networks across various European
countries.

HER "point-to-point" transborder service offering also competes with
circuits currently provided by large established national carriers through
international private leased circuits. The liberalization of the European
telecommunications market is likely to attract additional entrants to both the
"point-to-point" and other telecommunications markets. GTS cannot assure you
that HER will compete effectively against its current or future competitors.

Many of GTS' competitors have substantially greater technical, financial,
marketing and other resources. GTS cannot assure you that it will be able to
successfully overcome the competitive pressures to which it is

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subject in its present and future operating markets. See each section under
"Description of GTS" entitled "Competition" (pages 119 through 168).

Many of GTS' current and potential competitors are not subject to, or
constrained by the prohibitions of, the Foreign Corrupt Practices Act, including
the prohibition against making payments to government officials in order to
obtain commercial benefits. GTS is subject to, and seeks to comply with, the
limitations and prohibitions of such law, and accordingly may be subject to
competitive disadvantages to the extent that its competitors are able to secure
business, licenses or other preferential treatment through the making of such
payments. Accordingly, GTS cannot assure you that it will be able to compete
effectively against companies free from such limitations in the emerging markets
where such commercial practices are commonplace. See "-- Adequacy of Management,
Legal and Financial Controls in Emerging Markets" (page 30).

CERTAIN STOCKHOLDERS MAY INFLUENCE MAJOR DECISIONS IN OUR BUSINESS

At December 31, 1998, the Soros Associates beneficially owned approximately
12.5% of GTS Stock (and 9.8%, assuming the Offer is consummated) and Alan B.
Slifka and certain of his affiliates beneficially owned 5.8% of GTS Stock (and
4.6%, assuming the Offer is consummated). In addition, two persons who are
affiliated with the Soros Associates serve on the GTS Board. As a result, either
of these two stockholder groups may significantly influence decisions which
stockholders must approve, such as the election of directors and other decisions
relating to the management of business.

RISKS OF CONDUCTING BUSINESS IN FOREIGN CURRENCIES

GTS conducts all of its operations outside the United States. As a result,
a substantial portion of its revenues (as well as the majority of its operating
expenses) are in foreign currencies, which will subject it to significant
foreign exchange risks. In particular, because GTS does business in certain
countries that have "soft currencies", it may accumulate cash in currencies that
are not readily convertible into hard currency, significantly limiting its
ability to repatriate its profits from those countries. These factors may
adversely affect GTS' operations, as well as limit its ability to reinvest
earnings from ventures in one country to fund the capital needs of its ventures
in other countries.

GTS has earned most of its revenue to date in Russia. The value of the
ruble against the US Dollar has steadily declined. As a result of the August 17
Decision and its aftermath, the value of the ruble against the US Dollar has
fallen even more significantly, negatively affecting GTS' financial performance.
During the quarter ended September 30, 1998, GTS recorded a $13.1 million
pre-tax charge. The largest portion of the charge consisted of foreign currency
exchange losses on its net monetary assets that are denominated in rubles. The
remainder of the charge reflects its estimate on its ability to collect accounts
receivable and the potential loss of cash deposits in Russian banks.

The tariffs GTS sets for its customers in Russia are generally denominated
in US Dollars, whereas GTS invoices and collects its charges in rubles. GTS'
major capital expenditures are generally denominated and payable in various
foreign currencies. When these capital expenditures involve importing equipment
and the like, current law permits it to convert its ruble revenues into foreign
currency to make such payments. However, as a result of the August 17 Decision
and its aftermath, it may become more difficult for GTS to convert rubles to US
Dollars or other "hard" currencies.

The ruble is generally non-convertible outside Russia, although, in late
April 1998, the Chicago Mercantile Exchange announced that the ruble is a
currency that will be available for futures and options trading. Within Russia,
the market for converting rubles into other currencies is limited and is subject
to rules that restrict the purposes for which conversion and payment are
allowed. This market may become even more restricted as a result of policies the
new Russian government may implement. The limited availability of other
currencies may tend to inflate their values relative to the ruble. It is
uncertain whether such a market in Russia will continue to exist.

The banking system in Russia is in crisis as a result of the August 17
Decision and its aftermath. Considerable delays may occur in the transfer of
funds within, and the remittance of funds out of, Russia. The

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90-day moratorium that the August 17 Decision imposed on certain foreign
exchange payments delayed transfers of funds. Although the 90-day moratorium has
expired, it could be renewed or established in another form if the Russian
government and Central Bank anticipate further liquidity crises. Any delay in
converting rubles into foreign currency to make a payment or delay in the
transfer of such foreign currency could have a material adverse effect.

When the Russian government announced the August 17 Decision, it abandoned
its policy since November 1997 of pegging the ruble/US Dollar exchange rate to
fluctuate within a certain narrow range. Since the August 17 Decision, the
Russian authorities have been unable to maintain a stable exchange rate. Thus,
an additional significant and sudden decline in the value of the ruble might
occur. A significant and sudden devaluation of the ruble could have a material
adverse effect on GTS and its results of operations.

GTS historically has not used hedging transactions to limit its exposure to
risks from doing business in foreign currencies. GTS has developed risk
management policies that establish guidelines for managing foreign exchange
risk. As part of these policies, GTS has designed a reporting process to monitor
the potential exposure on an ongoing basis. GTS uses the output of this process
to determine the materiality of foreign currency exposure and determine whether
it is practical and/or economically justified to execute financial hedges.

For those operating companies that transact their business in currencies
that are not readily convertible, GTS' ability to hedge exposure is limited
because financial hedge instruments for these countries are nonexistent or
limited and also pricing of these instruments is often volatile and not always
efficient. GTS attempts to minimize its exposure by indexing its invoices and
collections to the applicable dollar/foreign currency exchange rate to the
extent its costs (including interest expense, capital expenditures and equity)
are incurred in US dollars. Although GTS is attempting to match revenues, costs,
borrowing and repayments in terms of their respective currencies, GTS has
experienced, and may continue to experience, losses and a resulting negative
impact on earnings with respect to holdings solely as a result of foreign
currency exchange rate fluctuations, which include foreign currency devaluations
against the US dollar. In April 1998, HER entered into a currency swap contract
to limit its exposure to currency risks from the $265 million of 11.5% senior
notes that HER issued in August 1997.

EXCHANGE CONTROLS AND RISKS OF NOT BEING ABLE TO REPATRIATE PROCEEDS FROM
RUSSIAN INVESTMENTS

Russia has recently tightened currency and capital transfer regulations to
prevent the flight of capital from its borders. These regulations require
certain licenses for the movement of capital from both the Russian Central Bank
and the Russian government. The incurrence and repayment of debt and the payment
of capital contributions in foreign currency to Russian entities are subject to
these regulations. GTS is resolving licensing issues with respect to certain
intercompany loans and capital contributions with the applicable government
agencies. GTS does not believe that the issues raised by these agencies
concerning its licenses will have a material adverse effect on its financial
condition or results of operations. It is possible, however, that the Russian
authorities could take an unexpected adverse position on these issues that could
materially affect its business.

GTS cannot assure you that Russian foreign investment and currency
legislation will continue to permit it to repatriate the proceeds from its
investments. GTS also cannot be sure whether the Russian authorities will impose
more restrictions on the conversion of ruble earnings into foreign currency to
pay dividends or repatriate profits. If further restrictions were imposed, they
would have a material adverse effect on its interests in Russia.

DEPENDENCE ON KEY PERSONNEL

GTS believes that its growth and future success will depend in large part
upon a small number of key executive officers, as well as on its ability to
attract and retain highly skilled personnel to work in the emerging markets in
which it operates. The competition for qualified personnel in the
telecommunications industry is intense, particularly in the emerging markets
where it operates. GTS cannot assure you that it will be able to hire and retain
qualified personnel. Despite changes of personnel in Russia and the CIS, GTS
believes it has

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maintained a strong management team. However, GTS cannot assure you as to what
effect such personnel changes will have on its operations in Russia and the CIS.

DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS

GTS must record and process massive amounts of data quickly and accurately.
While GTS believes its ventures' management information systems are currently
adequate, these systems will have to grow as the businesses expand. GTS believes
that the successful expansion of its information systems and administrative
support will be important to its continued growth, as well as to its ability to
monitor and control costs, to bill customers accurately and on time and to
achieve operating efficiencies. GTS may, however, encounter delays or
cost-overruns or suffer adverse consequences in implementing these systems. Any
such delay or other malfunction of its management information systems could have
a material adverse effect on GTS' business, financial condition and results of
operations.

TAXES; NET OPERATING LOSS CARRYFORWARDS MAY NOT BE USABLE

The tax rules and regimes which exist in certain emerging markets in which
GTS operates or plans to operate are, in many cases, new and rapidly changing.
If GTS repatriates profits from those countries, it may incur additional taxes.
Also, other taxes, such as value added tax, excise taxes and import duties are
changing at an unpredictable pace and could have an adverse effect on its
operations.

GTS relies on certain tax benefits in the countries in which it operates as
well as in the United States. GTS' ability to use these tax benefits is subject
to changes in the rules relating to tax holidays and in the provisions of tax
treaties with the United States. Some of its ventures in the CIS and Hungary
benefit from tax holidays granted by local governments. These tax holidays range
from five to several years, and go into effect once GTS' operations achieve
profitability under local tax regulations. In addition to those tax holidays,
certain of GTS' foreign ventures have accumulated foreign tax loss carryforwards
in excess of $60.0 million.

As of December 31, 1997, GTS had net operating loss carryforwards for US
federal tax purposes of approximately $110 million expiring in 2003 through
2012. Because of the "change in ownership" provisions of the Tax Reform Act of
1986, GTS' ability to use the tax benefits from its net operating loss
carryforwards is \subject to an annual limit as a result of the initial public
offering and the follow on stock offering and convertible senior subordinated
debenture due 2010 offering carried out in July 1998.

GTS' financial statements do not reflect any provision for the tax benefits
from the US and non-US loss carryforwards. GTS cannot assure you that local tax
authorities will allow it to apply these loss carryforwards, in part or full, to
reduce taxes on its future income.

CHANGES IN TECHNOLOGY

The telecommunications industry has experienced rapid changes in
technology. These technological advances may reduce the effectiveness of
existing technology and equipment. The cost to implement emerging and future
technologies could be significant. Also, GTS buys or uses telecommunications
equipment from a number of vendors. GTS depends on these vendors to adapt this
equipment to meet varying local telecommunications standards. GTS may be unable
to maintain competitive services or obtain new technology on a timely basis or
on satisfactory terms. If it fails to maintain competitive services, or obtain
new technologies, that could have a material adverse effect on business,
financial condition and results of operations.

Developing and operating the HER network also poses certain technological
risks. The network is designed to use SDH technology. While SDH is an advanced
new transmission technology, HER may need to upgrade its technology from the SDH
platform to be able to offer its services at a cheaper price than its
competitors. GTS cannot assure you that the HER network will achieve the
technical specifications for which it was designed. HER also may be unable to
upgrade the network as technological improvements are introduced. These factors
could materially and adversely affect the viability of the HER network, the
prospects of GTS, its operations and the market price of GTS Stock.

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RISKS ASSOCIATED WITH POTENTIAL FAILURE OF GTS' SYSTEMS TO RECOGNIZE YEAR 2000

The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Because of this programming
convention, software, hardware or firmware may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including among others, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

GTS is undertaking a comprehensive program to address the Year 2000 issue
with respect to the following:

- GTS' information technology systems;

- GTS' non-information technology systems;

- GTS' business partners;

- The systems of GTS' telecommunications, hardware and software vendors;
and

- GTS' customers.

GTS' Year 2000 program involves four phases: (1) a wide ranging assessment
of Year 2000 problems that might affect GTS; (2) the development and
implementation of remedies to address discovered problems; (3) preventing future
Year 2000 problems from arising; and (4) the testing of GTS' system. GTS
completed phase 1 at the end of the fourth quarter of 1998. GTS began phases 2,
3 and 4 of this program during the first quarter of 1999. These phases are
expected to be completed during the second quarter of 1999. Both GTS and Esprit
Telecom have identified to each other individuals at each respective company who
will work together to assess and remedy Year 2000 problems that might affect the
combined business.

The proper functioning of GTS' systems also depends on the proper
functioning of systems of third parties, such as GTS' telecommunications,
hardware and software vendors and GTS' customers. In addition to currently
identifying GTS' own applications that will not be Year 2000 compliant, GTS is
taking steps to determine whether third parties are doing the same. The failure
of third parties to remedy their own Year 2000 problems may cause business
interruptions or shutdown, financial loss, regulatory actions, reputational harm
and/or legal liability. GTS cannot assure you that GTS' Year 2000 program or the
programs of third parties who do business with GTS will be effective or that
GTS' estimates about the timing and cost of completing GTS' program will be
accurate. See "GTS Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Compliance." (page 187)

DIFFICULTY IN OBTAINING RELIABLE MARKET INFORMATION

GTS operates in markets in which it is difficult to obtain reliable market
information. GTS has based its business planning on certain assumptions
concerning total revenue, business and consumer breakdown revenue, revenue from
various products and services, pricing, competition, operating expenses and
capital expenditures and its own investigation of market size and conditions and
its experience in other markets. GTS cannot assure you that either its
assumptions or data provided by outside sources are accurate or that they are
indicative of actual market conditions.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POTENTIAL ADVERSE IMPACT
ON MARKET PRICE FROM SALES OF GTS STOCK

As of December 31, 1998, 64,744,221 shares of GTS Stock were outstanding
excluding (v) 9,639,506 shares for which outstanding warrants and options are
exercisable, (w) 5,880,050 shares into which the Convertible Bonds are
convertible, (x) the 8,481,417 shares into which the Debentures are convertible
and (y) shares issued in connection with the Offer.

Of the 64,744,221 outstanding shares of GTS Stock, the 12,765,000 shares
registered in the IPO and the 14,506,900 shares registered in the July 1998
Stock Offering will be freely tradable without restriction under the Securities
Act. However such shares held by "affiliates" may generally be resold only in
compliance with applicable provisions of Rule 144 under the Securities Act, as
described below. Of the remainder, approximately 20,000,000 additional shares
have been resold or may be resold under Rule 144 without restriction under the
Securities Act. An additional approximately 12,762,000 shares have been resold
or may

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be resold under Rule 144 subject to volume and manner limitations. In addition,
the 8,481,417 shares into which the Debentures are convertible will be freely
tradable without restriction under the Securities Act.

In addition, GTS has filed and the SEC has declared effective three
registration statements. One registration statement covers the resale of the
Convertible Bonds and the shares of GTS Stock into which the Convertible Bonds
are convertible. Two registration statements on Form S-8 cover the resale of
shares of GTS Stock issued to employees, officers and directors under our
employee benefit plans.

Furthermore, on January 20, 1999, GTS filed with the SEC a shelf
registration statement (the "Shelf Registration Statement") covering all of the
shares of GTS Stock (and securities convertible into or exercisable for shares
of GTS Stock) owned by Alan B. Slifka and his affiliates and the Soros
Associates that were not sold in the July 1998 Stock Offering (the "Affiliate
Shares"). As of the date hereof, the SEC has not declared effective this
registration statement. GTS agreed to file the Shelf Registration Statement in
exchange for these shareholders agreeing to certain restrictions on their
ability to resell such Affiliate Shares. These restrictions apply for specified
periods after closing of the July 1998 Offerings. Under these restrictions,
holders of Affiliate Shares cannot, subject to certain exceptions, sell any such
shares during the first six months after the closing date of the July 1998
Offerings. They may, however, sell 50% of such shares six months after the
closing date of the July 1998 Offerings; 75% of such shares nine months after
the closing date of the July 1998 Offerings; and 100% of such shares twelve
months after the closing date of the July 1998 Offerings. The Shelf Registration
Statement was filed on January 20, 1999. The Soros Affiliates have expressed to
GTS their view that, because the Shelf Registration Statement is not yet
effective, the above contractual restrictions may no longer apply and that they
are free to enter into transactions in respect of their Affiliate Shares subject
to applicable provisions of U.S. securities law. GTS has expressed to the Soros
Affiliates its view that such restrictions may continue to apply.

Certain limited partners of partnerships affiliated with Alan B. Slifka and
currently in dissolution may, upon giving GTS advance notice, withdraw some or
all of their shares of GTS Stock from registration under the Shelf Registration
Statement. By withdrawing their shares, those persons would no longer be bound
by the restrictions on sale. The number of shares of GTS Stock that such persons
may withdraw is capped at 726,953 shares of GTS Stock minus the number of shares
such persons sold in the July 1998 Stock Offering.

On January 21, 1999, GTS also filed a shelf registration statement covering
4,037,500 shares of GTS Stock that may be issued to holders of NetSource stock
in connection with the acquisition of NetSource. As of the date hereof, the SEC
has not declared effective this registration statement.

GTS cannot predict what effect, if any, that future sales of GTS Stock or
the availability of GTS Stock for sale would have on the market price for GTS
Stock. Sales of large numbers of shares of GTS Stock in the public market
pursuant to Rule 144 or pursuant to an effective registration statement under
the Securities Act, or the perception that sales could occur, may have an
adverse effect on the market price for GTS Stock.

NO DIVIDEND PAYMENTS ARE EXPECTED

GTS does not intend to pay any cash dividends in the foreseeable future.
Also, its ability to pay dividends is prohibited under the terms of an existing
debt agreement. If GTS raises any capital in the future, it may be restricted
from paying dividends under the terms of such financings. In addition, the
August 17 Decision and other actions that the Russian government may take in the
future may restrict the ability of the ventures in Russia to declare and pay
dividends.

ANTI-TAKEOVER PROVISIONS

Certain anti-takeover provisions could delay or prevent a third party from
gaining control of GTS in a transaction that the GTS Board had not negotiated
and approved, even if such change in control would be beneficial to
stockholders. These anti-takeover provisions include:

- Section 203 of the Delaware General Corporations Law, which prohibits a
"business combination" between a corporation and an "interested
stockholder" within three years of the stockholder becoming an
"interested stockholder" except in certain limited circumstances.

- Certain provisions of GTS' charter and by-laws, including:

- a classified GTS Board serving staggered three-year terms;

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- restrictions on who may call a special meeting of stockholders;

- a prohibition on stockholder action by written consent;

- restrictions on the removal of directors;

- supermajority voting requirements with respect to certain amendments to
the Charter; and

- the authority to issue shares of preferred stock and to determine the
rights without stockholder approval.

- A shareholders' rights plan.

See "Description of GTS Capital Stock -- Certain Charter and By-law
Provisions" (page 108).

US JUDGMENTS MAY NOT BE ENFORCEABLE ABROAD

Substantially all of GTS' assets (including all of the assets of its
operating ventures) are located outside the United States. As a result, it will
be necessary to comply with foreign laws in order to enforce judgments obtained
in a US court (including those with respect to federal securities law claims)
against the assets of GTS' operating ventures. GTS cannot assure you that any US
judgments would be enforced under any such foreign laws.

STOCK PRICE MAY BE VOLATILE

The market price for GTS Stock could fluctuate due to various factors.
These factors include:

- political and economic development in emerging markets (including Russia
and the CIS);

- announcements by GTS or its competitors of new contracts, technological
innovations or new products;

- other announcements concerning GTS or its competitors;

- changes in government regulations;

- fluctuations in GTS' quarterly and annual operating results; and

- general market conditions.

In addition, the stock markets have, in recent years, experienced
significant price fluctuations. These fluctuations often have been unrelated to
the operating performance of the specific companies whose stock is traded.
Market fluctuations, as well as economic conditions, have adversely affected,
and may continue to adversely affect, the market price of GTS Stock.

RISKS SPECIFIC TO ESPRIT TELECOM

Set out below is a description of certain risk factors that may affect
Esprit Telecom's business and results of operations from time to time as an
independent company. Should the Offer be completed, these risk factors could
change in certain significant respects. In addition, the Offer could impact the
business of Esprit Telecom in a variety of respects the effects of which are not
yet known to Esprit Telecom, but which could ultimately have adverse effects on
Esprit Telecom. In particular, should the Offer not be completed, the business
of Esprit Telecom may be materially adversely affected.

LIMITED OPERATING HISTORY; HISTORICAL AND ANTICIPATED FUTURE OPERATING
LOSSES;NEGATIVE EBITDA; NET LOSSES

Esprit Telecom commenced operations in June 1992 with limited business in
Spain and has since further expanded its operations to cover the UK, Germany,
The Netherlands, France, Belgium, Ireland and Italy. As a result of its recent
development, Esprit Telecom has generated limited revenue in markets other than
the UK, Germany and The Netherlands. Esprit Telecom, its customer base and the
Esprit Network have grown significantly in the last three years as investments
from its principal shareholders and proceeds from financings have allowed Esprit
Telecom to expand into key European markets. In addition, Esprit Telecom intends
to enter new European markets and offer new telecommunications services.
Accordingly, Esprit Telecom can offer no assurance that Esprit Telecom's future
operations will generate operating or net income, and Esprit

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Telecom's prospects must therefore be considered in light of the risks, costs
and time constraints inherent in establishing operations and introducing new
telecommunications services in newly liberalizing markets.

Esprit Telecom has incurred and expects to continue to incur operating
losses, negative cash flow from operating activities and negative EBITDA while
it develops and expands the Esprit Network, integrates the Plusnet business into
its current operations, opens new sales offices and introduces new
telecommunications services. Esprit Telecom could continue to generate net
losses even after Esprit Telecom begins to generate positive EBITDA. Although
Esprit Telecom has experienced net revenue growth in each of the last four
years, such growth should not be considered to be indicative of future net
revenue growth, if any. For the years ended September 30, 1997 and September 30,
1998, Esprit Telecom sustained, on a UK GAAP basis, net losses of approximately
L10.9 million and L42.4 million, respectively, and negative EBITDA of L8.7
million and L18.3 million, respectively. Furthermore, Esprit Telecom expects
that operations in new markets will sustain negative cash flows until an
adequate customer base and the related revenue stream have been established. In
addition, prices in the long distance industry in Europe have declined in recent
years and, as competition continues to increase, Esprit Telecom expects that
prices will continue to decline. Although Esprit Telecom believes that such
decreases in price will be at least partially offset by increased traffic volume
and decreases in the cost of providing telecommunication services, Esprit
Telecom can offer no assurance that it will achieve or, if achieved, will
sustain profitability or positive cash flow from operating activities in the
future. If Esprit Telecom cannot achieve and sustain operating profitability or
positive cash flow, Esprit Telecom may not be able to meet its debt service
obligations or working capital requirements without additional financing.

Esprit Telecom expects that due to continuing price cuts in certain retail
markets, its gross margins will be affected until such time as such price cuts
are offset by anticipated network cost savings arising from increased capacity
on the Esprit Network on certain key routes and Esprit Telecom derives the
benefits from expected reductions in interconnection charges. Price cuts from
PTOs have been and may continue to be significant in nature and network cost
reductions may take time to be brought into effect. For example, in Germany,
Deutsche Telekom has recently gained regulatory approval to implement
significant reductions in its national tariffs from January 1999, which Esprit
Telecom expects may have an adverse impact upon its national long distance
revenues and gross margins. In addition, Esprit Telecom intends to substantially
increase the capacity and reach of the Esprit Network and expects that the
resulting additional leased line costs operating and maintenance will depress
gross margins until additional traffic volume increases network utilization.

As a result of its limited revenue and significant expenses associated with
the expansion and development of the Esprit Network, the opening of new sales
offices and the introduction of new telecommunications services and the
variations in international and national long distance traffic in certain
periods of the year, Telecom anticipates that its operating results could vary
significantly from quarter to quarter.

SUBSTANTIAL INDEBTEDNESS; LIQUIDITY

Esprit Telecom has substantial indebtedness. At September 30, 1998, under
UK GAAP, Esprit Telecom's total indebtedness was approximately L401.7 million,
its shareholders' funds were a deficit of approximately L7.2 million and its
total assets were approximately L394.5 million, of which approximately L99.0
million would have been intangible assets. For the years ended September 30,
1997 and September 30, 1998, under UK GAAP, Esprit Telecom's consolidated EBITDA
was negative L8.7 million and negative L18.3 million, respectively, and its
earnings would have been insufficient to cover fixed charges by L10.9 million
and L42.4 million, respectively. In addition, Esprit Telecom and its
subsidiaries may incur additional indebtedness in the future, subject to
limitations imposed by their debt instruments, including, without limitation,
the indentures governing the Esprit Telecom Bonds. The Esprit Telecom Bond
Indentures do not limit the amount of indebtedness that may be incurred to
finance the cost of the expansion of the Esprit Network.

Esprit Telecom's net interest expense for the year ended September 30, 1998
was L12.2 million. Esprit Telecom will need to improve substantially its cash
flow from operating activities in order for Esprit Telecom to meet its debt
service obligations, including its obligations under the Esprit Telecom Bonds.
Esprit

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Telecom's ability to improve its operating performance and financial results
will depend not only on its ability to successfully implement its business plan,
but also upon economic, financial, competitive, regulatory and other factors
beyond its control, including fluctuations in exchange rates and general
economic conditions in Europe. Esprit Telecom can offer no assurance that it
will generate sufficient positive cash flow from operating activities in the
future to service its debt and to allow it to make necessary capital
expenditures. If Esprit Telecom is unable to generate sufficient positive cash
flow in the future, it may be required to refinance all or a portion of its
debt, including Esprit Telecom Bonds, to sell assets or to obtain additional
financing. Esprit Telecom can offer no assurance that any such refinancing would
be possible or that any such sales of assets or additional financing could be
achieved.

The high level of Esprit Telecom's indebtedness and the terms of such
indebtedness could have several important consequences in the future on Esprit
Telecom's operations, including the following:

- Esprit Telecom will have significant cash requirements to service
debt, thereby reducing funds available for operations and future
business opportunities and increasing the vulnerability of Esprit
Telecom to adverse general economic and industry conditions;

- Esprit Telecom may be restricted in the future from obtaining any
necessary financing for working capital, capital expenditure, debt
service requirements, acquisitions or other purposes;

- Esprit Telecom's flexibility in planning for, or reacting to, changes
in its business may be impeded;

- Esprit Telecom is more highly leveraged than some of its competitors,
which may place it at a competitive disadvantage; and

- Esprit Telecom will be required to comply with certain financial
covenants and other restrictions contained in its debt instruments,
including the Esprit Telecom Bond Indentures.

If Esprit Telecom failed to meet its debt service obligations or to comply
with any of the covenants contained in any of its debt instruments Esprit
Telecom could trigger a default under those agreements, permitting the
acceleration of the maturity of the indebtedness under such agreements. Any
default or acceleration under such agreement could also result in other debt of
Esprit Telecom and its subsidiaries becoming immediately payable. Under any of
these circumstances, Esprit Telecom can offer no assurance that Esprit Telecom
and its subsidiaries would have sufficient funds or other resources to satisfy
all of such obligations on a timely basis or otherwise.

NEED FOR ADDITIONAL FINANCING

The development and expansion of the Esprit Network, the opening of new
sales offices and the introduction of new telecommunications services, future
acquisitions, as well as the funding of operating losses and net cash outflows,
will require substantial capital. During the years ended September 30, 1998,
1997 and 1996, Esprit Telecom made fixed asset investments of approximately
L41.2 million, L10.1 million and L6.0 million, respectively. Esprit Telecom has
historically been funded by equity contributions from the Principal
Securityholders, financing from banks, vendors and other third parties and net
proceeds from financings. None of the Principal Securityholders has any
obligation to make additional investments in Esprit Telecom. Esprit Telecom does
not currently maintain lines of credit or similar facilities with commercial
banks, but has obtained credit through vendor financing and credit secured by
Esprit Telecom's receivables. Other future sources of capital for Esprit Telecom
could include additional public and private debt and equity financings. Esprit
Telecom can offer no assurance that such sources of financing would be available
to Esprit Telecom in the future or, if available, that they could be obtained on
terms acceptable to Esprit Telecom.

Esprit Telecom's future requirements will depend upon many factors. Some of
these factors include the performance of Esprit Telecom's business, the rate and
manner in which it expands the Esprit Network and opens new sales offices, makes
future acquisitions and increases staffing levels and customer growth, as well
as other factors that are not within Esprit Telecom's control, including
competitive conditions, regulatory or other government actions and capital
costs. In the event that Esprit Telecom's plans or assumptions change or prove
to be inaccurate or the funds from financings, internally generated funds,
working capital and financings by

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vendors prove to be insufficient to fund Esprit Telecom's growth and operations
in the manner and at the rate currently anticipated, then some or all of Esprit
Telecom's development and expansion plans could be delayed or abandoned, or
Esprit Telecom may be required to seek additional funds earlier than currently
anticipated, including from additional debt and/or equity financings.

NETWORK DEVELOPMENT AND EXPANSION RISKS

Esprit Telecom's continued expansion and development of the Esprit Network
will depend on, among other things, Esprit Telecom's ability to enter new
markets, access transmission backbone network routes, install service and sales
facilities, acquire rights-of-way and building access, obtain required
governmental licenses, authorizations and permits and interconnect with the
networks of the incumbent PTOs or other infrastructure providers, all in a
timely manner, at reasonable costs and on terms and conditions acceptable to
Esprit Telecom. The successful implementation of Esprit Telecom's expansion
strategy will be subject to a variety of risks, including operating and
technical problems, regulatory uncertainties, possible delays in the full
implementation of the EU Directives regarding telecommunications liberalization,
competition and the availability of capital.

Esprit Telecom's ability to achieve its strategic objective is in large
part dependent on the successful, timely and cost-effective expansion of the
Esprit Network. The Esprit Network currently consists of leased fiber optic
lines, dark fiber, with associated SDH and WDM equipment, digital microwave
transmission facilities and MIUs and IRUs on undersea cables. The expansion and
development of the Esprit Network will focus on capacity that is owned or
controlled by Esprit Telecom. Such expansion and development may be delayed or
adversely affected by a variety of factors, uncertainties and contingencies many
of which, such as technical difficulties in an environment of multiple local
technical standards, are beyond Esprit Telecom's control. In addition, Esprit
Telecom may need to engage in time consuming negotiations for low cost access to
networks which may place Esprit Telecom at a disadvantage with respect to
competitors who have already entered into such agreements. Esprit Telecom can
offer no assurance that the Esprit Network will grow and develop as planned or,
if developed, that such growth or development will be completed on schedule, at
a commercially reasonable cost or within Esprit Telecom's specifications.
Although Esprit Telecom believes that its cost estimates and the build-out
schedule are reasonable, Esprit Telecom can offer no assurance that the actual
construction or acquisition costs or time required to complete the network
build-out will not substantially exceed current estimates. Any significant delay
or increase in the costs associated with the expansion and development of the
Esprit Network could have a material adverse impact on Esprit Telecom, including
its ability to make payments on Esprit Telecom Bonds, and on Esprit Telecom's
business, results of operations and financial condition generally.

RISKS ASSOCIATED WITH THE OPERATION OF THE ESPRIT NETWORK

Esprit Telecom's success is dependent on the seamless technical operation
of the Esprit Network and on the management of traffic volumes and route
preferences over the same. Furthermore, as Esprit Telecom is continuously
expanding the Esprit Network to increase both its capacity and reach, and as
traffic volume continues to increase in accordance with anticipated growth,
Esprit Telecom will face increasing demands and challenges in running and
managing the network functions, including its circuit capacity and traffic
management systems. The Esprit Network is subject to several risks which are
outside of Esprit Telecom's 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
the Esprit Network or other systems or hardware that causes significant
interruptions to Esprit Telecom's operations could have a material impact on
Esprit Telecom's business, financial condition or results of operations. Esprit
Telecom's operations are also dependent on its ability to successfully integrate
new and emerging technologies and equipment, in particular the technology and
equipment of the Plusnet Business, and the SDH and WDM equipment associated with
Esprit Telecom's broadband fiber network, into the Esprit Network, which could
increase the risk of system failure and result in further strains upon the
Esprit Network. Esprit Telecom attempts to minimize customer inconvenience in
the event of a system disruption by routing traffic to other circuits and
switches which may be controlled by other carriers. However, prolonged or
significant system

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failures, or difficulties for customers in accessing, and maintaining connection
with, the Esprit Network could threaten Esprit Telecom's relationship with its
clients, and would seriously damage the reputation of Esprit Telecom and result
in customer attrition and financial losses. Additionally, any damage to Esprit
Telecom's Network Management Center and major switching centers could have a
material negative impact on Esprit Telecom's ability to monitor and manage the
network operations and generate accurate call detail reports from which billing
information is derived.

The expansion and development of the Esprit Network will entail significant
expenditure and resources for projecting growth in traffic volume and routing
preferences, and determining the most cost-effective means of growing the Esprit
Network (i.e., through variable or fixed lease arrangements, the purchase of
transmission rights on fiber optic lines or digital microwave equipment, or the
construction of transmission infrastructure). If Esprit Telecom fails to project
traffic volume and route preferences correctly or to determine the optimal means
of expanding the Esprit Network resulting in less than optimal utilization of
the Esprit Network, Esprit Telecom's business, results of operations and
financial condition could be materially adversely affected.

DEPENDENCE ON FACILITIES PROVIDERS AND INTERCONNECT ARRANGEMENTS

At the present time, Esprit Telecom has completed a relatively small part
of its planned telecommunications transmission infrastructure and leases the
remainder under a variety of arrangements with facilities-based long distance
carriers. As a result, Esprit Telecom depends upon facilities-based carriers
such as the PTOs and other alternative telecommunications networks in each of
the countries in which Esprit Telecom operates. Some of these carriers are or
may become competitors of Esprit Telecom. In addition, Esprit Telecom's ability
to connect its retail customers to the Esprit Network is dependent on Esprit
Telecom securing interconnection agreements with the local PTOs in the markets
where Esprit Telecom operates. Esprit Telecom has entered into interconnection
agreements in the United Kingdom, Germany, The Netherlands, France and Belgium,
and expects to secure additional agreements covering some of its remaining
markets as the EU telecommunications market continues to benefit from the
liberalization which took legal effect in January 1998. Esprit Telecom can offer
no assurance that it will be successful in securing such arrangements at
attractive rates. Esprit Telecom historically has not experienced material
difficulties with the quality of the services provided by facilities-based
carriers and, except for initial difficulties in Spain, has generally not
experienced material difficulties in accessing such carriers' transmission
infrastructure. Based on its experience in a number of other countries, Esprit
Telecom believes that facilities-based carriers often try to limit access to
their facilities by new competitors. Esprit Telecom's profitability depends in
part on its ability to obtain and utilize leased capacity arrangements on a
cost-effective basis and secure interconnection arrangements on a timely basis
and at favorable rates.

Esprit Telecom currently leases a substantial portion of its network
transmission capacity pursuant to agreements which generally have twelve-month
or longer fixed terms. These lease arrangements present Esprit Telecom with high
fixed costs, while the revenues generated by the utilization of such leases will
vary with traffic volumes and prices. Accordingly, if Esprit Telecom does not
generate the requisite traffic volume over the particular route or is unable to
charge an appropriate price for such traffic, Esprit Telecom could fail to
generate revenue sufficient to meet the lease costs, and may incur operating
losses on the particular route or routes. In addition, most of Esprit Telecom's
off-network transmission is obtained under a variety of volume-based
arrangements with facilities-based carriers including PTOs. Under these
arrangements, Esprit Telecom is subject to the risk of unanticipated price
fluctuations and service restrictions or cancellations.

Esprit Telecom believes that its arrangements and relationships with
carriers generally are satisfactory. However, the deterioration or termination
of Esprit Telecom's arrangements and relationships, or Esprit Telecom's
inability to enter into new arrangements and relationships with one or more
carriers could have a material adverse effect upon Esprit Telecom's cost
structure, service quality, network coverage, results of operations and
financial condition.

DEPENDENCE ON EFFECTIVE BILLING AND MANAGEMENT INFORMATION SYSTEMS

Esprit Telecom must record and process millions of call detail records
quickly and accurately in order to efficiently produce customer bills in a
timely and flexible manner. While Esprit Telecom's existing billing

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system is sufficient for its current operations, Esprit Telecom has selected a
new billing system which it believes will provide the capability and flexibility
to support Esprit Telecom's anticipated growth. The introduction of this system
will be accompanied by additional systems designed to support the critical
service activation, customer care and service assurance processes, and is
expected to enable Esprit Telecom to bring most of its billing processes in
house. Esprit Telecom is also planning to introduce new management information
systems which it believes will allow Esprit Telecom to continuously monitor its
operations, thus enabling Esprit Telecom to achieve additional network and
operating efficiencies and to improve management control. Esprit Telecom expects
that a number of new systems will be implemented by mid-1999, and that such
systems will require continuous enhancements and ongoing investments, especially
as traffic volume increases and as Esprit Telecom continues to improve its
systems to minimize problems common to the telecommunications industry, such as
call record losses, and to ensure the timely production of bills. While the
Plusnet Business and IMS continue to use their own billing systems, Esprit
Telecom expects that these systems will be integrated into Esprit Telecom's new
billing process by mid-1999. Esprit Telecom can offer no assurance that Esprit
Telecom will not encounter difficulties in implementing and enhancing the new
billing and management information systems and in integrating new technology
into such systems. If Esprit Telecom were to be unable to implement the new
systems or any required system enhancement, to acquire new systems or to
integrate new technology in a timely and cost-effective manner, its business,
results of operations and financial condition could be materially adversely
affected.

YEAR 2000 TECHNOLOGY RISKS

A significant percentage of the software running on most of the computers
worldwide relies on two-digit date codes to perform a number of computation and
decision making functions. The date change from 1999 to 2000 may impair the
ability of these programs to interpret date codes properly, which could result
in system failures, miscalculations or errors, causing disruptions of operations
or other business problems, including the inability to process transactions,
send invoices or engage in similar normal business activities.

Esprit Telecom is undertaking a comprehensive program to address the Year
2000 issue with respect to:

- its transmission, switching, billing and management information
systems;

- its non-information technology systems (including buildings, plant,
equipment and other infrastructure that may contain embedded
technology); and

- systems of its primary traffic carriers and vendors.

Esprit Telecom is also trying to raise awareness of Year 2000 issues in its
customers' systems.

This program involves four phased steps:

- identifying and assessing potential Year 2000 problems which may
impact Esprit Telecom;

- developing remedial strategies and actions to address those problems;

- implementing those remedial strategies and actions; and

- testing the foregoing solutions.

The program also involves analyzing Esprit Telecom's most reasonably likely
worst-case Year 2000 scenario. Esprit Telecom expects that this would involve
either or both of the following:

- a loss of interconnect capacity from one or more major suppliers of
transmission capacity; and/or

- Esprit Telecom's inability to record, track or invoice billable
minutes which could ultimately cause it to temporarily stop carrying
traffic.

Either scenario would adversely affect Esprit Telecom's revenue and, if not
quickly remedied, would have a material adverse effect on its business, results
of operations and financial condition.

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Assessment

Esprit Telecom is currently in the process of auditing and testing its
systems to determine if they will suffer problems associated with the transition
to the Year 2000. Since a complete analysis of Esprit Telecom's systems would
require an interruption of service, Esprit Telecom is selectively testing
various elements of such systems. Esprit Telecom has an active in-house
assessment program, with a staff of six persons assigned to Year 2000 compliance
issues. Despite devoting these resources to addressing Year 2000 compliance,
Esprit Telecom has not delayed the implementation of any projects related to
management information systems. Esprit Telecom's Year 2000 compliance team is in
the process of reviewing each of Esprit Telecom's switching sites and other
network points to identify equipment, hardware and software that is unlikely to
function through the Year 2000 transition. Esprit Telecom is also in the process
of having its Year 2000 program audited by an outside consulting firm.

In addition, Esprit Telecom actively cooperates with other carriers in a
global Year 2000 program through ITU-T Year 2000 Taskforce, and the UK Year 2000
Operators forum. As part of the latter forum Esprit Telecom is participating in
a voluntary and independent health check review of its Year 2000 program
(conducted by another operator).

Remedial Strategies and Actions

Following its assessment, Esprit Telecom expects to replace, rather than
upgrade, the majority of the problem equipment within its own network systems,
which includes information technology and non-information technology systems.
Esprit Telecom already requires that any systems being replaced or upgraded be
warranted as Year 2000 compliant by the vendors or suppliers of these systems.
Esprit Telecom is currently in the process of replacing its billing and
management information systems, which Esprit Telecom expects will be implemented
by mid-1999. Esprit Telecom also intends to provide back up power and other
equipment at switch sites, as well as alternative routing around switch sites
which experience problems despite these remedial actions.

To address its worst case scenarios, Esprit Telecom has also determined to
obtain supplemental interconnect and transmission capacity in the event that one
or more of its primary carriers experience system failures. Esprit Telecom has
undertaken joint Year 2000 compliance reviews through industry forums and with
several of its major carriers. Ultimately, however, Esprit Telecom has no
control of the Year 2000 readiness of any of its suppliers or customers, and
will be exposed to risks associated with their failure to assess and address
Year 2000 problems. Esprit Telecom cannot control many Year 2000 issues that
could affect it, and like most telecommunications service providers. Esprit
Telecom believes it is inappropriate to provide specific guarantees that service
will not be affected by the transition to the new millennium.

Implementation

Esprit Telecom is in the process of securing supplemental interconnect and
transmission capacity from several carriers in addition to its current primary
carriers. Esprit Telecom has spent approximately $4.0 million for Year 2000
compliance on its own systems through September 30, 1998, and expects to spend
approximately an additional $4.0 million through the end of calendar year 1999.
Out of this total of $8.0 million in expenditures, Esprit Telecom expects to
spend a total of $1.0 million on repairing existing systems and the remainder on
testing and replacement.

Testing

Esprit Telecom expects to test numerous elements of its systems for Year
2000 compliance, as well as its ability to interconnect with and utilize back-up
carriers, throughout 1999. In particular, Esprit Telecom expects to test its new
billing and management information systems when the same become operational in
mid-1999. As noted above, however, Esprit Telecom will be unable to test its
network systems in their entirety since to do so would involve shutting down its
network for a period of time.

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RISKS ASSOCIATED WITH A RAPIDLY CHANGING INDUSTRY; TECHNOLOGY; DEPENDENCE
ON EQUIPMENT AND TECHNOLOGY SUPPLIERS

The European telecommunications industry is changing rapidly due to, among
other factors, liberalization, privatization of PTOs, technological
improvements, expansion of telecommunications infrastructure and the
globalization of the world's economies and free trade. Such changes may happen
at any time and can significantly affect Esprit Telecom's operations from period
to period. Esprit Telecom can offer no assurance that one or more of these
factors will not have unforeseen effects, which could have a material adverse
effect on Esprit Telecom. Even if these factors turn out as anticipated, Esprit
Telecom can offer no assurance that it will be able to implement its strategy or
that its strategy will be accepted in this rapidly evolving market.

Much of Esprit Telecom's planned growth is predicated upon the
liberalization of telecommunications markets, and further, upon the
implementation and enforcement of existing EU directives. Esprit Telecom can
offer no assurance that such liberalization will occur as anticipated, or that
the effects of such liberalization will not be different than expected.

The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new products and services, and
increased availability of transmission capacity, as well as the increasing
utilization of the Internet for voice and data transmission. Esprit Telecom's
success will depend substantially on its ability to predict which of the many
possible current and future networks, products and services will be important to
establish and maintain and which expenditures will be required to develop and
provide such networks, products and services. In particular, as Esprit Telecom
undertakes to further expand and develop the Esprit Network, it will become
increasingly exposed to the risks associated with the relative effectiveness of
its technology and equipment. The cost of implementation of emerging and future
technologies could be significant, and Esprit Telecom can offer no assurance
that it will maintain competitive services or that it will obtain appropriate
new technology on a timely basis, or on satisfactory terms. If Esprit Telecom
failed to maintain competitive services or obtain new technologies Esprit
Telecom's business, financial condition and results of operations could be
materially adversely affected. The current operational network has performed at
or above design specifications. However, as traffic continues to grow and the
Esprit Network is further expanded, Esprit Telecom can offer no assurance that
the Esprit Network will continue to achieve its technical specifications. If
Esprit Telecom failed to achieve such technical specifications the viability of
the Esprit Network and Esprit Telecom's business, financial condition and
results of operations could be materially adversely affected.

Esprit Telecom purchases its international and local equipment from
telecommunications equipment manufacturers that may provide vendor financing
for, and maintenance of, this equipment. Esprit Telecom's main suppliers are
Nortel, Ericsson and Siemens. Esprit Telecom could obtain equipment of
comparable quality from several alternative suppliers. However, if Esprit
Telecom failed to acquire switches that are compatible from an alternative
source, or acquire additional equipment (regardless of the vendor) on a timely
and cost-efficient basis, Esprit Telecom could face delays, operational problems
and increased expenses.

The Esprit Network is significantly dependent on the technology and
products which Esprit Telecom acquires from its main suppliers. In addition,
Esprit Telecom occasionally enters into turn-key contracts with specific
suppliers as a means of reducing its costs and development risks. If any of
Esprit Telecom's technologies and products became obsolete or incompatible with
industry standards, or if any of Esprit Telecom's turn-key contracts failed to
provide the expected benefits, Esprit Telecom's business, results of operations
and financial condition could be materially adversely affected.

CERTAIN RISKS OF THE WHOLESALE AND RESELLER BUSINESS

Wholesale customers connect with Esprit Telecom to carry their traffic to
destinations where Esprit Telecom's rates are competitive. Esprit Telecom's
contracts with these wholesale customers generally do not include minimum or
maximum usage levels, and such customers generally maintain relationships with a
number of telecommunications providers. As a result, wholesale customers
typically change their routing to take advantage of the lowest cost alternative,
resulting in potentially greater fluctuations in revenue generated by these
customers than for other categories of customers. Esprit Telecom's contracts
with its wholesale
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customers require Esprit Telecom to carry their traffic at a contractually fixed
price per minute for a designated time period. Esprit Telecom contracts at
prices which it believes are competitive and which provide it with a projected
acceptable margin over the anticipated cost of carrying such traffic. However,
Esprit Telecom, due to capacity and quality constraints on its least-cost
routes, has on occasion been forced to carry traffic over a higher-cost route.
In response to such constraints, Esprit Telecom decided to reduce the volume of
wholesale traffic on the Esprit Network until the third quarter of the 1998
financial year when sufficient spare capacity became available for the provision
of such services to be profitable. Esprit Telecom expects that in the medium
term, revenue from wholesale services will increase as network capacity is
increased in connection with the expansion of the Esprit Network. Certain
resellers who are connected to multiple providers may also change routing to
take advantage of lower costs, which results in greater fluctuations in Esprit
Telecom's revenue derived from such resellers. Esprit Telecom's credit exposure
to such resellers may also be greater since, unlike wholesale customers,
resellers do not typically furnish any services to Esprit Telecom.

RISK OF FRAUD AND BAD DEBT

Esprit Telecom has experienced problems relating to the fraudulent use of
its access codes and the failure of certain of its customers to make full
payment for services rendered. However, Esprit Telecom does not believe that its
experiences with such problems are substantially different from what is
generally experienced in the telecommunications industry. Esprit Telecom may
have to make provisions for non-payment if it believes that it will not be able
to collect. Esprit Telecom expects that the credit risk characteristic of its
customer base may increase as the share of Esprit Telecom's revenue deriving
from SMEs increases. In addition, the revenue derived from its service
provider/reseller business has increased during the 1998 financial year. In
general, service provider/reseller customers, owing to the significant size of
their bills relative to their asset base, may present a different or greater
risk of non-payment than retail or wholesale customers. Any significant increase
in the levels of fraud and bad debt could have a material adverse impact on
Esprit Telecom's financial condition and results of operations.

ABILITY TO MANAGE GROWTH AND EXPANSION

Esprit Telecom's future performance will depend, in part, upon its ability
to manage its growth effectively. Esprit Telecom's rapid growth has placed, and
in the future will continue to place, a significant strain on its
administrative, operational and financial resources. Esprit Telecom's ability to
continue to manage its growth successfully will require Esprit Telecom to
further enhance its operational, management, financial and information systems
and controls and to expand, train and manage its employee base. As Esprit
Telecom evolves to a more mature phase of growth, increases its service
offerings and expands its targeted markets, there will be increasing demands on
Esprit Telecom's management, customer support, sales and marketing and
administrative resources and network infrastructure. In addition, Esprit Telecom
continues to examine opportunities to expand into other related
telecommunications services, such as Internet access and switched data services.
If Esprit Telecom expanded into such telecommunications services, it would face
certain additional risks in connection with such expansion, including
operational, financial, technological compatibility, legal and regulatory risks
and possible adverse reaction by some of its current customers.

INCREASING DEMAND FOR QUALIFIED PERSONNEL; NEW SENIOR MANAGEMENT AND
DEPENDENCE ON KEY PERSONNEL

Esprit Telecom competes with other telecommunications service providers for
qualified managerial, sales, marketing, administrative, operating and technical
personnel. Esprit Telecom's success will depend substantially upon its ability
to hire and retain such personnel. Competition for qualified employees and
personnel in the telecommunications industry in Europe is intense, and there are
generally a limited number of persons with the requisite knowledge and
experience in the particular sectors where Esprit Telecom operates. Esprit
Telecom can offer no assurance that it will be able to attract, recruit and
retain sufficient qualified personnel as Esprit Telecom grows and expands its
current operations and enters into new markets. In the past 20 months, Esprit
Telecom has hired a number of new senior managers, including a new Chief
Executive Officer, a new Chief Operations Officer and a new Managing
Director -- Sales and Marketing, to fill certain existing and

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newly created positions. Esprit Telecom's senior management team therefore
includes a number of key people who have been with Esprit Telecom for a
relatively short period of time. Esprit Telecom has also retained the managers
of the businesses it has recently acquired to assist it in integrating such
businesses and in further developing certain lines of business within Esprit
Telecom. Although Esprit Telecom does not foresee any difficulties in
integrating such new managers into its senior management team, any problems in
integrating such managers could have a material adverse impact on Esprit
Telecom's business, its prospects and certain plans for expansion and its
results of operations. If Esprit Telecom failed to identify, attract and retain
the requisite personnel, Esprit Telecom's business, results of operations and
financial condition could be materially adversely affected. Further, Esprit
Telecom's business is currently managed by a small number of key management and
operating personnel, some of whom are only bound by six-month or other
short-term service agreements. If Esprit Telecom lost certain of these people,
Esprit Telecom's business, results of operations and financial condition could
be materially adversely affected.

ACQUISITION STRATEGY

The expansion of Esprit Telecom's business may involve investments,
acquisitions and strategic alliances which, if made, could divert the resources
and management time of Esprit Telecom and could require integration with Esprit
Telecom's operations. Esprit Telecom can offer no assurance that any desired
investment, acquisition or strategic alliance could be made in a timely manner
on terms and conditions acceptable to Esprit Telecom or that they could be
successfully integrated into Esprit Telecom's operations. Esprit Telecom can
offer no assurance that it will be successful in identifying attractive
acquisition candidates, completing and financing additional acquisitions on
favorable terms, or integrating the acquired businesses or assets, if any, into
its existing operations. Esprit Telecom's ability to make acquisitions may
depend on the availability of additional financing on acceptable terms and will
be subject to compliance with the covenants contained in its debt instruments.
In July 1998 Esprit Telecom completed the acquisition of the Plusnet Business,
and paid a consideration of approximately L103.8 million (or approximately
DM 307 million), (based on the exchange rates ruling as at the date of the
acquisition), net of costs. Pursuant to the sale and purchase agreement between
Esprit Telecom and Thyssen, this consideration has since been recalculated at
approximately L90.0 million (or approximately DM 267 million based upon the
exchange rates ruling as at the date of the acquisition), based upon a final
determination of the revenues of the Plusnet Business for the year ended
September 30, 1998. As part of the integration of the business, systems and
culture of the Plusnet Business, among other things, Esprit Telecom will be
required to continue to develop its financial and management controls and
information systems and retrain existing personnel, all of which could place a
strain on the management resources of Esprit Telecom and require additional
expenditures. In addition, Esprit Telecom acquired three other
telecommunications businesses in 1997 for a minimum aggregate consideration
payable of approximately L9.4 million over the next two years. This amount could
increase to L13.9 million if these businesses achieve certain financial and
performance targets. Esprit Telecom has brought the senior managers of each of
the acquired businesses into its management team and is relying on such
individuals to assist Esprit Telecom in integrating such acquired businesses.
However, Esprit Telecom can offer no guarantee that Esprit Telecom will be able
to attract and retain managers from any additional acquired businesses or be
successful in integrating any such new managers and businesses. Although
management expects to realize operating synergies as a result of these
acquisitions, Esprit Telecom can offer no assurance that Esprit Telecom will
achieve the benefits that management expects to realize or that such benefits
will be realized within the time frames currently contemplated. In addition,
Esprit Telecom expects that the realization of certain acquisition-related
benefits may be dependent upon Esprit Telecom taking certain actions which will
result in one-time charges or expenses.

REGULATION

Esprit Telecom is subject to varying degrees of regulation in each of the
EU Member States where it currently operates or intends to operate. Esprit
Telecom's ability to penetrate several European markets, and its ability to
deploy and expand the Esprit Network and to universally provide certain services
such as indirect access to its retail customers, as well as the timing and cost
of providing such services, depends to a significant degree on the
implementation of liberalization initiatives in each such country. The European
Commission set

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January 1, 1998 as the deadline for mandatory liberalization of public network
infrastructure and of the provision of voice telephony services throughout the
EU. However, the following EU Member States have been granted a delay in
implementing this liberalization directive: Greece (until December 31, 2000),
Ireland (until January 1, 2000), Luxembourg (until July 1, 1998), Portugal
(until January 1, 2000) and Spain (until November 30, 1998). Subject to the
foregoing each EU Member State must enact its own laws to implement the EU's
liberalization and harmonization directives for telecommunications such as the
Full Competition Directive and Licensing Directive. Esprit Telecom's ability to
purchase ownership rights in transmission lines or to build its own transmission
lines depends upon the timely implementation by EU Member States of the EU
Directives. Each EU Member State's implementation and enforceability of the EU
Directives is dependent on the action taken by each EU Member State and may be
subject to delays and variances in specific countries. If the implementation or
enforceability of EU directives is challenged or delayed in any of the markets
in which Esprit Telecom currently operates or in such other markets in which
Esprit Telecom may establish operations, Esprit Telecom's business, results of
operations and financial condition could be materially adversely affected. In
addition, the terms and conditions of interconnection to the PTOs' networks will
have a material effect on the competitive position of Esprit Telecom. Although
the EU has issued a directive governing the terms of such interconnection,
Esprit Telecom can offer no assurance that such directive will be implemented in
a timely and consistent manner or that it will provide Esprit Telecom with
economical access to and termination on the PTOs' networks. Accordingly,
customers' ability to access competitive telecommunications providers such as
Esprit Telecom may be restricted in some EU countries.

Esprit Telecom can offer no assurance that each EU Member State will
implement the EU directives within the time frame set by the European
Commission, or at all, or that the enforcement thereof will comply with the
intent and spirit of the EU directives. In fact, in November 1997, the European
Commission initiated infringement proceedings against seven EU Member States,
including Belgium, Italy and Germany for failure to fully implement the EU's
directives. The EU previously initiated a proceeding against Spain and has
announced plans to take action against certain other Member States for failure
to implement properly more recent directives. Because implementation of the
various EU directives will vary from country to country, Esprit Telecom's
ability to provide a full range of telecommunications services may be affected
with respect to both timing and cost. Also, Esprit Telecom can offer no
assurance that future regulatory, judicial and legislative changes will not have
a material adverse effect on Esprit Telecom. Similarly, national or
international regulators or third parties may raise material issues with regard
to Esprit Telecom's compliance or noncompliance with applicable regulations,
which may have a material adverse effect on Esprit Telecom.

Esprit Telecom may also be permitted by the FCC to use leased private lines
between the United States and a country that is a party to the WTO's Basic
Telecommunications Services Agreement if it satisfies a "benchmark" test that
became effective on January 1, 1998. Under the benchmark test, use of
international private lines will be permitted by the FCC if at least half of the
settled traffic on a route in question to a WTO member is being settled at rates
that are at or below a benchmark set by the FCC. The FCC has established the
following benchmark rates: 15 cents per minute for upper income countries; 19
cents per minute for middle income countries; and 23 cents per minute for lower
income countries. The FCC has made an "equivalency" determination or held that
the settlement "benchmark" has been reached, and accordingly sanctioned the use
of interconnected leased private lines, from the United States to the United
Kingdom, Canada, New Zealand, Australia, Sweden, The Netherlands, France,
Germany, Belgium, Denmark, Norway, and Luxembourg. However, with respect to
other countries to which Esprit Telecom would like to route traffic from the
United States, Esprit Telecom can offer no assurance that the FCC will find that
"equivalent" opportunities for international private line resale exist in these
other countries, or that the FCC will find that its settlement benchmark test
has been satisfied. Esprit Telecom can offer no assurance that the FCC will make
similar "equivalency" or settlement rate compliance determinations for other
international routes, and the failure to make such findings may limit the
ability of Esprit Telecom to route traffic through the United States in
connection with the provision of its Indirect Access services outside the United
Kingdom. However, more generally, the application of these lower benchmarks for
international settlement rates will likely reduce traffic termination costs for
calls originated in or routed through the United States, but may also
substantially decrease profit margins on the routes.

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Esprit Telecom's operations are dependent on licenses which it acquires
from governmental authorities in each jurisdiction in which it operates.
Currently, Esprit Telecom has network operator or international facilities
licenses or otherwise has authority which allow it to purchase ownership rights
in transmission lines or construct its own international facilities in the
United Kingdom, Germany, The Netherlands, France, Belgium, Spain and the United
States. Esprit Telecom also holds licenses or otherwise has authority to provide
public voice telephony services in the United Kingdom, Germany, The Netherlands,
France, Belgium and Spain as well as authorizations to provide value added
services in Spain, Italy and Ireland. These licenses and authorizations
generally contain clauses pursuant to which Esprit Telecom may be fined or its
license may be revoked. In such an event, authorities may revoke such licenses
on short or no notice. If government authorities revoked such licenses or levied
fines, Esprit Telecom's business, results of operations and financial condition
could be materially adversely affected.

COMPETITION

Until recently, the telecommunications market in each EU Member State has
been dominated by the national PTO. Since the implementation of a series of EU
directives beginning in 1990, the EU Member States have begun to liberalize
their respective telecommunications markets, thus permitting alternative
telecommunications companies to provide telecommunications services.
Liberalization has coincided with technological innovation to create an
increasingly competitive market, characterized by still-dominant PTOs as well as
an increasing number of new market entrants. In addition, since the
implementation of the Full Competition Directive in 1998, the European
telecommunications market has become increasingly competitive. Nonetheless,
customers in most of these markets are not accustomed to alternative service
providers, and may be reluctant to switch from the dominant PTOs to competitors
such as Esprit Telecom. In particular, certain of Esprit Telecom's target
customers, which include medium-to-large-sized businesses and governmental
agencies and organizations, may be reluctant to entrust their telecommunications
needs to what they perceive to be a group of relatively new and unproven
operators.

Competition in the European long distance telecommunications industry is
based upon price, customer service, type and quality of services and customer
relationships. Esprit Telecom's strategy is predicated on its ability to price
its services at a discount to the prices charged by the PTOs or dominant
carriers in each of its markets, and to offer high-quality products and
telecommunications services. However, prices for international long distance
calls have decreased substantially over the last few years in most of the
markets in which Esprit Telecom currently maintains operations or in which it
expects to establish operations. Some of Esprit Telecom's larger competitors may
be able to use their greater financial resources to cause severe price
competition in the countries in which Esprit Telecom operates. Esprit Telecom
expects that prices for its services will continue to decrease for the
foreseeable future and that PTOs and other providers will continue to improve
their product offerings. Any price competition could have a material adverse
effect on Esprit Telecom's business, results of operations and financial
condition. The improvement in product offerings and service provision by the
PTOs, and indeed the liberalization of voice telephony and infrastructure in
1998, could similarly have a material adverse effect on Esprit Telecom's
competitiveness to the extent that Esprit Telecom is unable to provide similar
levels of offerings and service.

In each of its current markets, Esprit Telecom competes primarily with the
national PTOs and other providers which have established market presences,
fully-built networks and financial and other resources which are substantially
greater than those of Esprit Telecom. Additionally, such carriers own and
operate infrastructure which provides them with certain significant cost
advantages. Since Esprit Telecom utilizes such networks to provide its services,
if it failed to gain economical access to such networks, its business, results
of operations and financial condition could be materially adversely affected.
Such competitors include PTOs such as British Telecom (United Kingdom), KPN (The
Netherlands), Telefonica de Espana (Spain), Deutsche Telekom (Germany), France
Telecom (France), Belgacom (Belgium), Telecom Italia (Italy) and Telecom Eireann
(Ireland). Esprit Telecom believes that competition for telecommunications
services in Europe will continue to increase as a result of continuing
liberalization. Esprit Telecom also believes that other competitors in the
European markets include multinational consortia such as Unisource, Concert and
Global One, as well as resellers, microwave and satellite carriers, mobile
wireless telecommunications providers, cable

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television companies, utilities and other competitive local telecommunications
providers. In addition, the development of new technologies could give rise to
significant new competitors to Esprit Telecom. Many of Esprit Telecom's
competitors may have significantly greater financial, managerial and operational
resources and more experience than Esprit Telecom.

Esprit Telecom has not achieved and does not expect to achieve a
significant market share for its services in any of its markets. The PTOs
generally have certain competitive advantages that Esprit Telecom and its other
competitors do not have due to their control over the intra-national
transmission lines and connection to such lines. Esprit Telecom relies on the
PTOs for timely access to their public networks and the provision of leased
lines, and if the PTOs fail to provide such access, Esprit Telecom's business,
results of operations and financial condition could be materially adversely
affected. The reluctance of some national regulators to accept liberalizing
policies, grant regulatory approvals and to enforce access to PTO networks may
have a material adverse effect on Esprit Telecom's competitive position. Esprit
Telecom can offer no assurance that it will be able to compete effectively in
any of its markets.

Esprit Telecom expects that prices for its services will continue to
decrease for the foreseeable future. In addition, certain of Esprit Telecom's
customers, in particular wholesale carriers, may sometimes use more than one
service provider and may reduce their use of Esprit Telecom's services and
switch to other providers. In order to be competitive, Esprit Telecom believes
that it must, among other things, be able to offer additional services required
by its customers, reduce its prices and offer other incentives in order to meet
price reductions and incentives offered by its competitors.

INTERNATIONAL OPERATIONS AND FOREIGN EXCHANGE RATE RISKS

Esprit Telecom's operations are or may become subject to many of the risks
inherent in international business activities. Some of these risks include, in
particular, difficulties in staffing and managing foreign operations, general
economic conditions in each such country, burdens of complying with a variety of
regulatory regimes, subjection to multiple taxation regimes, longer accounts
receivables payment cycles in certain countries, receivable collection
difficulties, burdens of varying pricing restrictions, political risks, foreign
exchange controls which restrict or prohibit repatriation of funds, technology
export and import restrictions and prohibitions and delays from customers,
brokers or other government agencies, any of which could have a material adverse
effect on Esprit Telecom's business, financial condition and results of
operations. Currently, none of the markets where Esprit Telecom operates has
applicable foreign exchange restrictions.

Esprit Telecom is exposed, and as it expands into additional countries in
Europe may be increasingly exposed, to fluctuations in foreign currencies as its
revenue, and certain of its costs, assets and liabilities are denominated in
multiple local currencies, although these currencies will be reduced in number
upon the adoption of the Euro in certain countries. Esprit Telecom's proceeds
from its major financings were denominated and have been maintained in US
dollars and Deutschmarks, and Esprit Telecom expects to incur many of its
expenses in the expansion of the Esprit Network and the opening of new sales
offices in the local European currency of the country in which it is expanding
(which, in many cases, will be the Euro) and in pounds sterling. The
DM-denominated Esprit Telecom Bonds will be effectively redenominated in Euros.
A change in the currency exchange rates that reduces the amount obtained in
pounds sterling (or other non-Euro European currencies) upon conversion of the
US dollar and Deutschmark proceeds from its major financings could have a
material adverse effect on Esprit Telecom and its ability to make the planned
capital expenditures. Currently, the revenues of Esprit Telecom are largely
denominated in pounds sterling and Euro countries' currencies, but principal and
interest on the US dollar-denominated Esprit Telecom Bonds and the
DM-denominated Esprit Telecom Bonds will be payable in US dollars and DM (or
Euro), respectively. Therefore, the ability of Esprit Telecom to pay interest
and principal on the US dollar-denominated Esprit Telecom Bonds and the
DM-denominated Esprit Telecom Bonds when due is dependent on the then current
exchange rates between US dollars and DM (or Euro), on the one hand, and pounds
sterling (or other non-Euro European currencies), on the other hand, which rates
are and will be subject to fluctuation. Approximately 52.3% of revenue during
the year ended September 30, 1998 was denominated in the currencies of Euro
countries. Esprit Telecom expects that its share of revenue in such currencies
will continue

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to increase in future periods. Esprit Telecom does not currently use financial
hedging instruments, although in the future Esprit Telecom may elect to manage
the exchange rate exposure presented by the US dollar Esprit Telecom Bonds and
the DM Esprit Telecom Bonds by entering into certain hedging transactions.
Esprit Telecom can offer no assurance however, that exchange rate fluctuations
will not have a material adverse effect on Esprit Telecom's ability to make
principal and interest payments when due.

Stage III of the European Economic and Monetary Union commenced on January
1, 1999, in the following Member States of the EU: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and
Spain. Part of Stage III is the locking of exchange rates and the introduction
of a single currency, the Euro, which is intended to replace the national
currencies of the EU Member States participating in Stage III, and the transfer
of authority for conducting monetary policy for such EU Member States to the
European Central Bank. Esprit Telecom can offer no assurance that the Euro will
maintain its value relative to other currencies.

CONTROL BY PRINCIPAL SHAREHOLDERS

The Principal Securityholders currently own 65% of the outstanding shares
of capital stock of Esprit Telecom. As a result, the Principal Securityholders
are in a position to significantly influence Esprit Telecom through their
ability to determine the outcome of votes of the shareholders of Esprit Telecom
regarding, among other things, election and dismissal of the members of Esprit
Telecom's Board of Directors, amendment of the Articles of Association and other
actions requiring the vote or consent of the shareholders of Esprit Telecom
under English law and the Articles of Association. The concentration of share
ownership could have the effect of delaying or preventing a change of control of
Esprit Telecom or the removal of existing management and may discourage attempts
to do so.

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BACKGROUND OF AND REASONS FOR THE OFFER

BACKGROUND OF THE OFFER

A principal GTS goal for the past several years has been to become the
preeminent alternative telecommunications provider in the Eurasian market. This
strategy was further articulated when GTS announced to the investment community
in June of 1998 the initiation of a plan to enter the end-user market in Western
Europe through the development of competitive local exchange carriers in certain
metropolitan markets and through the development of reseller activities through
a combination of building or acquiring existing systems. In connection with this
plan, GTS began to consider the possibility of a significant acquisition in
Western Europe.

On August 5, 1998, GTS President and Chief Executive Officer, Gerald
Thames, contacted David Oertle, Esprit Telecom's Chief Executive Officer, by
telephone, to suggest a meeting to discuss mutual synergies between the
respective companies. Mr. Thames, Mr. Oertle, and Michael Potter, met informally
for breakfast on August 20 to discuss these synergies and agreed to have further
discussions. After further discussions at a meeting on September 1, 1998, Mr.
Oertle advised Mr. Thames that he would raise the issue of GTS' interest in
acquiring Esprit Telecom with other Esprit Telecom Directors.

At a meeting of a subcommittee of the Esprit Telecom Board on September 3,
Mr. Oertle briefed the subcommittee, which included representatives of the
Institutional Securityholders, concerning his contacts with GTS. After
discussion, they agreed that Esprit Telecom should not pursue further
discussions with GTS at that time. Although GTS had not indicated any definitive
value for Esprit Telecom, the subcommittee believed, based upon its knowledge of
GTS at the time, that a potential acquisition of Esprit Telecom by GTS was not
necessarily in the best interests of Esprit Telecom or the holders of its
securities. Mr. Oertle shared this information with Walt Anderson, the then
Chairman of Esprit Telecom, who agreed that GTS should be notified of Esprit
Telecom's lack of interest in pursuing further discussions at that time. Mr.
Oertle notified Mr. Thames of Esprit Telecom's view later that day.

In late September, Mr. Thames spoke with Mr. Anderson by telephone to
discuss GTS' strategy in Western Europe and the compatibility of that strategy
with what appeared to be Esprit Telecom's strategy in the same market. At an
Esprit Telecom Board meeting on October 5, Walt Anderson advised the Esprit
Telecom Board that he had been contacted by GTS. Following his removal as
Chairman of the Esprit Telecom Board of Directors at the same meeting, Mr.
Anderson stated that any further contacts that he might have with GTS would be
solely in his capacity as a holder of Esprit Telecom Securities.

On October 13, Mr. Thames again contacted Mr. Oertle and advised him that
GTS remained very serious about pursuing further discussions with Esprit Telecom
and that he desired to provide further information to the Esprit Telecom Board
about GTS' strategy in Western Europe. On behalf of Esprit Telecom, Mr. Oertle
agreed to meet to discuss matters further. This conversation and a suggested
timetable for further discussions was confirmed in a letter from GTS to Esprit
Telecom on October 14. In order to facilitate further discussions, GTS and
Esprit Telecom entered into a confidentiality agreement on October 15, 1998 to
facilitate the exchange of information between the two companies.

During the period from October 15 to October 29, representatives of Esprit
Telecom and GTS gathered and exchanged information concerning their respective
operations, most of which was already in the public domain. On October 19, Mr.
Thames and GTS' General Counsel, Grier Raclin, made a presentation to Esprit
Telecom management regarding the GTS business. GTS made a similar presentation
to the Institutional Securityholders on October 20 and on October 23, GTS made a
presentation to representatives of Gold & Appel. The GTS Board was informed of
the status of discussions with Esprit at a regularly scheduled meeting on
October 22. On October 28, Esprit Telecom made a corresponding presentation to
GTS management.

On October 29, both companies and their advisors met to discuss a proposed
timetable, due diligence process and certain key issues relating to the proposed
transaction. At that meeting, it was agreed that GTS would continue to evaluate
Esprit Telecom with a view to providing an indicative price range later the

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following week and Esprit Telecom would continue to evaluate GTS with a view to
determining whether a potential combination was in the best interests of the
Esprit Telecom Securityholders.

Following the October 28 presentation by Esprit Telecom and the October 29
meeting GTS undertook an analysis of the business and financial aspects of a
proposed combination. On November 3, the information was presented to the
executive committee of the GTS Board, which authorized further discussions
between the parties.

On November 6, 1998, certain designated members of the GTS Board spoke with
representatives of its financial advisors to discuss potential valuations of
Esprit Telecom. On November 7, GTS' financial advisors made an indicative
proposal for a valuation range, expressed as an exchange ratio, to Esprit
Telecom's financial advisors. They also indicated that any transaction would be
solely for GTS Stock with no cash being paid to Esprit Telecom Securityholders,
and would be conditional upon receipt of firm irrevocable undertakings from a
majority of the holders of Esprit Telcom's Securities, satisfactory arrangements
having been reached with Esprit Telecom's public note holders and assurances
with respect to "pooling of interests" treatment for financial accounting
purposes. In such discussions, Esprit Telecom's financial advisors expressed the
view that the indicative proposal for a valuation range was unacceptable.
Following meetings with GTS management on November 8, GTS' financial advisors
proposed an indicative valuation range of .80 to .88 of a share of GTS Stock for
each Esprit Telecom ADS to Esprit Telecom's financial advisors on November 9.
Both companies continued to conduct due diligence during the weeks of November 8
and 15.

On November 11, the Esprit Telecom Board met to consider the indicative
proposal and determined that the upper end of the range suggested by GTS might
be acceptable depending upon other factors and formed a committee to facilitate
further discussions with GTS. On November 12, representatives of the two
companies and their respective financial and legal advisors met to continue
discussions with respect to the proposed transaction, including the timetable,
due diligence process and public debt issues. During the week of November 15,
representatives of the Institutional Securityholders participated in discussions
on these matters, as well as on the terms of the irrevocable undertakings.
Following the Extraordinary General Meeting of the holders of Esprit Telecom's
Securities on November 23, representatives of the Institutional Securityholders
and members of Esprit Telecom's Board met and determined that they would only
continue discussions if GTS was prepared to consider an exchange ratio at the
upper end of their indicative valuation range. On the same day, GTS management
made a presentation to Apax Partners & Co. Ventures Limited, as manager of the
custodian of its investments, Apax Funds Nominees Limited.

On November 25, 1998, the executive committee of the GTS Board met to
discuss prospective terms of the proposed offer to acquire Esprit Telecom and to
authorize management to continue discussions assuming the same range of exchange
ratios previously proposed by GTS management. On the same day, representatives
of Esprit Telecom and the Principal Securityholders met to discuss various
issues with respect to the proposed transaction, including the exchange ratio,
the possibility of floors, caps or collars thereon and proposals with respect to
Esprit Telecom's public debt. On November 26, GTS' financial advisors proposed
to Esprit Telecom's financial advisors, an exchange ratio of .80 of a share of
GTS Stock for each Esprit Telecom ADS, and representatives of the Esprit Telecom
Board advised them that such ratio would not provide a basis for further
discussions.

At a telephonic meeting on November 27 the GTS Board discussed the
outstanding issues that had arisen in negotiations with Esprit Telecom and GTS'
financial advisors presented various valuation analyses of Esprit Telecom that
had been conducted and the GTS Board authorized further discussions using the
range of exchange ratios previously approved by the executive committee.

At a meeting of the Esprit Telecom Board on November 30, the directors
discussed the alternatives available to Esprit Telecom and concluded that an
exchange ratio in excess of .88 of a share of GTS Stock for each Esprit Telecom
ADS would be likely to receive the support of Esprit Telecom's Principal
Securityholders and the Esprit Telecom Board. The Esprit Telecom Board also
considered the possibility of providing floors, caps or collars on the exchange
ratio but determined that to do so would not be in the best interests of Esprit
Telecom or the holders of Esprit Telecom Securities. Representatives of the two
companies, the four Principal

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Securityholders and their respective financial and legal advisers negotiated the
terms of the proposed offer throughout the week of November 29.

On December 5, the GTS Board met by telephone to approve the making of an
offer to Esprit Telecom incorporating the Exchange Ratio of 0.89 of a share of
GTS Stock for each Esprit Telecom ADS at which meeting Bear Stearns gave its
opinion orally that the proposed Exchange Ratio was fair from a financial point
of view to GTS stockholders. At the meeting, the GTS Board unanimously
determined that the proposed Exchange Ratio was in the best interests of GTS
stockholders and approved the proposed Offer, subject to satisfactory resolution
of the outstanding issues, including those related to the Esprit Telecom public
debt and "pooling of interests" accounting treatment. See "-- The GTS Board's
Reasons for the Offer; Recommendation of the GTS Board" (page 61).

On the afternoon of December 6, the Esprit Telecom Board met, and, after
discussion, concluded that Esprit Telecom's and GTS' respective businesses were
complementary and that a range of economic, strategic and operational benefits
could arise from combining them. See "-- The Esprit Telecom Board's Reasons for
Recommending the Offer; Recommendation of Esprit Telecom Board" (page 55). At
the meeting, Lehman Brothers gave its opinion, orally, that the proposed
Exchange Ratio was fair to the Esprit Telecom Securityholders from a financial
point of view. In the same meeting, the Esprit Telecom Board unanimously
approved the terms of the proposed Offer, subject to a satisfactory settlement
of various outstanding issues, including the negotiation by the Principal
Securityholders of the terms and conditions upon which they would sign
irrevocable undertakings. These issues were negotiated on December 6, 7 and the
morning of December 8. At that time, a committee of the Esprit Telecom Board met
to review and approve the final documentation and Lehman Brothers confirmed its
opinion as to the fairness of the Exchange Ratio to the Esprit Telecom
Securityholders from a financial point of view.

On the morning of December 8, GTS and Esprit Telecom signed the Offer
Agreement, the Principal Securityholders each signed a Securityholder
Irrevocable, the directors of Esprit Telecom each signed a Director Irrevocable,
and the Institutional Securityholders and GTS signed the Registration Rights
Agreement following which GTS and Esprit Telecom publicly announced the terms of
the Offer.

THE ESPRIT TELECOM BOARD'S REASONS FOR RECOMMENDING THE OFFER; RECOMMENDATION OF
ESPRIT TELECOM BOARD

The Esprit Telecom Board, which has been advised by Lehman Brothers, has
determined that the terms of the Offer are fair and reasonable to, and in the
best interests of, Esprit Telecom and the holders of Esprit Telecom Securities.
Accordingly, the Esprit Telecom Board has unanimously authorized and approved
the Offer and unanimously recommends that the holders of Esprit Telecom
Securities accept the Offer and tender their Esprit Telecom Securities.

In making this determination, the Esprit Telecom Board consulted with
Esprit Telecom's management, as well as its financial advisors and legal
counsel, and considered a number of factors, including, without limitation, the
following:

- The Esprit Telecom Board's belief that Esprit Telecom's and GTS'
respective businesses are complementary and that a range of economic,
strategic and operational benefits could arise from combining them. The
Esprit Telecom Board also believes that the combination of Esprit Telecom
and GTS would assist both companies in their mutual goal of becoming the
pre-eminent providers of carrier's carrier and business communication
services throughout Europe. As a result of the combination, Esprit
Telecom and GTS would have the largest independent cross-border carrier's
carrier network in Europe. Esprit Telecom and GTS also would have an
extensive sales force in 11 Western European countries.

- The likelihood of consummation of the Offer, as well as the unconditional
and irrevocable agreement of the Principal Securityholders, as the
holders of approximately 65% of Esprit Telecom's issued share capital, to
tender their Esprit Telecom Securities in the Offer and to take such
other actions as are set forth in the Securityholders Irrevocables.

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- The opinion given by Lehman Brothers on December 6, and December 8, 1998
as confirmed in the written opinion of Lehman Brothers dated January 28,
1999, see "-- Opinion of Lehman Brothers" (page 56) which Esprit Telecom
Securityholders are urged to read in its entirety, that, as of the date
of its opinion, and based upon and subject to various qualifications and
assumptions described therein, from a financial point of view, the
Exchange Ratio was fair to Esprit Telecom Securityholders.

- The terms of the Offer, including the Exchange Ratio and the terms of the
Offer Agreement and related documents.

- The Esprit Telecom Board's knowledge of the business, operations,
properties, assets, earnings and prospects of Esprit Telecom.

- Recent and historical trading prices for Esprit Telecom ADSs and GTS
Stock. The Esprit Telecom Board recognized that the proposed Offer should
enable all holders of Esprit Telecom Securities to realize a substantial
premium over the average price at which Esprit Telecom ADSs were trading
during the past year prior to the December 8, 1998 announcement and an
opportunity to retain an equity interest in the combined entity. For the
range of prices of the Esprit Telecom ADSs from March 4, 1997 through a
recent date, see "Comparative Market Price and Dividend Information"
(page 13). The Esprit Telecom Board also considered the historically thin
trading volume in Esprit Telecom's ADSs.

- GTS' historical financial statements and GTS' pro forma financial
statements for the year ended December 31, 1997 and the nine months ended
September 30, 1998, giving pro forma effect to the consummation of the
Offer as of January 1, 1997 and January 1, 1998, respectively.

In view of the wide variety of factors considered in connection with its
evaluation of the Offer, the Esprit Telecom Board did not find it practicable
to, and did not, quantify or otherwise attempt to assign relative weights to
specific factors considered in its decision. Furthermore, the Esprit Telecom
Board did not articulate how each factor specifically supported its ultimate
decision, except that substantial weight was placed on (i) the opinion of Lehman
Brothers that, as of the date of its opinion, and based upon and subject to
various qualifications and assumptions described therein, from a financial point
of view the Exchange Ratio was fair to Esprit Telecom Securityholders and (ii)
the fact that the Principal Securityholders, as the owners of approximately 65%
of the outstanding Esprit Telecom Securities, will receive the same amount of
consideration as other holders of Esprit Telecom Securities and that they were
in favor of and executed the Securityholder Irrevocables to tender their Esprit
Telecom Securities in the Offer.

OPINION OF LEHMAN BROTHERS

Esprit Telecom engaged Lehman Brothers to act as its financial advisor in
connection with the Offer. Esprit Telecom instructed Lehman Brothers, in its
role as a financial advisor, to evaluate the fairness, from a financial point of
view, to the shareholders of Esprit Telecom of the Exchange Ratio, and to
conduct such investigations as Lehman Brothers deemed appropriate for such
purposes. On December 6, 1998, Lehman Brothers delivered its opinion, in
writing, to the Esprit Telecom Board to the effect that as of such date and
based upon and subject to certain matters stated therein, from a financial point
of view, the Exchange Ratio was fair to the shareholders of Esprit Telecom.
Lehman Brothers confirmed its opinion orally as to the fairness of the Exchange
Ratio from a financial point of view in connection with the meeting of the
committee of the Esprit Telecom Board on December 8, 1998. On January 28, 1999,
Lehman Brothers again delivered its opinion, in writing, to the Esprit Telecom
Board to the effect that as of such date and based upon and subject to matters
stated therein, from a financial point of view, the Exchange Ratio was fair to
Esprit Telecom Securityholders.

THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION DATED JANUARY 28, 1999 IS
ATTACHED AT ANNEX D TO THIS OFFERING CIRCULAR/PROXY STATEMENT/PROSPECTUS (THE
"LEHMAN OPINION") AND IS INCORPORATED HEREIN BY REFERENCE. ESPRIT TELECOM
SECURITYHOLDERS MAY READ THE LEHMAN OPINION FOR A DISCUSSION OF ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY LEHMAN
BROTHERS IN RENDERING THE LEHMAN OPINION. THE SUMMARY OF THE LEHMAN OPINION SET
FORTH IN THIS OFFERING CIRCULAR/PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH LEHMAN OPINION.

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No limitations were imposed by Esprit Telecom on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion except that Esprit Telecom did not authorize Lehman
Brothers to solicit, and Lehman Brothers did not solicit, any indications of
interest from any third party with respect to a purchase of all or part of the
business of Esprit Telecom. The form and amount of the consideration to be paid
by GTS in the Offer was determined through arm's-length negotiations between the
parties. Lehman Brothers' opinion is for the use and benefit of the Esprit
Telecom Board and was rendered to the Esprit Telecom Board in connection with
its consideration of the Offer. Lehman Brothers' opinion does not constitute a
recommendation to any holder of Esprit Telecom Securities as to whether such
holder should accept the offer made to them in the Offer. Lehman Brothers was
not requested to opine as to, and its opinion does not address, Esprit Telecom's
underlying business decision to proceed with or effect the Offer.

In arriving at its opinion, Lehman Brothers reviewed and analyzed, inter
alia:

- the specific terms of the Offer;

- publicly available information concerning Esprit Telecom and GTS that
Lehman Brothers believed to be relevant to its analysis;

- financial and operating information with respect to the business,
operations and prospects of Esprit Telecom furnished to Lehman
Brothers by Esprit Telecom;

- a trading history of the Esprit Telecom ADSs from January 2, 1998 to
December 6, 1998 and a comparison of that trading history with those
of other companies that Lehman Brothers deemed relevant;

- a trading history of GTS Stock from February 6, 1998 to December 6,
1998 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant;

- a comparison of the financial terms of the Offer with the financial
terms of certain other recent transactions that Lehman Brothers deemed
relevant;

- a comparison of the financial and operating information of Esprit
Telecom and GTS with those of other companies that Lehman Brothers
deemed relevant; and

- the expected relative contributions of Esprit Telecom and GTS to the
revenues and cash flows of the combined company following completion
of the Offer.

In addition, Lehman Brothers had discussions with the management of Esprit
Telecom and GTS concerning their business, operations, assets, financial
condition and prospects, and undertook such other studies, analyses and
investigations as it deemed appropriate.

In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information, and Lehman Brothers further relied upon the assurances of the
management of Esprit Telecom that they were not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections of Esprit Telecom, upon the advice of
Esprit Telecom, Lehman Brothers assumed that such projections had been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the management of Esprit Telecom as to its future financial
performance, and that it will perform substantially in accordance with such
projections. In arriving at its opinion, Lehman Brothers did not conduct a
physical inspection of the properties and facilities of Esprit Telecom or GTS
and did not make or obtain any evaluations or appraisals of the assets or
liabilities of Esprit Telecom or GTS. In addition, Esprit Telecom did not
authorize Lehman Brothers to solicit, and Lehman Brothers did not solicit, any
indications of interest from any third party with respect to the purchase of all
or a part of the business of Esprit Telecom. Lehman Brothers opinion was
necessarily based upon market, economic and other conditions as they existed on,
and could be evaluated as of, the date of the delivery of the opinion. In
rendering its opinion, Lehman Brothers did not express any opinion as to the
future performance of GTS or its share price.

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In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial and comparative analysis and the application
of those methods to the particular circumstances, and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at its fairness opinion, Lehman Brothers did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portion of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the opinion. In
its analyses, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Esprit Telecom or GTS. Any estimates contained
in the analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
as set forth therein. In addition, analyses relating to the value of businesses
do not purport to be appraisals or to reflect the prices at which businesses
actually may be sold.

VALUATION ANALYSES OF ESPRIT TELECOM

Lehman Brothers prepared a valuation of Esprit Telecom before considering
the pro forma impact of any cost savings, operating synergies or strategic
benefits resulting from the completion of the Offer. In determining its
valuation, Lehman Brothers used various methodologies, including the following:
discounted cash flow analysis, comparable transactions analysis, and comparable
company trading analysis. Each of these methodologies was used to generate a
reference enterprise value range for Esprit Telecom. The enterprise value range
was adjusted for appropriate on and off balance sheet assets and liabilities to
arrive at a common equity value range (in aggregate dollars and dollars per
Esprit Telecom ADS). The per Esprit Telecom ADS equity value ranges were then
used to evaluate the Exchange Ratio. These various valuation analyses are
summarized below.

Discounted Cash Flow Analysis

Lehman Brothers prepared a 10 year discounted cash flow model for Esprit
Telecom based on information and projections provided by Esprit Telecom. With
respect to the Esprit Telecom discounted cash flow analysis, Lehman Brothers
discounted after-tax cash flows on a stand-alone basis, i.e. excluding any
projected benefits resulting from the Offer, by applying a weighted average cost
of capital range of 10.1% to 11.1%, based on several assumptions including
interest rates, capitalization ratios and systematic risk measures. Lehman
Brothers calculated a terminal value by applying to projected 2008 free cash
flow a range of perpetual free cash flow growth rates of 0.0% to 2.0%. The
growth rates in the terminal year cash flow were selected based on assumptions
regarding long-run growth rates in cash flow after capital expenditures for
companies in the telecommunications industry. The discounted cash flow analysis
(discounting all cash flows as at January 1, 1999) resulted in a per share
equity value range of $36.95 to $56.85.

Because of the particular characteristics of Esprit Telecom and the market
in which it operates, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the results of the discounted cash flow
analysis. Based on Lehman Brothers' prior experience in valuing companies within
the emerging telecommunications sector, the values achieved by such companies in
negotiated transactions have fallen at the lower end of the discounted cash flow
analysis range. Notwithstanding the foregoing, the Exchange Ratio, based on the
closing price on December 5, 1998 (being the last date practicable prior to the
delivery by Lehman Brothers of its December 6 opinion) was within the range
implied by the discounted cash flow analysis performed by Lehman Brothers on
Esprit Telecom.

Comparable Transactions Analysis

Lehman Brothers reviewed certain publicly available information on selected
transactions which were announced or took place from May 1995 to October 1998,
including acquisitions of both European and North American telecommunications
operators. For each transaction, relevant financial terms were analysed
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including (i) relevant transaction multiples including the implied enterprise
value (equity purchase price plus assumed obligations) divided by latest quarter
actual revenue and projected revenues; and (ii) the premiums paid over the
closing mid-market prices one day and one month prior to the announcement of the
transactions.

The transactions considered by Lehman Brothers comprised Qwest
Communications International Inc./LCI International, Inc., IXC Communications,
Inc./Network Long Distance Inc., Teleport Communications Group/ACC Corp.,
WorldCom, Inc./MCI Communications Corp., LCI International, Inc./USLD
Communications Corp., EXCEL Communications, Inc./Telco Communications Group,
Inc., and Esprit Telecom plc/Plusnet. The range of multiples of enterprise value
to one year forward projected revenues at the acquisition dates of the
transactions considered was 1.2x to 2.4x. This range compared to an implied
transaction multiple of 2.2x for the Offer at an implied equity value per share
of $37.16, assuming the Exchange Ratio.

Lehman Brothers also analysed the premiums paid in 24 acquisitions of
telecommunications businesses, including, but not limited to, the above
mentioned transactions. The premiums relative to the stock prices of the
respective target companies one day and one week prior to the announcement of
the transactions ranged from -5.8% to 74.9% and -7.9% to 63.5%, respectively. At
an implied equity value per share of $37.16 for the Offer, assuming the Exchange
Ratio, these ranges compared to premiums of approximately 23% and 35%,
respectively, over Esprit Telecom's closing share prices one day and one week
prior to announcement of the Offer.

Because the market conditions, rationale and circumstances surrounding each
of the transactions analysed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Esprit Telecom and the acquired businesses analyzed, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the characteristics of these
transactions and the Offer.

Comparable Company Trading Analysis

With respect to Esprit Telecom, Lehman Brothers reviewed the public stock
market trading multiples for selected European emerging telecom operators, US
based international long-distance telecom companies and US domestic
long-distance companies. Using publicly available information, Lehman Brothers
calculated and analyzed the enterprise value multiples based on certain
historical and projected financial criteria, such as latest quarter annualized
revenues and, projected 1999 revenues.

The comparable companies considered consisted of IDT Corp., Mobilcom AG,
Omnicom SA, Pacific Gateway Exchange, Inc., Primus Telecommunications Group,
Inc., RSL Communications, Startec Global Communications Corporation, Star
Telecommunications, Inc., Telegroup, Inc., Telscape International, Inc. and
Viatel, Inc. The range of multiples of enterprise value to latest quarter
annualized revenues prior to the acquisition (quarter ended September 30, 1998)
was 0.4x to 4.6x and the range of multiples of enterprise value to 1999
projected revenues was 0.3x to 2.3x. These ranges compare to implied transaction
multiples of 4.4x and 2.2x, respectively, for the Offer at an implied equity
value per share of $37.16, assuming the Exchange Ratio. The ratios of the
comparable companies are based on closing stock prices as of December 2, 1998
and the latest financial statements and most recent equity research reports
containing revenue projections available to Lehman Brothers on December 2, 1998.

Because of the inherent differences between the businesses, operations and
prospects of Esprit Telecom and the businesses, operations and prospects of the
companies included in the comparable company groups, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the financial and operating
characteristics of Esprit Telecom and companies in the comparable company groups
that would affect the public trading values of Esprit Telecom and such
comparable companies.

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ANALYSES OF GTS

Lehman Brothers prepared a valuation of GTS before considering the pro
forma impact of any cost savings, operating synergies or strategic benefits
resulting from the Offer. In determining the valuation, Lehman Brothers used
both a comparable company trading analysis for GTS as a whole and a sum of the
parts analysis of GTS's operating entities. The following methodologies were
utilized for the sum of the parts analysis: discounted cash flow analysis,
comparable company trading analysis, and actual prices paid in recent prior
acquisitions. These methodologies were used in combination to generate a
reference enterprise value range for GTS. The enterprise value range was
adjusted for appropriate on and off balance sheet assets and liabilities to
arrive at a common equity value range (in aggregate dollars and dollars per
share of common stock). The valuation resulted in a valuation range of $38.20 to
$57.75 per share of GTS common stock. The implied valuation range supported the
conclusion that the Esprit Telecom Securityholders would receive securities the
value of which could be reasonably supported by valuations of the businesses and
assets underlying such securities.

Relative Analyses of GTS and Esprit Telecom

Lehman Brothers reviewed the daily historical closing prices of Esprit
Telecom ADSs and GTS Stock and the ratio between them for the period from the
date of the GTS IPO to December 6, 1998. During this period, the ratio between
the common stock price of GTS and the Esprit Telecom ADS price ranged from 0.33
to 0.89. This compares to the Exchange Ratio of 0.89 shares of GTS Stock for
each outstanding Esprit Telecom ADS.

Contribution Analysis

Lehman Brothers analyzed the estimated relative income statement
contributions of Esprit Telecom and GTS to the enlarged GTS based on projected
revenues and EBITDA and assuming no cost savings or operating synergies. These
contributions were then compared to the proportion of the equity and enterprise
value of the enlarged GTS which Esprit Telecom securityholders would receive
under the terms of the proposed offer. This analysis resulted in a contribution
by Esprit Telecom of approximately 22% to the projected 2000 EBITDA of the
enlarged GTS. This compares to a relative contribution received by Esprit
Telecom's shareholders of approximately 23% of the fully diluted enterprise
value of the enlarged GTS.

In connection with its opinion dated January 28, 1999, Lehman Brothers
confirmed the appropriateness of its reliance on the analyses used to render its
opinions on December 6 and December 8, 1998 by performing certain procedures to
update certain of such analyses and by reviewing the assumptions on which such
analyses were based and the factors considered in connection therewith.

Lehman Brothers considered that the results of these analyses also
supported the conclusion that from a financial point of view the Exchange Ratio
was fair to the Esprit Telecom Securityholders.

LEHMAN BROTHERS' ENGAGEMENT

Lehman Brothers is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The Esprit
Telecom Board selected Lehman Brothers because of its expertise, reputation and
familiarity with Esprit Telecom and because its investment banking professionals
are experienced in advising on transactions comparable to the Offer.

Lehman Brothers has previously rendered certain financial advisory and
investment banking services to Esprit Telecom, for which it has received
customary compensation. Esprit Telecom has paid Lehman Brothers and its
affiliates approximately $11.7 million in compensation for services rendered
over the past two years. Pursuant to the terms of an engagement letter
agreement, dated December 2, 1998, between Lehman Brothers and Esprit Telecom,
Esprit Telecom has agreed to pay Lehman Brothers (i) a transaction fee of 0.75%
of the total consideration to be paid in the transaction (based on GTS's closing
Common Stock price on the day prior to the announcement of the Offer) and (ii)
$1.0 million for services rendered by Lehman Brothers with
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respect to the proposed consent solicitation in relation to the Esprit Telecom
Bonds. The foregoing payments are payable upon successful completion of the
Offer. In addition, in the event that the Offer lapses or terminates for any
reason Esprit Telecom has agreed to pay Lehman Brothers an amount equal to
$35,000 a month (or pro-rata for any part of a month) for the period commencing
December 2, 1998 and ending on such lapse or termination of the Offer. In
addition, Esprit Telecom has agreed to reimburse Lehman Brothers for its
reasonable expenses (up to a maximum of $50,000) incurred in connection with its
engagement, and to indemnify Lehman Brothers and certain related persons against
certain liabilities in connection with its engagement, including certain
liabilities which may arise under US federal securities laws.

In the ordinary course of its business, Lehman Brothers actively trades in
the debt and equity securities of Esprit Telecom and GTS for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.

THE GTS BOARD'S REASONS FOR THE OFFER; RECOMMENDATION OF THE GTS BOARD

The GTS Board believes that the terms of the Offer are fair to, and in the
best interests of, GTS and its stockholders and unanimously recommends that the
stockholders of GTS vote FOR approval of the resolutions to be proposed in
connection with the Offer.

The GTS Board believes their businesses are complementary and that a range
of economic, strategic and operational benefits will arise from combining them.
The combination of GTS and Esprit Telecom will assist both companies in their
mutual goals of becoming the pre-eminent providers of carriers' carrier and
business communications services throughout Europe.

In arriving at its determination, the GTS Board considered a number of
factors, including, without limitation, the following:

- The GTS Board's view that the combination with Esprit Telecom should
strengthen the combined company's position as the most developed
pan-European carriers' carrier. In this regard the GTS Board noted the
fact that the combined business will have (i) presence in 19 countries
throughout Europe; (ii) increased network capacity and resilience; (iii)
a 500 person sales force, one of the largest among independent
telecommunications companies in Europe; (iv) the ability and licenses to
provide a wide array of service offerings; (v) increased management
depth; and (vi) an established and growing customer list.

- The GTS Board's view that the combination of GTS and Esprit Telecom
could, subject to adjustment, reduce capital outlay and expenses for the
two groups by approximately $30 million for 1999 and in excess of $100
million by 2004. GTS expects to benefit from reduced network operations
costs, reduced administrative costs, and capital expenditure savings.

- David Oertle, CEO of Esprit Telecom, will remain with Esprit Telecom
through the transition. He will continue to work with Esprit Telecom
towards its successful integration within the GTS Group and assist Mr.
Thames with various strategic matters. In addition, certain key members
of the Esprit Telecom management team will continue in their current
roles within Esprit Telecom.

- The reputation of Esprit Telecom in the markets where it operates.

- The analyses conducted by Bear Stearns, and the opinion of Bear Stearns
that the Exchange Ratio is fair to the stockholders of GTS from a
financial point of view.

- The GTS Board's view and expectation that the Offer will be accounted for
as a "pooling of interests" for financial reporting purposes.

- The GTS Board's knowledge of the business, operations, properties,
assets, earnings and prospects of GTS, including a review of its
historical financial statements and pro forma financial statements for
the year ended December 31, 1997 and the nine months ended September 30,
1998, giving pro forma effect to the consummation of the Offer as of
January 1, 1997 and January 1, 1998, respectively.

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- The terms and conditions of the Offer. In particular, the GTS Board noted
that certain Esprit Telecom Securityholders had agreed to enter into
irrevocable undertakings to accept the Offer in respect of 65% of the
issued share capital of Esprit Telecom. These Securityholder Irrevocables
will continue to be binding even if a competing offer is made. The
Securityholder Irrevocables will lapse if there are certain material
adverse changes in the value of the GTS or in the event that specified
deadlines in the Offer timetable are not met.

In view of the wide variety of factors considered in connection with its
evaluation of the proposed Offer, the GTS Board did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination. Different GTS Board
members may have assigned different weights to different factors. In reaching
its determination, the GTS Board took the various factors into account
collectively. The GTS Board did not perform factor-by-factor analysis, but
rather its determination was made in consideration of all of the factors as a
whole.

OPINION OF BEAR STEARNS

GTS retained Bear Stearns to act as its financial advisor in connection
with the Offer Agreement and Acquisition. Bear Stearns delivered its written
opinion, dated December 5, 1998, to the GTS Board of Directors to the effect
that, and based upon and subject to the assumptions, limitations and
qualifications set forth therein, collectively, the Exchange Ratio was fair,
from a financial point of view, to the holders of GTS Stock (the "Bear Stearns
Opinion").

THE FULL TEXT OF THE BEAR STEARNS FAIRNESS OPINION, WHICH SETS FORTH A
DESCRIPTION OF THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS SET OUT IN ANNEX C.
Holders of GTS Stock are urged to read the Bear Stearns Opinion carefully in its
entirety, especially with regard to the assumptions made and matters considered
by Bear Stearns, as well as the limitations on the information considered and
analysis presented. The summary of the Bear Stearns Opinion set forth in this
document is qualified in its entirety by reference to the full text of such
opinion.

The Bear Stearns Opinion, intended for the benefit and use of the GTS
Board, did not constitute a recommendation to the GTS Board in connection with
the Offer Agreement or the Offer and does not constitute a recommendation to any
holder of GTS Stock as to how to vote shares in connection with the Offer
Agreement and the Offer. Bear Stearns is not expressing any opinion as to the
price or range of prices at which GTS Stock may trade subsequent to the
consummation of the Offer. The Bear Stearns Opinion is necessarily based upon
economic, monetary, market and other conditions, and the information made
available to it, as of the date of such opinion.

The Exchange Ratio and the form of consideration were determined by
arm's-length negotiations between GTS and Esprit Telecom and were not based on
any recommendation by Bear Stearns. Except as noted below, no limitations were
imposed by GTS on Bear Stearns with respect to the investigations made or the
procedures followed by Bear Stearns in rendering the Bear Stearns Opinion.

In arriving at the Bear Stearns Opinion, Bear Stearns, among other things:

- reviewed the Press Announcement, Securityholder Irrevocables, Director
Irrevocables, Offer Agreement and Registration Rights Agreement;

- reviewed certain publicly available business and financial information
relating to GTS and Esprit Telecom;

- reviewed, and discussed with GTS management, certain internal
financial information and other data relating to the business and
financial prospects of GTS, including estimates and financial
forecasts prepared by the management of GTS and which are not publicly
available;

- reviewed, and discussed with GTS management, certain financial
information and other data relating to the business and financial
prospects of Esprit Telecom, including estimates and

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financial forecasts relating to Esprit Telecom prepared by the
management of GTS and which are not publicly available;

- reviewed, and discussed with GTS management, certain estimates of
revenue enhancements, cost savings and other combination benefits or
synergies expected to result from the Offer, prepared by the
management of GTS and which are not publicly available;

- attended certain discussions between members of the management of GTS
and Esprit Telecom respecting certain financial, business and market
information;

- reviewed certain historical stock prices, trading activity and
valuation parameters of GTS Stock, Esprit Telecom Ordinary Shares and
Esprit Telecom ADSs;

- considered the pro forma financial impacts of the Offer on GTS;

- reviewed certain publicly available financial data, stock market data
and valuation parameters of companies which in Bear Stearns' judgment
were deemed generally comparable to GTS or Esprit Telecom or otherwise
generally relevant;

- reviewed the financial terms, to the extent publicly available, of
certain precedent merger and acquisition transactions which in Bear
Stearns' judgment were deemed generally relevant; and

- conducted such other studies, analyses and investigation as was deemed
appropriate, but none of which was individually material.

In connection with its review, and with the consent of GTS, Bear Stearns
did not assume any responsibility for, and did not undertake any independent
verification of, any of the information reviewed by or provided to it and relied
on its being complete and accurate in all material respects. In addition, Bear
Stearns did not make or receive any independent evaluation or appraisal of any
of the assets or liabilities (contingent or otherwise) of GTS or Esprit Telecom,
nor was Bear Stearns furnished with any such evaluation or appraisal.

With respect to the financial forecasts, estimates, projections, pro forma
financial effects, contemplated tax and accounting impacts, and calculations of
revenue enhancements, cost savings or synergies, relied upon or provided to Bear
Stearns, it assumed, at the direction of GTS, that they had been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of GTS as to the future performance of GTS and
Esprit Telecom and that they will be achieved in the amounts and at the times
specified therein. Therefore, Bear Stearns did not make any independent
assessment of the assumptions contained therein. Bear Stearns was not provided
with, nor was it asked to obtain, any financial forecasts, estimates,
projections, pro forma financial effects, contemplated tax and accounting
impacts and calculations of revenue enhancements, cost savings or synergies
prepared by the management of Esprit Telecom. With respect to the business and
financial information relating to Esprit Telecom, at GTS' direction, Bear
Stearns did not hold any independent discussions with Esprit Telecom's
management as to any specific aspect of the information relating to Esprit
Telecom provided to Bear Stearns by GTS. At the direction of GTS, in rendering
the Bear Stearns Fairness Opinion, Bear Stearns relied upon specific
projections, revenue enhancements, cost savings and other synergies for Esprit
Telecom prepared by GTS management and provided to Bear Stearns (the "Base Case
with Synergies Projections"). Bear Stearns also assumed, with GTS' consent,
that: (i) Esprit Telecom and GTS will comply with all the material terms and
conditions of the Transaction Documentation and all applicable laws and
regulations; (ii) the Offer becomes effective in accordance with the terms of
the Press Announcement and that the Offer is accepted in such a manner that GTS
acquires 100% of the outstanding Esprit Telecom Ordinary Shares and Esprit
Telecom ADSs; and (iii) the Offer will be afforded pooling-of-interests
treatment under generally accepted accounting principles in the United States.
Bear Stearns has also relied upon the representations of GTS respecting the tax
treatment of the Offer. Other than as described herein, GTS did not place any
limitations upon Bear Stearns regarding the procedures to be followed and the
factors to be considered in rendering the Bear Stearns Fairness Opinion.

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In arriving at the Bear Stearns Fairness Opinion, Bear Stearns did not
assign any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments based upon its experience in providing such
opinions and on then existing economic, monetary, market and other conditions as
to the significance of each analysis and factor. Bear Stearns believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered, without considering all of the analyses and
factors, could create a misleading or incomplete view of the processes
underlying the Bear Stearns Fairness Opinion. In its analyses, Bear Stearns, at
GTS' direction and with GTS' consent, made numerous assumptions with respect to
industry performance, general business conditions and other matters, many of
which are beyond the control of GTS, Esprit Telecom, or Bear Stearns. Any
assumed estimates implicitly contained in the Bear Stearns Fairness Opinion or
relied upon by it in rendering the Bear Stearns Fairness Opinion, are not
necessarily reflective of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. Any estimates relating to the value of a business or securities do not
purport to be appraisals or necessarily reflect the prices at which companies or
securities may actually be sold.

Bear Stearns is an internationally recognized investment banking firm
which, as part of its investment banking business, regularly engages in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The GTS Board selected Bear
Stearns on the basis of its experience and independence. In the past, Bear
Stearns and its affiliates have provided investment banking services to GTS and
have received customary compensation for such services. GTS has paid Bear
Stearns and its affiliates approximately $3.4 million in compensation for
services rendered over the past two years. In the ordinary course of business,
Bear Stearns and its affiliates may actively trade or hold the equity securities
of GTS or Esprit Telecom for their own account or the accounts of their
customers and, accordingly, may at any time (subject to applicable laws,
including the City Code) take a long or short position in such securities.

Pursuant to the original engagement letter between GTS and Bear Stearns
dated July 14, 1998, GTS agreed to pay Bear Stearns: (i) an initial cash fee of
$200,000; (ii) a quarterly retainer fee of $100,000 until termination of the
engagement letter; (iii) a success fee equal to a percentage (ranging from 1.00%
where the transaction consideration is less than $100 million to 0.40% where the
transaction consideration is in excess of $1.3 billion) of the aggregate
transaction consideration, payable upon the consummation of any such transaction
and (iv) upon the earlier of (a) the execution by GTS and Esprit Telecom of a
letter of intent or agreement in principle or (b) the rendering by Bear Stearns
of a fairness opinion, from a financial point of view, of the consideration for
the Offer, a cash fee equal to 25% of the success fee. Any amounts paid in
respect of the initial cash fee, quarterly retainer fee, opinion fee and dealer
manager fee will be credited against the success fee. GTS has also agreed to
reimburse Bear Stearns for its reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of counsel, and to indemnify Bear Stearns and
certain related persons against certain liabilities in connection with the
engagement of Bear Stearns, including certain liabilities under federal
securities law. In addition, Bear Stearns has acted as solicitation agent with
respect to the solicitation of waivers of certain change of control provisions
applicable to the Esprit Telecom Bonds. Bear Stearns is acting as dealer manager
with respect to the Offer and is an initial purchaser in the New HER Notes
Offering.

The following is a summary of the material valuation, financial and
comparative analyses performed by Bear Stearns in arriving at the Bear Stearns
Fairness Opinion dated December 5, 1998.

Discounted Cash Flow Analysis of Esprit Telecom. Bear Stearns performed a
discounted cash flow analysis on the after-tax cash flows of Esprit Telecom
based on the Base Case with Synergies Projections provided to Bear Stearns by
GTS. After-tax cash flows for the six-year period beginning January 1, 1999 and
ending on December 31, 2004 were calculated as after-tax earnings before
interest, depreciation and amortization less changes in working capital and
capital expenditures, including certain payments on capital leases. Bear Stearns
calculated a terminal value for Esprit Telecom by applying to projected 2004
EBITDA a range of multiples of 7.0x to 9.0x. Bear Stearns' determination of the
appropriate range of multiples was based on a comparison of multiples for
certain selected publicly-traded telecommunications companies with growth rates
generally similar to Esprit Telecom's projected growth rates at the end of the
projection period. In
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addition, Bear Stearns compared the expected perpetual growth rates in after-tax
cash flow with those implied by the selected multiples. Discount rates of 15.0%
to 18.0% were chosen based on several assumptions regarding factors such as the
inflation rate, interest rates, the inherent business risk in Esprit Telecom's
business and the assumed cost of capital to Esprit Telecom. Because of Esprit
Telecom's current status as a non-tax payer, Bear Stearns discounted Esprit
Telecom's terminal values at discount rates of 13.0% to 16.0% to reflect the
anticipated tax shield attributable to interest expense. The discounted cash
flow analysis (discounting all cash flows to January 1, 1999) of the Base Case
with Synergies Projections generated a per share equity value range of $47.68 to
$75.12 as compared to the equity value implied by the Exchange Ratio of $37.16
per Esprit Telecom ADS based on the closing price of GTS Stock of $41.75 on
December 1, 1998.

Discounted Cash Flow Analysis of GTS and Relative Contribution. Bear
Stearns performed a discounted cash flow analysis on the after-tax cash flows of
GTS based on projections provided to Bear Stearns by GTS. After-tax cash flows
for the five-year period beginning January 1, 1999 and ending on December 31,
2003 were calculated as after-tax earnings before interest, depreciation and
amortization less changes in working capital and capital expenditures, including
certain payments on capital leases. Bear Stearns segregated GTS into its
businesses in Western Europe (the "Western Europe Businesses") and the CIS (the
"CIS Businesses"). Bear Stearns calculated a terminal value for the Western
Europe Businesses by applying to projected 2003 EBITDA a range of multiples of
7.0x to 9.0x. Bear Stearns' determination of the appropriate range of multiples
was based on a comparison of multiples for certain selected publicly-traded
telecommunications companies with growth rates generally similar to GTS'
projected growth rates at the end of the projection period. In addition, Bear
Stearns compared the expected perpetual growth rates in after-tax cash flow with
those implied by the selected multiples. Discount rates of 13.0% to 16.0% were
chosen based on several assumptions regarding factors such as the inflation
rate, interest rates, the inherent business risk in the Western Europe
Businesses and the assumed cost of capital for the Western Europe Businesses.
For the CIS Businesses, Bear Stearns calculated a terminal value by applying to
projected 2003 EBITDA a range of multiples of 2.0x to 5.0x. Bear Stearns'
determination of the appropriate range of multiples was based on a comparison of
multiples for certain telecommunications companies in other emerging markets.
Discount rates of 25.0% to 55.0% were chosen based on several assumptions
regarding factors such as the inflation rate, interest rates, and the inherent
business risk in the CIS Businesses and the assumed cost of capital for the CIS
Businesses. Bear Stearns performed discounted cash flow analyses on both the CIS
Businesses and the Western Europe Businesses (discounting all cash flows to
January 1, 1999) and generated a per share equity value range for GTS by
combining the resulting enterprise values and adjusting for net debt and
minority ownership positions. The discounted cash flow analysis of the GTS
projections generated a per share equity value range of $42.55 to $63.36.

Bear Stearns then analyzed the relative contribution to equity value of GTS
and Esprit Telecom based upon the Base Case with Synergies Projections and the
financial projections of GTS. The equity value of the new GTS was assumed to be
the sum of the discounted cash flow equity values of GTS and Esprit Telecom. At
the Exchange Ratio and the approximate midpoint of the discounted cash flow
valuation ranges, GTS and Esprit Telecom contributed 76% and 24% of the
discounted cash flow equity value to new GTS, respectively. Based on the closing
price of GTS Stock as of December 1, 1998 and the Exchange Ratio, Esprit Telecom
Securityholders would own approximately 19% of the new GTS.

Analysis of Selected Publicly Traded Comparable Companies. Using publicly
available information, Bear Stearns compared the financial performance and stock
market valuation of GTS, IDT Corporation, Pacific Gateway Exchange, Inc., Primus
Telecommunications Group, Inc., RSL Communications, Ltd., Star
Telecommunications, Inc., Teleglobe Inc., and Viatel, Inc. (collectively, the
"Generally Comparable Companies") with Esprit Telecom. The Generally Comparable
Companies were selected based on general business, operating and financial
characteristics representative of emerging international carriers. The range of
multiples for the Generally Comparable Companies of enterprise value (defined as
the market value of equity plus minority interest plus the market value of debt
and preferred stock, net of cash) to estimated 1999 revenues was 0.57x to 3.78x.
This range compared to a transaction multiple of 1.94x for the Offer at an
implied acquisition price of $37.16, assuming the Exchange Ratio for each Esprit
Telecom ADS. The ratios for the Generally Comparable Companies are based on
closing stock prices on December 1, 1998 and the latest public

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financial statements and the most recent public equity research reports that
contained projections for revenue available to Bear Stearns on December 1, 1998.

The multiple for Esprit Telecom using the implied acquisition price was
within the range of multiples for the Generally Comparable Companies. However,
Bear Stearns believed that this benchmark was of limited use in evaluating the
Offer due to the inherent differences between the businesses, operations, and
prospects of Esprit Telecom and the businesses, operations and prospects of the
Generally Comparable Companies and the lack of meaningful EBITDA or net income
projected for Esprit Telecom in the near term. Bear Stearns believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, and accordingly also made qualitative judgments concerning
differences between the characteristics of Esprit Telecom and the Generally
Comparable Companies that would affect the public trading values of Esprit
Telecom and the Generally Comparable Companies.

Summary of Precedent Merger and Acquisition Transactions. Using publicly
available information, Bear Stearns reviewed certain terms and financial
characteristics of certain U.S. long distance company merger and acquisition
transactions, which Bear Stearns deemed to be generally comparable for the
purposes of this analysis. The transactions considered by Bear Stearns in its
analysis consisted of: Teleglobe Inc./Excel Communications, Inc.; Qwest
Communications International Inc./LCI International, Inc.; IXC Communications,
Inc./Network Long Distance; LCI International, Inc./USLD Communications Corp.;
Teleport Communications Group Inc./ACC Corp.; WorldCom/MCI Communications Corp.;
and Excel Communications, Inc./Telco Communications Group, Inc. (the "Generally
Comparable Transactions"). The range of multiples of enterprise value to
revenues (projected for the following fiscal year) at the time and price of the
respective Generally Comparable Transactions was 1.21x to 2.45x. This range
compared to a transaction multiple of 1.94x for the Offer at an implied
acquisition price of $37.16, assuming the Exchange Ratio for each Esprit Telecom
ADS at December 1, 1998. The ratios for the Generally Comparable Transactions
are based on public financial statements, closing stock prices and public equity
research reports available to Bear Stearns at the time of the respective
transactions.

The multiple for Esprit Telecom using the implied Offer price was within
the range of multiples for the Generally Comparable Transactions. However, Bear
Stearns believed that this benchmark was of limited use in evaluating the Offer
due to the lack of comparable transactions involving public European companies,
the limited comparability with US transactions due to differing development
stages of the US and European telecommunications markets and the lack of
meaningful EBITDA or net income projected for Esprit Telecom in the near term.
Bear Stearns believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the analysis, and accordingly also made
qualitative judgments concerning differences between the characteristics of
these transactions and the Offer that would affect the acquisition value of
Esprit Telecom and such acquired companies.

No company, transaction or business used in the analysis described under
"-- Analysis of Selected Publicly Traded Comparable Companies" or "-- Summary of
Precedent Merger and Acquisition Transactions" above is identical to GTS, Esprit
Telecom or the combined company. Accordingly, an analysis of the results thereof
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics, market maturity and conditions and
other factors that could affect the transaction or the public trading or other
values of the company or companies to which they are being compared.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using generally comparable acquisition or company
data.

Analysis of Pro Forma Accretion/Dilution. Bear Stearns also noted that
using the Exchange Ratio, the completion of the Offer results in pro forma net
cash flow per share dilution in the near term and accretion in the medium term
(net cash flow is defined as net income plus depreciation and amortization).
However, Bear Stearns believes that dilution analysis does not account for the
different risks and consequent discounts which should be applied to net cash
flows from different component businesses within GTS and Esprit Telecom. In
addition, Esprit Telecom's network is at an earlier stage in its development
than GTS' network.

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PURPOSE OF THE OFFER; PLANS FOR ESPRIT TELECOM

GTS intends to acquire, in the Offer and the Compulsory Acquisition, all of
the issued and outstanding Esprit Telecom Securities. If for any reason the
Offer and the Compulsory Acquisition is not consummated, GTS will evaluate its
other alternatives. Such alternatives could include purchasing additional Esprit
Telecom Securities in the open market, in privately negotiated transactions, in
another tender or exchange offer or otherwise, or taking no further action to
acquire Esprit Telecom Ordinary Shares and Esprit Telecom ADSs.

GTS is in the process of developing its business plan and strategy for
Esprit Telecom, including the manner in which Esprit Telecom will be integrated
into the overall GTS business and corporate structure. GTS may elect to
contribute one or more GTS businesses to Esprit Telecom as part of its strategy,
including the recently acquired NetSource Europe ASA. GTS also may have one or
more other GTS entities purchase assets from Esprit Telecom as part of its
strategy. Any such transaction will be effected in accordance with the
applicable covenants in the indentures governing the Esprit Telecom Bonds. GTS
may also decide in the future to effect a tender or exchange offer or consent
solicitations with respect to the Esprit Telecom Bonds, if it were advisable to
better integrate Esprit Telecom into the overall GTS corporate structure.

POSSIBLE EFFECTS OF THE OFFER ON THE MARKET FOR ESPRIT TELECOM ADSs

Upon consummation of the Offer, it is expected that there will be a limited
market, if any, for the Esprit Telecom Securities. There can be no assurance
that there will be any public market for the Esprit Telecom Securities upon
consummation of the Offer, or, if such market exists, there can be no assurance
as to the extent to which Esprit Telecom Securities may be sold or the price at
which such shares may be sold.

The Esprit Telecom ADSs are listed on Nasdaq and EASDAQ and are registered
under the Exchange Act. Depending upon the number of Esprit Telecom ADSs
purchased pursuant to the Offer and the number of Esprit Telecom ADSs
accumulated by the other parties, the Esprit Telecom ADSs may be delisted either
by the unilateral action of either such exchange or at the request of Esprit
Telecom. In addition, the Esprit Telecom ADSs may be eligible for deregistration
under the Exchange Act following consummation of the Offer. GTS intends to seek
the delisting of Esprit Telecom ADSs from Nasdaq and EASDAQ and the
deregistration of the Esprit Telecom ADSs under the Exchange Act as soon as
possible following the Compulsory Acquisition. Delisting and/or deregistration
of Esprit Telecom ADSs could materially adversely affect the liquidity and the
market price of Esprit Telecom ADSs.

CHANGE OF CONTROL CONSENT SOLICITATION

Before GTS makes the Offer, certain pre-conditions must be satisfied or
waived. These pre-conditions included that GTS obtain waivers on or prior to
January 29, 1999 from the holders of the Esprit Telecom Bonds issued under the
Indentures dated as of June 24, 1998 and December 18, 1997, each between Esprit
Telecom and The Bank of New York (the "Change of Control Consent Solicitation"),
of their right to require Esprit Telecom to repurchase their Esprit Telecom
Bonds at 101% of the principal amount of such bonds in connection with the
change of control of Esprit Telecom resulting from the consummation of the
Offer.

The pre-conditions were satisfied prior to the mailing of this document. As
a result of the Change of Control Consent Solicitation, holders of a majority in
principal amount of each series of Esprit Telecom Bonds outstanding under the
Indentures waived the application of the change of control provisions under the
Indentures to the Offer. Under these change of control provisions, holders of
the Esprit Telecom Bonds would have been entitled, as a result of the
consummation of the Offer, to require Esprit Telecom to repurchase their notes
at 101% of the principal amount thereof plus accrued and unpaid interest
thereon. The waivers obtained in the Change of Control Consent Solicitation are
binding on all holders of the Esprit Telecom Bonds.

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THE OFFER
GENERAL

On behalf of GTS, Bear Stearns is offering to purchase on the terms and
subject to the Conditions set out in this Offering Circular/Proxy
Statement/Prospectus and in the accompanying Acceptance Form (including, if the
Offer is revised, varied, extended or renewed, the terms and conditions of any
such revision, variation, extension or renewal), all issued and to be issued
Esprit Telecom Ordinary Shares (including those represented by Esprit Telecom
ADSs) on the following basis:

- for each Esprit Telecom Ordinary Share, 0.1271 of a share of GTS Stock;
and

- for each Esprit Telecom ADS, 0.89 of a share of GTS Stock.

Based on the Nasdaq closing price of $41.75 per share of GTS Stock on
December 7, 1998, the Offer values each Esprit Telecom Ordinary Share at $5.31
(L3.21), each Esprit Telecom ADS at $37.16 (L22.48) and the entire issued share
capital of Esprit Telecom, on a fully diluted basis, at approximately $757.3
million (L458.2 million). This represents a premium of approximately 22.8% over
the middle market price of an Esprit Telecom ADS on Nasdaq at the close of
business on December 7, 1998, being the last trading day before the announcement
of the Offer (based on an exchange rate of L1 = $1.6530 being the Noon Buying
Rate on December 7, 1998).

Based on the Nasdaq closing price of $62.63 per share of GTS Stock on
January 29, 1999 (the latest practicable date prior to the publication of this
document) the Offer values each Esprit Telecom Ordinary Share at $7.96 (L4.84),
each Esprit Telecom ADS at $55.74 (L33.87) and the entire issued share capital
of Esprit Telecom on a fully diluted basis, at approximately $1.14 billion (L690
million) based on an exchange rate of L1.00 = $1.6457 being the Noon Buying Rate
on January 29, 1999. This represents a premium of approximately 84.25% over the
middle market price of an Esprit Telecom ADS on Nasdaq at the close of business
on December 7, 1998, the last business day prior to the announcement of the
offer. For additional information regarding the financial effects of the Offer,
please see "Additional Information Required Under UK Law -- Financial Effects of
Acceptance of the Offer" on page 227.

The Esprit Telecom Securities which are the subject of the Offer will be
acquired fully paid and free from all liens, charges, equitable interests,
encumbrances, rights of pre-emption and other third party rights or interests of
any nature whatsoever and together with all rights now or hereafter attached
thereto, including the right to receive and retain all dividends and other
distributions declared, made or paid after December 8, 1998.

CONDITIONS TO THE OFFER

The Conditions to the Offer are set out in Part A of Annex A to this
Offering Circular/Proxy Statement/ Prospectus. The following summary of certain
of the Conditions to the Offer is subject to and qualified in its entirety by
reference to Annex A.

The Offer is conditional on valid acceptances being received (and not,
where permitted, withdrawn) by the time of expiration of the Initial Offer
Period at 3:00 p.m. (London time) and 10:00 a.m. (New York City time) on March
4, 1999 (or such later date as GTS may, in accordance with the provisions of the
City Code and subject to certain restrictions in the Offer Agreement, decide) in
respect of not less than 90% of the Esprit Telecom Securities to which the Offer
relates, or such lesser percentage as GTS may decide, provided that such
Acceptance Condition shall not be satisfied unless GTS shall have acquired or
agreed to acquire, whether pursuant to the Offer or otherwise, Esprit Telecom
Securities carrying in the aggregate more than 50% of the voting rights then
generally exercisable at general meetings of Esprit Telecom and provided further
that the Acceptance Condition shall be capable of being satisfied only at a time
when all other Conditions have been satisfied, fulfilled or, to the extent
permitted, waived. If the 90% threshold is satisfied before the Offer becomes or
is declared unconditional in all respects, this Acceptance Condition (subject to
any permitted reduction in the acceptance threshold) must continue to be
satisfied on the actual date the Offer becomes or is declared unconditional in
all respects, by reference to the facts then subsisting.

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GTS MAY REDUCE THE PERCENTAGE OF ESPRIT TELECOM SECURITIES REQUIRED TO
SATISFY THE ACCEPTANCE CONDITION AT ANY TIME PRIOR TO THE OFFER BEING DECLARED
UNCONDITIONAL. AT LEAST FIVE US BUSINESS DAYS PRIOR TO ANY SUCH REDUCTION, GTS
WILL ANNOUNCE THAT IT HAS REDUCED THE ACCEPTANCE LEVEL UNDER THE ACCEPTANCE
CONDITION. GTS WILL NOT MAKE SUCH AN ANNOUNCEMENT UNLESS IT BELIEVES THERE IS A
SIGNIFICANT POSSIBILITY THAT SUFFICIENT ACCEPTANCES OF THE OFFER WILL BE
RECEIVED TO PERMIT THE ACCEPTANCE CONDITION TO BE SATISFIED AT SUCH REDUCED
LEVEL. HOLDERS OF ESPRIT TELECOM SECURITIES WHO ARE NOT WILLING TO ACCEPT THE
OFFER IF THE ACCEPTANCE CONDITION IS REDUCED BELOW THE 90% LEVEL SHOULD EITHER
NOT ACCEPT THE OFFER UNTIL THE OFFER BECOMES OR IS DECLARED UNCONDITIONAL IN ALL
RESPECTS OR BE PREPARED TO WITHDRAW THEIR ACCEPTANCES PROMPTLY FOLLOWING AN
ANNOUNCEMENT BY GTS OF ITS RESERVATION OF THE RIGHT TO REDUCE THE ACCEPTANCE
LEVEL UNDER THE ACCEPTANCE CONDITION.

The Offer is also conditional, among other things, on the following:

- the holders of a majority of GTS Stock approving resolutions relating to
the issuance of New GTS Stock for purposes of acquiring Esprit Telecom
Securities in the Offer;

- the New GTS Stock being approved for listing on Nasdaq and EASDAQ subject
to official notice of issuance;

- no stop order suspending the effectiveness of the registration statement
(of which this Offering Circular/Proxy Statement/Prospectus is a part)
being issued or threatened by the SEC;

- no governmental regulatory or other relevant authority instituting,
implementing or threatening any action which affects the Offer, including
any action that would make the Offer illegal or would require GTS or
Esprit to sell all or any material portion of its assets;

- all authorizations necessary or appropriate for the Offer being obtained
from all appropriate governmental and regulatory authorities;

- Esprit Telecom not engaging in certain activities which are out of the
ordinary course of its business, including Esprit Telecom and its
subsidiaries not issuing additional shares or shares of its subsidiaries,
paying dividends, merging with any other person, disposing of its assets,
increasing its indebtedness, or entering into contracts or arrangements
which are likely to restrict the business of GTS or Esprit Telecom;

- there not being any material adverse change in the business, assets,
financial or trading position or profits or prospects of Esprit Telecom;

- there not being instituted or continued any litigation the effect of
which is or is likely to be material to Esprit Telecom; and

- GTS not having discovered that any information concerning Esprit Telecom
publicly disclosed at any time that is misleading in any material
respect, contains a material misrepresentation of fact or omits to state
a fact necessary to make the information contained therein not materially
misleading, or having discovered that Esprit Telecom has not complied
with all applicable legislation which has a material impact on Esprit
Telecom.

TERMS OF THE OFFER

The further terms of the Offer are set out in Part B of the Annex A to this
Offering Circular/Proxy Statement/Prospectus. The following summary of certain
of the terms of the Offer is subject to and qualified in its entirety by
reference to Annex A.

At the conclusion of the Initial Offer Period (other than as a result of
the Offer lapsing), in accordance with the rules of the City Code, the Offer
will be extended for a Subsequent Offer Period of at least 14 calendar days. The
principal difference between the Initial Offer Period and the Subsequent Offer
Period is that holders of Esprit Telecom Securities will have the right to
withdraw their acceptances of the Offer during the Initial Offer Period, but not
during the Subsequent Offer Period, except in certain limited circumstances. See
"-- Rights of Withdrawal" (page 78). GTS reserves the right (but will not be
obliged) at any time to extend the time and date for fulfillment of the
Acceptance Condition, provided that GTS may not extend the Initial Offer Period
beyond April 2, 1999 without the consent of the Panel and any extension may be
subject to

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certain restrictions in the Offer Agreement. GTS reserves the right, if
appropriate, to seek the Panel's approval to extend the final date for
expiration of the Acceptance Condition to April 23, 1999, or such later date as
the Panel may agree. GTS acknowledges that Rule 14e-1(d) under the Exchange Act
provides that an extension must be accompanied by a public announcement, which
shall include disclosure of the approximate number of securities deposited to
date, issued by 2:00 p.m. (London time) and 9:00 a.m. (New York City time) on
the next US Business Day after the scheduled expiration date of the Offer. If
GTS makes an announcement that the Offer will remain open until further notice,
GTS will make an announcement not less than 14 calendar days before closing the
Offer.

If all the Conditions are satisfied, fulfilled or, where permitted, waived
within the time permitted, payment for Esprit Telecom Securities which have been
tendered in the Offer will be made as provided under "-- Settlement" on page 78.

If the Offer becomes or is declared unconditional in all respects and GTS
acquires or contracts to acquire, pursuant to the Offer or otherwise, at least
90% of the Esprit Telecom Securities to which the Offer relates, GTS will be
entitled to and intends to acquire the remaining Esprit Telecom Securities on
the same terms as the Offer pursuant to and subject to sections 428 through 430F
of the Companies Act. See "-- Compulsory Acquisition; Appraisal Rights" (page
79).

Fractions of New GTS Stock will not be issued to holders of Esprit Telecom
Securities who accept the Offer but will be aggregated and sold in the market
and the net proceeds of sale will be paid to such Esprit Telecom Securityholders
entitled thereto. However, if any person is entitled to cash in an amount less
than $2, such amount will not be paid but will be retained for the benefit of
GTS.

INTERESTS OF CERTAIN PERSONS IN THE OFFER

In considering the recommendations by the Esprit Telecom Board with respect
to the Offer, Esprit Telecom Securityholders should be aware that certain
members of the Esprit Telecom Board, as well as certain other members of Esprit
Telecom's management, may have certain interests that are different from, or in
addition to, the interests of Esprit Telecom Securityholders as such. The Esprit
Telecom Board recognized such interests and determined that such interests
neither supported nor detracted from the fairness of the Offer to Esprit Telecom
Securityholders.

IRREVOCABLE UNDERTAKINGS

The Principal Securityholders have entered into the Securityholder
Irrevocables requiring them to accept the Offer for their Esprit Telecom
Securities, which represent, in aggregate, 81,968,270 Esprit Telecom Ordinary
Shares (including those represented by Esprit Telecom ADSs) beneficially owned
or controlled by them, and represents 65% of the issued share capital of Esprit
Telecom. The Securityholder Irrevocables will continue to be binding even if a
competing offer is made. If there are certain material adverse changes in the
value of the GTS Group or in the event that specified deadlines in the Offer
timetable are not met, the Securityholder Irrevocables may lapse. See
"Agreements with Certain Securityholders and Directors -- Principal
Securityholders" (page 86).

Pursuant to the Director Irrevocables, each Esprit Telecom Director agreed,
subject to his fiduciary duties, to recommend the Offer to holders of Esprit
Telecom Securities. As part of their respective Director Irrevocable, Messrs.
Roy Merritt, David Oertle and Michael Potter also agreed that to the extent they
exercised any Esprit Telecom Options, they would tender such Esprit Securities
in the Offer. See "Agreements with Certain Securityholders and
Directors -- Directors" (page 87).

REGISTRATION RIGHTS AGREEMENT

Pursuant to the Registration Rights Agreement between GTS and certain
Institutional Securityholders, GTS is required to file a registration statement
with the SEC that includes a prospectus which provides for resales by such
Institutional Securityholders of the New GTS Stock received by them in the
Offer. GTS has also agreed to keep such registration statement effective until
the earliest of the date on which (i) such Institutional Securityholders are
able to sell such New GTS Stock immediately without restriction pursuant to Rule
144(k) or Rule 145(d) (if applicable) under the Securities Act, or otherwise or,
if Rule 144(k) or

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Rule 145 (d) (if applicable) is amended to provide a shorter restricted period,
such shorter period, (ii) GTS obtains written confirmation from the Division of
Corporate Finance of the SEC recommending that no action be taken by the SEC in
connection with the resale of New GTS Stock by such Institutional
Securityholders without regard to volume or other restrictions under the
Securities Act upon resale or (iii) all of the New GTS Stock is resold pursuant
to the registration statement, subject to certain provisions. GTS has also
agreed, at the request of Institutional Securityholders, to make members of its
senior management available for limited "road show" type presentations for a
certain period and one on one meetings with potential investors in connection
with any underwritten offerings of such Institutional Securityholders' New GTS
Stock. All expenses related to such underwritten offerings by the Institutional
Securityholders will be borne by them. In the event that the Institutional
Securityholders request such underwritten offering, GTS has the right to delay
such offering by not more than 45 days for certain reasons. GTS shall have the
right to choose the underwriter in an underwritten offering of the Institutional
Securityholders' GTS Stock. The Registration Rights Agreement contains customary
indemnification provisions.

Pursuant to the Registration Rights Agreement and in order to allow the
acquisition of Esprit Telecom to be accounted for as a "pooling of interests"
transaction, the Institutional Securityholders agreed not to (i) sell, transfer
or otherwise dispose of, or execute any cashless exercise of stock options or
warrants for any nor (ii) enter into any arrangement to reduce such
Institutional Securityholder's risk relating to such Institutional
Securityholder's Esprit Telecom Securities or any GTS Stock to be received by
such Institutional Securityholder in connection with the Offer, for a period
commencing 30 days before the date that the acquisition of Esprit Telecom is
deemed consummated in connection with determining whether such acquisition will
receive "pooling of interests" accounting treatment and ending on the date GTS
has prepared, published and otherwise publicly disclosed financial reports of
GTS, which include a period of at least 30 days of combined operations of GTS
and Esprit Telecom.

AFFILIATE TRANSFER RESTRICTIONS

In order to allow the acquisition of Esprit Telecom to be accounted for as
a "pooling of interests" transaction, each director, executive officer and other
person who has been identified as a possible "affiliate" of Esprit Telecom, as
that term is used in and for the purposes of Accounting Series Releases 130 and
135, as amended, of the SEC, will be required to sign an undertaking not to
transfer their Esprit Telecom Securities to the same extent as the Institutional
Securityholders agreed to do in the Registration Rights Agreement. The
undertaking also includes a covenant on the part of such possible affiliate not
to transfer New GTS Stock received in the Offer in violation of US securities
laws.

INDEMNIFICATION AND INSURANCE

Pursuant to the Offer Agreement, for a period of six years after the Offer
becomes wholly unconditional, GTS will maintain the level of directors' and
officers' liability coverage currently provided to the directors and officers of
Esprit Telecom, provided that GTS may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions which afford
substantially the same coverage to the insured as the insurance currently
maintained by Esprit Telecom and such level of coverage for the directors and
officers of Esprit Telecom shall be maintained (in the form of liability
insurance or otherwise) notwithstanding any of the directors or officers of
Esprit Telecom ceasing to be a director or officer.

GTS also entered into an indemnity agreement for the benefit of the
directors of Esprit Telecom and Esprit Telecom's General Counsel whereby from
the time the Offer becomes wholly unconditional, GTS will indemnify and hold
harmless in all respects such indemnified persons from any loss, cost or damage
incurred in connection with any claims made by a former director of Esprit
Telecom and certain of his affiliates.

ESPRIT TELECOM SHARE OPTION SCHEMES

The Offer will extend to any Esprit Telecom Securities unconditionally
issued while the Offer remains open for acceptance pursuant to the exercise of
options issued under the Esprit Telecom Share Option Schemes or otherwise. As
part of the Rollover Offer, GTS will offer Esprit Telecom Option holders the
opportunity to roll over their Esprit Telecom Options into options for New GTS
Stock substantially on (and in accordance with) the terms of the existing Esprit
Telecom Share Option Schemes and on the same Exchange

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Ratio as the Offer. As part of the Director Irrevocables, each Esprit Telecom
Director confirmed that it was his current intention to accept the Rollover
Offer, subject to the receipt of satisfactory tax advice. Esprit Telecom has
agreed that it will not make any amendments to the Esprit Telecom Share Option
Schemes. Detailed proposals regarding the Rollover Offer will be mailed to
Esprit Telecom Option holders as soon as practicable after the posting of this
document.

PROCEDURES FOR ACCEPTING THE OFFER -- ALL HOLDERS OF ESPRIT TELECOM SECURITIES

This section should be read together with the notes on the relevant
Acceptance Form.

ACCEPTANCE FORMS

All holders of Esprit Telecom Ordinary Shares, including persons in the US
who hold Esprit Telecom Ordinary Shares, have been sent a Form of Acceptance,
which they must use to tender their Esprit Telecom Ordinary Shares and accept
the Offer. All Esprit Telecom ADS holders have been sent a Letter of Transmittal
and a Notice of Guaranteed Delivery. To tender their Esprit Telecom ADSs and
accept the Offer, holders of Esprit Telecom ADSs must either use the Letter of
Transmittal or use the Notice of Guaranteed Delivery and comply with the
Guaranteed Delivery Procedures described in this paragraph. Should any holder of
Esprit Telecom Ordinary Shares and Esprit Telecom ADSs receive an incorrect form
with which to accept the Offer or require any additional forms, that person
should contact the Receiving Agents or the US Depositary, as appropriate, at the
relevant addresses set out below, who will provide the appropriate forms.

HOLDERS OF ESPRIT TELECOM ORDINARY SHARES

General. If you are a holder of Esprit Telecom Ordinary Shares, you will
have received a Form of Acceptance for use in connection with the Offer. This
section should be read together with the instructions on the Form of Acceptance.
The provisions of this section shall form a part of the Form of Acceptance. The
Form of Acceptance shall be deemed to form part of the terms of the Offer.

Completion of Form of Acceptance. To accept the Offer any holder of Esprit
Telecom Ordinary Shares must complete Boxes 1 and 3 and if appropriate Box 4 and
Box 5. In all cases you must sign Box 2 of the Form of Acceptance IN THE
PRESENCE OF A WITNESS, WHO SHOULD ALSO SIGN IN ACCORDANCE WITH THE INSTRUCTIONS
PRINTED THEREON.

IF YOU HAVE ANY QUESTIONS AS TO HOW TO COMPLETE THE FORM OF ACCEPTANCE,
PLEASE TELEPHONE THE UK RECEIVING AGENT ON 44 181-639-2188.

Return of Form of Acceptance. Completed Forms of Acceptance should be
returned to the Receiving Agents, together with the relevant share
certificate(s) and/or other document(s) of title as soon as possible, but in any
event so as to arrive no later than 3:00 p.m. (London time), 10:00 a.m. (New
York City time) on March 4, 1999. No acknowledgment of receipt of documents will
be given by or on behalf of GTS. The instructions printed on the Form of
Acceptance are deemed to form part of the terms of the Offer.

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<PAGE> 80

The Form of Acceptance may be transmitted to the UK Receiving Agent at one
of the following addresses:

IRG plc

By Post or By Hand (During Normal Business Hours):

New Issues Department
P.O. Box No 166
Bourne House
34 Beckenham Road
Beckenham
Kent BR3 4TH
United Kingdom

By Hand (Only During Normal Business Hours):

23 Ironmonger Lane
London EC2
United Kingdom

Belgian holders of Esprit Telecom Ordinary Shares may transmit the Form of
Acceptance to the Belgian Receiving Agent at the following address:

The Bank of New York-Brussels
Client Services Group
Attn: Alain Vanden Eede
Avenue des Arts 35 Kunstlaan
1040 Brussels
Belgium

Any Form of Acceptance received in an envelope postmarked in Canada,
Australia or Japan or otherwise appearing to GTS or its agents to have been sent
from Canada, Australia or Japan may be rejected as an invalid acceptance to the
Offer.

Delivery of the Form of Acceptance and certificates representing Esprit
Telecom Ordinary Shares and/or other documents of title to the US Depositary
will not constitute delivery of them to the Receiving Agents for the purposes of
this section and Part C of Annex A.

Documents of title. A completed and signed Form of Acceptance should be
accompanied by the relevant share certificate(s) and/or other document(s) of
title. If for any reason the relevant Esprit Telecom Ordinary Share
certificate(s) and/or the other document(s) of title is/are lost or not readily
available, you should nevertheless complete, sign and lodge the Form of
Acceptance as stated above so as to be received no later than 3:00 p.m. (London
time), 10:00 a.m. (New York City time), on March 4, 1999. You should send with
the Form of Acceptance any Esprit Telecom Ordinary Share certificate(s) and/or
other document(s) of title which you may have available and a letter stating
that the remaining documents will follow as soon as possible. No acknowledgment
of receipt of documents will be given. If you have lost your Esprit Telecom
Ordinary Share certificate(s) and/or other document(s) of title, you should
contact David Reibel, General Counsel of Esprit Telecom (telephone (44 118) 951
4000) or Susan Fadil, Company Secretary of Esprit Telecom (telephone (44 171)
248 4282), for a letter of indemnity for lost share certificate(s) and/or other
documents of title which, when completed in accordance with the instructions
given, should be returned by mail to the Receiving Agents as above.

Validity of acceptance. Notwithstanding Parts B and C of Annex A of this
document, GTS reserves the right to treat as valid in whole or in part any
acceptance of the Offer which is not entirely in order or which is not
accompanied by the relevant Esprit Telecom Ordinary Share certificate(s) and/or
other document(s) of
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<PAGE> 81

title. In that event, no issue of New GTS Stock under the Offer will be made
until after the relevant Esprit Telecom Ordinary Share certificate(s) and/or
other document(s) of title or indemnities satisfactory to GTS have been
received.

Notes 4 to 6 to Rule 10 of the City Code contain detailed provisions for
verifying which acceptances and purchases may be counted towards fulfilling the
Acceptance Condition or in determining whether the Acceptance Condition has been
fulfilled and are principally concerned to ensure that the acceptor is the
registered owner of the securities which he is tendering. The principal
requirements of Notes 4 to 6 to Rule 10 are that any Form of Acceptance must be
completed to a suitable standard (that is, it must constitute a transfer or a
valid and irrevocable appointment of GTS or some person on its behalf as agent
or attorney for the purpose of executing a transfer) and it must be accompanied
by the appropriate share certificate(s) or other document(s) of title and, in
all cases, any relevant supporting documentation (such as powers of attorney).
Immediately prior to the satisfaction of the Acceptance Condition the UK
Receiving Agent will issue a certificate to GTS stating the number of Esprit
Telecom Ordinary Shares tendered and not validly withdrawn pursuant to the
Offer. Copies of such certificates will be sent to the Panel as soon as possible
after they are issued.

HOLDERS OF ESPRIT TELECOM ADSS

General. If you are a holder of Esprit Telecom ADSs evidenced by Esprit
Telecom ADRs, you will have received a Letter of Transmittal and Notice of
Guaranteed Delivery for use in connection with the Offer. This section should be
read together with the instructions on the Letter of Transmittal. The provisions
of this section shall form a part of the relevant Letter of Transmittal. The
Letter of Transmittal shall be deemed to form part of the terms of the Offer.

Completion of Letter of Transmittal. For a holder of Esprit Telecom ADSs
evidenced by Esprit Telecom ADRs to tender such Esprit Telecom ADSs validly
pursuant to the Offer, either:

(i) a properly completed and duly executed Letter of Transmittal,
together with any required signature guarantees (or Agent's Message (as
defined below) in the case of book-entry transfers) and any other required
documents, must be received by the US Depositary or may be received by the
Belgian Receiving Agent (in the case of Belgian holders of Esprit Telecom
ADSs only) at one of its addresses set out below and the Esprit Telecom
ADRs evidencing such Esprit Telecom ADSs must be either received by the US
Depositary or may be received by the Belgian Receiving Agent (in the case
of Belgian holders of Esprit Telecom ADSs only) at one of such addresses or
delivered pursuant to the procedures for book-entry transfers set out below
(and a confirmation of receipt of such transfer received by the US
Depositary); or

(ii) such holder must comply with the "Guaranteed Delivery Procedures"
(as set out below).

The Offer in respect of Esprit Telecom ADSs evidenced by Esprit Telecom
ADRs will be validly accepted by delivery of a Letter of Transmittal, together
with any required signature guarantees (or Agent's Message in case of book-entry
transfers), the relevant Esprit Telecom ADRs evidencing Esprit Telecom ADSs and
other required documents to the US Depositary or Belgian Receiving Agent (as
applicable) by holders of Esprit Telecom ADSs (without any further action by the
US Depositary or Belgian Receiving Agent (as applicable)), subject to the terms
and conditions set out in this Offering Circular/Proxy Statement/Prospectus and
the Letter of Transmittal. The acceptance of the Offer by a tendering holder of
Esprit Telecom ADSs evidenced by Esprit Telecom ADRs pursuant to the procedures
described above, subject to the withdrawal rights described below, will
constitute a binding agreement between such tendering holder of Esprit Telecom
ADSs and GTS upon the terms and subject to the conditions of the Offer. IF AN
ESPRIT TELECOM ADR EVIDENCING AN ESPRIT TELECOM ADS HAS BEEN TENDERED BY A
HOLDER OF ESPRIT TELECOM ADSs, THE ESPRIT TELECOM ORDINARY SHARES REPRESENTED BY
SUCH ESPRIT TELECOM ADSs MAY NOT BE TENDERED INDEPENDENTLY.

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<PAGE> 82

A LETTER OF TRANSMITTAL AND OTHER REQUIRED DOCUMENTS CONTAINED IN AN
ENVELOPE POSTMARKED IN CANADA, JAPAN OR AUSTRALIA OR OTHERWISE APPEARING TO GTS
OR ITS AGENTS TO HAVE BEEN SENT FROM CANADA, JAPAN OR AUSTRALIA MAY BE REJECTED
AS INVALID.

Book-entry transfer. The US Depositary will establish an account at The
Depositary Trust Company with respect to interests in Esprit Telecom ADSs
evidenced by Esprit Telecom ADRs held in book-entry form for the purposes of the
Offer within two US Business Days from the date of this Offering Circular/Proxy
Statement/Prospectus. Any financial institution that is a participant in any of
The Depositary Trust Company's systems may make book-entry delivery of interests
in Esprit Telecom ADSs by causing The Depositary Trust Company's systems to
transfer such interests in Esprit Telecom ADSs into the US Depositary's account
at The Depositary Trust Company in accordance with The Depository Trust
Company's procedure for such transfer. Although delivery of interests in Esprit
Telecom ADSs evidenced by Esprit Telecom ADRs may be effected through book entry
transfer into the US Depositary's account at The Depositary Trust Company,
either:

(i) the Letter of Transmittal, properly completed and duly executed,
together with any required signature guarantees; or

(ii) an Agent's Message (as defined below);

and, in either case, any other required documents must be transmitted to, and
received by, the US Depositary or Belgian Receiving Agent (as applicable) at one
of its addresses set out below before Esprit Telecom ADSs evidenced by Esprit
Telecom ADRs will be either counted as a valid acceptance or purchased, or such
holder must comply with the Guaranteed Delivery Procedures described below. The
term "Agent's Message" means a message transmitted by The Depository Trust
Company to, and received by, the US Depositary and forming part of a Book-Entry
Confirmation that states that The Depository Trust Company has received an
express acknowledgment from the participant in The Depository Trust Company
tendering the interests in Esprit Telecom ADSs that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that GTS may enforce such agreement against the participant. The confirmation of
a book entry transfer of Esprit Telecom ADSs into the US Depositary's account at
The Depository Trust Company as described above is referred to herein as a "Book
Entry Confirmation." Delivery of documents to The Depositary Trust Company does
not constitute delivery to the US Depositary.

Method of delivery. The method of delivery of Esprit Telecom ADRs, the
Letters of Transmittal and all other required documents is at the option and
risk of the tendering holder of Esprit Telecom ADSs. Esprit Telecom ADSs will be
deemed delivered only when the Esprit Telecom ADRs representing such Esprit
Telecom ADSs are actually received by the US Depositary or Belgian Receiving
Agent (as applicable) (including in the case of a book-entry transfer, by
Book-Entry Confirmation). If delivery is by mail, registered mail and with
return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed to ensure timely delivery. No acknowledgment
of receipt of any Letter of Transmittal or other required documents will be
given by, or on behalf of, GTS.

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<PAGE> 83

Documents may be transmitted to the US Depositary at one of the following
addresses:

<TABLE>
<S> <C>
THE BANK OF NEW YORK
By Mail: By Hand or Overnight Courier:
Tender & Exchange Department Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
</TABLE>

Belgian holders of Esprit Telecom ADSs may transmit documents to the
Belgian Receiving Agent at the following address:

THE BANK OF NEW YORK -- BRUSSELS

Client Services Group
Attn: Alain Vanden Eede
Avenue des Arts 35 Kunstlaan
1040 Brussels
Belgium

Signature guarantees. No signature guarantee is required on the Letter of
Transmittal if:

(i) the Letter of Transmittal is signed by the registered holder of
the Esprit Telecom ADSs tendered therewith and such registered holder has
not completed the box entitled "Special Delivery Instructions" or the box
entitled "Special Instructions Regarding New GTS Stock" on the Letter of
Transmittal; or

(ii) such Esprit Telecom ADSs are tendered for the account of an
Eligible Institution.

IN ALL OTHER CASES ALL SIGNATURES ON LETTERS OF TRANSMITTAL MUST BE GUARANTEED
BY AN ELIGIBLE INSTITUTION. SEE INSTRUCTION 1 ON THE LETTER OF TRANSMITTAL.

Esprit Telecom ADSs and ADRs. If the Esprit Telecom ADSs are registered in
the name of a person other than the person who signs the Letter of Transmittal,
or if New GTS Stock are to be issued to a person other than the registered owner
of the Esprit Telecom ADSs surrendered, then the tendered Esprit Telecom ADRs
must be endorsed or accompanied by appropriate stock powers, signed exactly as
the name or names of the registered owner or owners appear on the Esprit Telecom
ADRs, with the signatures on the Esprit Telecom ADRs or stock powers guaranteed
as described above. See Instruction 5 on the Letter of Transmittal.

Partial acceptances. If fewer than all of the Esprit Telecom ADSs evidenced
by any Esprit Telecom ADRs are to be tendered, the holder thereof should
indicate in the Letter of Transmittal by filling in the number of Esprit Telecom
ADSs which are to be tendered in the box entitled "Number of Esprit Telecom ADSs
Tendered". In such case, a new Esprit Telecom ADR for the remainder of the
Esprit Telecom ADSs represented by the former Esprit Telecom ADR will be sent to
the person(s) signing such Letter of Transmittal (or delivered as such person
properly indicates thereon) as promptly as practicable following the date the
tendered Esprit Telecom ADSs are purchased. All Esprit Telecom ADSs delivered to
the US Depositary or Belgian Receiving Agent (as applicable) will be deemed to
have been tendered unless otherwise indicated. See Instruction 4 on the Letter
of Transmittal. In the case of partial tenders, Esprit Telecom ADSs not tendered
will not be reissued to a person other than the registered holder.

Guaranteed Delivery Procedures.

(i) If a holder of Esprit Telecom ADSs evidenced by Esprit Telecom
ADRs desires to tender Esprit Telecom ADSs pursuant to the Offer and the
Esprit Telecom ADRs evidencing such Esprit Telecom ADSs are not immediately
available or the procedures for book-entry transfer cannot be completed on
a timely basis, or if time will not permit all required documents to reach
the US Depositary or Belgian Receiving Agent (as applicable) prior to the
expiration of the Initial Offer Period or the Subsequent

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<PAGE> 84

Offer Period, as the case may be, such holder's tender of Esprit Telecom
ADSs may be effected if all the following conditions are met (the
"Guaranteed Delivery Procedures"):

(a) such tender is made by or through a financial institution which
is an Eligible Institution;

(b) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by GTS is received by the US
Depositary, as provided below, prior to the expiration of the Initial
Offer Period or the Subsequent Offer Period, as the case may be; and

(c) the Esprit Telecom ADRs evidencing all tendered Esprit Telecom
ADSs (or, in the case of interests in Esprit Telecom ADSs held in
book-entry form, timely Book-Entry Confirmation with respect to such
Esprit Telecom ADSs as described above), together with a properly
completed and duly executed Letter of Transmittal with any required
signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message) and any other required documents, are received by the
US Depositary or Belgian Receiving Agent (as applicable) within three
Nasdaq trading days after the date of execution of such Notice of
Guaranteed Delivery.

(ii) The Notice of Guaranteed Delivery may be delivered by hand or
mailed to the US Depositary or Belgian Receiving Agent (as applicable) and
must include a guarantee by an Eligible Institution in the form set out in
such Notice of Guaranteed Delivery.

(iii) Receipt of a Notice of Guaranteed Delivery will not be treated
as a valid acceptance for the purpose of satisfying the Acceptance
Condition. To be counted towards satisfaction of this requirement, Esprit
Telecom ADRs evidencing Esprit Telecom ADSs referred to in the Notice of
Guaranteed Delivery must, prior to the expiration of the Initial Offer
Period, be received by the US Depositary (or, in the case of interests in
Esprit Telecom ADSs evidenced by Esprit Telecom ADRs held in book-entry
form, timely Book-Entry Confirmation with respect to such Esprit Telecom
ADSs as described above), together with a duly executed Letter of
Transmittal with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other required documents.

Other Requirements.

By executing the Letter of Transmittal or complying with the Guaranteed
Delivery Procedures as set out above, the tendering holder of Esprit Telecom
ADSs evidenced by Esprit Telecom ADRs will agree that effective from and after
the date the Offer becomes or is declared unconditional in all respects:

(i) GTS or its agents shall be entitled to direct the exercise of any
votes and any or all other rights and privileges (including the right to
requisition the convening of a general meeting of Esprit Telecom or of any
class of its shareholders) attaching to the Esprit Telecom Ordinary Shares
represented by any Esprit Telecom ADSs, in respect of which the Offer has
been accepted or is deemed to have been accepted and not validly withdrawn;
and

(ii) the execution of the Letter of Transmittal and its delivery to
the US Depositary or Belgian Receiving Agent (as applicable) (or delivery
of an Agent's Message to the US Depositary or Belgian Receiving Agent (as
applicable)) or compliance with the Guaranteed Delivery Procedures will
constitute:

(a) an authority to Esprit Telecom from the tendering holder of
Esprit Telecom ADSs to send any notice, circular, warrant, document or
other communication which may be required to be sent to him as a holder
of Esprit Telecom ADSs to GTS at its registered office;

(b) an authority to GTS or any director of GTS to sign any consent
to short notice of a general or separate class meeting on behalf of the
tendering holder of Esprit Telecom ADSs and/or to execute a form of
proxy in respect of such Esprit Telecom ADSs appointing any person
nominated by GTS to attend general and separate class meetings of Esprit
Telecom (or any adjournments thereof) and to exercise the votes
attaching to such Esprit Telecom ADSs on the holder's behalf; and

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<PAGE> 85

(c) the agreement of the tendering holder of Esprit Telecom ADSs
not to exercise any of such rights without the consent of GTS and the
irrevocable undertaking of the tendering holder of Esprit Telecom ADSs
not to appoint a proxy for or to attend any such general meeting or
separate class meeting.

Overseas holders. The attention of holders of Esprit Telecom Securities who
are citizens or residents of jurisdictions outside the UK or the US is drawn to
paragraph 7 Part B of Annex A of this Offering Circular/ Proxy
Statement/Prospectus, and to the relevant provisions of the Acceptance Form.

IF YOU ARE IN ANY DOUBT AS TO THE PROCEDURE FOR ACCEPTANCE OF THE OFFER
WITH RESPECT TO ESPRIT TELECOM ORDINARY SHARES, PLEASE CONTACT THE UK RECEIVING
AGENT BY TELEPHONE ON (44) 181-639-2188 OR AT THE ADDRESS(ES) ABOVE. IF YOU ARE
A HOLDER OF ESPRIT TELECOM ADSS AND ARE IN ANY DOUBT ABOUT THE PROCEDURE FOR
ACCEPTANCE, PLEASE TELEPHONE THE INFORMATION AGENT, GEORGESON & COMPANY, AT
(800) 223-2064 (TOLL-FREE), IN THE US, AND (44) 171-335-8600.

Any questions or requests for assistance or additional copies of the
Offering Circular/Proxy Statement/ Prospectus, the Form of Acceptance, the
Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to
the Information Agent identified below at the address and telephone number
listed below, or to the US Depositary at the respective addresses and telephone
numbers mentioned above.

The Information Agent for the Offer is: Georgeson & Company Inc., Wall
Street Plaza, New York, New York 10005, telephone: Banks and Brokers call (212)
440-9800 (collect). All others call (800) 223-2064. For holders outside the
United States, call: (44) 171-335-8600.

Rights of Withdrawal

With certain exceptions pursuant to SEC exemptive relief, the Offer is
subject to the US tender offer rules applicable to securities registered under
the Exchange Act, as well as the City Code. This has necessitated a number of
changes from the procedures which normally apply to offers for UK companies,
including those applicable to the rights of holders of Esprit Telecom Securities
to withdraw their acceptances of an offer.

Under the Offer, holders of Esprit Telecom Securities will be able to
withdraw their acceptances at any time prior to the expiration of the Initial
Offer Period, but not during the Subsequent Offer Period, except in certain
limited circumstances. The Offer will be deemed not to have been validly
accepted in respect of any Esprit Telecom Securities which have been withdrawn.
However, the Offer may be accepted again in respect of the withdrawn Esprit
Telecom Securities by following one of the procedures for accepting the Offer
described above at any time prior to the expiration or lapse of the Offer.

Further details of these rights of withdrawal and the procedure for
effecting withdrawals are set out in paragraph 3 of Part B of Annex A.

SETTLEMENT

Subject to the Offer becoming or being declared unconditional in all
respects (except as provided in Part B of Annex A in the case of certain
overseas holders of Esprit Telecom Securities), settlement of the consideration
to which any holder of Esprit Telecom Securities is entitled under the Offer
will be effected (i) in the case of acceptances received, complete in all
respects, by the date on which the Offer becomes or is declared unconditional in
all respects, as promptly as practicable after such date in light of the
complexities of a US-UK exchange offer of this type, but in no event later than
14 days after such date, or (ii) in the case of acceptances of the Offer
received, complete in all respects, after the date on which the Offer becomes or
is declared unconditional in all respects but while it remains open for
acceptance, as promptly as practicable after such receipt in light of the
complexities of a US-UK exchange offer of this type, but in no event later than
14 days of such receipt.

In all cases, exchange for Esprit Telecom Securities accepted for exchange
pursuant to the Offer will be made only after timely receipt by the Receiving
Agents or the US Depositary of certificates evidencing such
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<PAGE> 86

Esprit Telecom Securities (or, in the case of ADSs held in book-entry form,
timely confirmation of a book-entry transfer of such ADSs into the US
Depositary's account at The Depositary Trust Company), a properly completed and
duly executed Acceptance Form (or, in the case of a book-entry transfer, an
Agent's Message) and any other documents required by the Acceptance Form.

GTS will make a public announcement on Friday, March 5, 1999 and on the
business day following each date on which the Initial Offer Period is scheduled
to expire as to whether or not the Conditions have been satisfied or, where
permitted, waived and give oral or written notice thereof to the US Depositary
and the Receiving Agents. Delivery of New GTS Stock in exchange for Esprit
Telecom Securities will be made by the US Depositary and the UK Receiving Agent,
as the case may be, by first-class mail. The US Depositary and the UK Receiving
Agent, as the case may be, will act as agents for tendering Esprit Telecom
Securityholders for the purpose of receiving New GTS Stock and transmitting such
New GTS Stock to Esprit Telecom Securityholders.

GTS acknowledges that Rule 14e-1(c) under the Exchange Act provides that an
offeror must pay the consideration offered or return the securities deposited
by, or on behalf of, securityholders promptly after the termination or
withdrawal of the offer. If the Offer does not become or is not declared
unconditional in all respects or tendered Esprit Telecom Securities are not
purchased because of an invalid acceptance (i) share or ADR certificate(s)
and/or other document(s) of title will be returned by mail (or such other method
as may be approved by the Panel), as promptly as practicable after the Offer
lapsing in light of the complexities of a US-UK exchange offer of this type, but
in no event later than 14 days of the Offer lapsing, to the person or agent
whose name and address (outside Canada, Australia or Japan) is set out on the
Acceptance Form or, if none is set out, to the first named holder at his
registered address (outside Canada, Australia and Japan), and (ii) in respect of
Esprit Telecom ADRs in book-entry form, the US Depositary will return such
Esprit Telecom ADRs to the tendering holders unless otherwise instructed by such
holder. All documents and remittances sent by, to or from holders of Esprit
Telecom Ordinary Shares and Esprit Telecom ADSs or their appointed agents will
be sent at their own risk.

ACTION TO BE TAKEN

THE FORM OF ACCEPTANCE AND LETTER OF TRANSMITTAL SHOULD BE RETURNED AS SOON
AS POSSIBLE AND, IN ANY EVENT, SO AS TO BE RECEIVED BY MAIL OR BY HAND BY THE
RECEIVING AGENTS OR THE US DEPOSITARY, AS APPLICABLE, AT THEIR RESPECTIVE
ADDRESSES SET OUT ON PAGES 73 AND 76 RESPECTIVELY NO LATER THAN 3:00 P.M.
(LONDON TIME), OR 10:00 A.M. (NEW YORK CITY TIME) ON MARCH 4, 1999.

DIVIDENDS AND DISTRIBUTIONS

If, on or after the date hereof, Esprit Telecom should split, combine or
otherwise change any Esprit Telecom Ordinary Shares and Esprit Telecom ADSs or
its capitalization, or disclose that it has taken any such action, then GTS may
make such adjustments to the exchange ratio and other terms of the Offer as it
deems appropriate to reflect such split, combination or other change.

COMPULSORY ACQUISITION; APPRAISAL RIGHTS

If, (i) on or before June 2, 1999, as a result of the Offer, GTS acquires
Esprit Telecom Securities representing at least 90% of the Esprit Telecom
Securities to which the Offer relates, then GTS will be entitled and intends to
effect a Compulsory Acquisition to compel the exchange of the remainder of the
outstanding Esprit Telecom Securities on the same terms as the Offer in
accordance with sections 428 through 430F of the Companies Act; and/or (ii) at
any time after the Offer has become unconditional GTS acquires Esprit Telecom
Securities representing at least 90% of the Esprit Telecom Securities to which
the Offer relates, a holder of Esprit Telecom Securities may require GTS to
exchange his or her Esprit Telecom Securities on the same terms as the Offer in
accordance with sections 430A and 430B of the Companies Act.

Esprit Telecom Securityholders do not have appraisal rights as a result of
the Offer. In the event that the Compulsory Acquisition can be effected by GTS,
however, Esprit Telecom Securityholders whose Esprit Telecom Securities have not
been exchanged pursuant to the Offer will be entitled to certain rights under
the
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<PAGE> 87

Companies Act, including the right to compel GTS to exchange such Esprit Telecom
Securities on the same terms as the Offer. See Annex O.

FEES AND EXPENSES OF THE OFFER

Bear Stearns is acting as GTS' financial advisor and as Dealer Manager for
the Offer. In connection with the services rendered by Bear Stearns, GTS has
agreed to pay Bear Stearns the fees and expenses and indemnify Bear Stearns
against certain liabilities as described in "-- Opinion of Bear Stearns" on Page
62.

GTS has retained Georgeson & Company, Inc. to act as the Information Agent,
The Bank of New York to act as the US Depositary, IRG plc to act as the UK
Receiving Agent and The Bank of New York-Brussels to act as the Belgian
Receiving Agent in connection with the Offer. The Information Agent may contact
Esprit Telecom Securityholders by mail, telephone, telex, telegraph and personal
interviews and may request brokers, dealers and other nominee shareholders to
forward materials relating to the Offer to beneficial owners. The Information
Agent, the US Depositary and the Receiving Agents each will receive reasonable
and customary compensation for their respective services, will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities in connection therewith, including certain liabilities under
the federal securities laws. None of the Information Agent, the US Depositary or
the Receiving Agents has been retained to make solicitations or recommendations
in their respective roles as Information Agent, the US Depositary or the
Receiving Agents.

GTS will not pay any fees or commissions to any broker or dealer or any
other person (other than the Dealer Manager) for soliciting tenders of Esprit
Telecom Securities pursuant to the Offer. Brokers, dealers, commercial banks and
trust companies will, upon request, be reimbursed by GTS for reasonable and
necessary costs and expenses incurred by them in forwarding materials to their
customers.

CERTAIN REGULATORY APPROVALS AND LEGAL MATTERS

Except as set out herein and other than in compliance with the Panel's
requirements in relation to the City Code and with US securities laws, neither
GTS nor Esprit Telecom is aware of (i) any license or regulatory permit that
appears to be material to the business of the Esprit Telecom Group taken as a
whole which might be adversely affected by GTS' acquisition of Esprit Telecom as
contemplated herein or (ii) any approval or other action by any domestic or
foreign governmental, administrative or regulatory agency or authority that
appears to be material to Esprit Telecom and its subsidiaries, taken as a whole,
and required for the acquisition or ownership of Esprit Telecom Securities by
GTS as contemplated herein. Should any such approval or other action be
required, GTS currently contemplates that such approval or other action will be
sought. There can be no assurance that any such approval or other action, if
needed, would be obtained or would be obtained without substantial conditions
attached thereto or that failure to obtain any such approval or other action
might not result in consequence adverse to Esprit Telecom's business.

Esprit Telecom has no assets or operations in the US and accordingly GTS is
not required to file a notification under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976. The Offer does not fall within the scope of the EC
Merger Control Regulation (Regulation 4064/89/EC), as the relevant turnover
threshold conditions are not met. The legal obligation to notify the Offer to
the relevant national merger control authorities does, however, arise under
Irish and Dutch merger control law, as the relevant turnover thresholds are
exceeded.

Pursuant to the relevant Irish merger control law (the Mergers and
Takeovers (Control) Acts 1978 - 1996, as amended), the acquisition must not be
completed until the Irish Minister has confirmed that he does not propose to
prohibit the transaction or that he will permit it subject to conditions. The
Minister has a maximum of three months from the date of notification (or the
date of receipt of such further information as the Minister may require) to
investigate the transaction. The Offer was notified to the Minister on December
31, 1998.

Pursuant to the relevant Dutch merger control law (the Mededingingswet),
the acquisition may not be completed within four weeks of notification to the
Dutch merger control authorities (the Nederlandre

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Mededingingsautoriteit). This prohibition may be extended to cover the duration
of a second-stage investigation which may last a further 13 weeks. The Offer was
notified to the Dutch merger control authorities on January 4, 1999.

The Offer is not being made to (nor will tenders of Esprit Telecom
Securities be accepted from or on behalf of) holders of Esprit Telecom
Securities in any jurisdiction in which the making of the Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. In any jurisdiction (other than Canada, Australia or Japan) the
securities laws or blue sky laws of which require the Offer to be made by a
licenced broker or dealer, the Offer is being made on behalf of GTS by the
Dealer Managers or one or more registered brokers or dealers that are licenced
under the laws of such jurisdiction.

ACCOUNTING TREATMENT

The acquisition of Esprit Telecom Securities in the Offer is intended to
qualify as a pooling of interests transaction, which means the recorded assets
and liabilities of Esprit Telecom will be carried forward to the combined
business at their recorded amounts. The historical revenues and expenses of
Esprit Telecom, for all periods, will be combined with those of GTS, whose
financial statements will then be restated.

Although not a condition to the Offer, GTS expects that, upon consummation
of the Offer (i) GTS shall have received a letter from Ernst & Young LLP,
independent auditors for GTS, dated as of the date on which the transactions
contemplated by the Offer are consummated, regarding such firm's concurrence
with the conclusions of GTS' management that the Offer will qualify for pooling
of interests accounting treatment under Accounting Principles Board Opinion No.
16 and (ii) Esprit Telecom shall have received a letter from
PricewaterhouseCoopers, independent auditors for Esprit Telecom, regarding such
firm's concurrence with the conclusions of Esprit Telecom's management that no
conditions exist related to Esprit Telecom that would preclude GTS' accounting
for the Offer as a "pooling of interests," under Accounting Principles Board
Opinion No. 16.

U.S. FEDERAL SECURITIES LAWS

All New GTS Stock received by holders of Esprit Telecom Securities in the
Offer will be freely transferable, except that New GTS Stock received by persons
who may be deemed to be affiliates of Esprit Telecom prior to the Offer may be
subject to restrictions under US securities laws and such persons may be
permitted to resell such securities only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144
promulgated under the Securities Act in the case of such persons who become
affiliates of GTS) or otherwise in compliance with (or pursuant to an exemption
from) the registration requirements of the Securities Act. Persons deemed to be
affiliates of Esprit Telecom are those individuals or entities that control, are
controlled by, or are under common control with, Esprit Telecom and generally
include executive officers and directors of Esprit Telecom as well as certain
Principal Securityholders of Esprit Telecom.

NEW GTS STOCK

The New GTS Stock will be credited as fully paid and will rank pari passu
in all respects with the existing GTS Stock including the right to receive all
dividends and distributions declared with a record date after the date of
issuance of such stock.

Application has been made for the New GTS Stock to be quoted on EASDAQ and
will be made for it to be quoted on Nasdaq. It is expected the listings will
become effective and that dealings, for normal settlement, will commence on
Nasdaq and EASDAQ in the New GTS Stock on the first trading day following the
day on which the Offer becomes or is declared unconditional in all respects
(save only for the quotation of such shares on Nasdaq and EASDAQ becoming
effective).

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CERTAIN INFORMATION CONCERNING GTS

Except as otherwise stated in this Offering Circular/Proxy
Statement/Prospectus (i) there have not been any contracts, transactions or
negotiations between GTS, any of its subsidiaries or, to the best knowledge of
GTS, any of the directors or executive officers of GTS with Esprit Telecom or
any of its directors, officers or affiliates concerning a merger, consolidation,
or acquisition, a tender offer or other acquisition of securities; an election
of directors or a sale or other transfer of a material amount of assets, (ii)
there are no current or proposed material contracts, arrangements,
understandings or relationships between GTS, its controlling persons or
subsidiaries or, to the best knowledge of GTS, any of the persons listed as
"Principal GTS Stockholders" on page 204 with respect to any Esprit Telecom
Securities. See "-- Background of and Reasons for the Offer -- Background of the
Offer" (page 53), "-- Background of and Reasons for the Offer -- Purpose of the
Offer; Plans for Esprit Telecom" (page 67) and "-- Background of and Reasons for
the Offer -- Change of Control Consent Solicitation" (page 67).

Neither GTS nor any of its controlling persons or subsidiaries or, to the
best knowledge of GTS, any of the persons listed as "Principal GTS Stockholders"
on page 204 owns of record any Esprit Telecom Securities, except for (i)
Fidelity Management and Research Corporation who disclosed in a Schedule 13F-E
filed with the SEC on November 6, 1998 for fiscal quarter ended September 30,
1998, ownership of 7,145,670 shares of GTS Stock representing 11.0% of the total
outstanding shares of GTS Stock and 1,858,500 Esprit Telecom Securities,
representing 1.48% of the total outstanding Esprit Telecom Securities each as of
such date and (ii) Fidelity International Limited, who disclosed in a Schedule
13F-E filed with the SEC on November 3, 1998 for fiscal quarter ended September
30, 1998, ownership of 23,640 shares of GTS Stock representing less than 1% of
the total outstanding shares of GTS Stock and 8,982,050 Esprit Telecom
Securities, representing 7.16% of the total outstanding Esprit Telecom
Securities as of such date.

THE GTS SPECIAL MEETING OF STOCKHOLDERS

GENERAL; DATE, TIME AND PLACE

This Offering Circular/Proxy Statement/Prospectus is being furnished by the
GTS Board to holders of common stock, par value $.10 per share, of GTS in
connection with the solicitation of proxies by the GTS Board for use at the
special meeting of GTS stockholders (the "Special Meeting") to be held on
Wednesday, March 3, 1999, at the offices of GTS at 1751 Pinnacle Drive, North
Tower, 12th floor, McLean, Virginia 22102, commencing at 10:00 a.m., local time,
and at any adjournment or postponement thereof.

This Offering Circular/Proxy Statement/Prospectus and the accompanying form
of proxy are first being mailed to stockholders of GTS on Tuesday, February 2,
1999.

PURPOSE OF THE SPECIAL MEETING

The purpose of the Special Meeting is to consider and vote upon (i) a
proposal to issue New GTS Stock in connection with the acquisition, in the
Offer, of all issued Esprit Telecom Securities and (ii) such other business as
may properly be brought before the Special Meeting.

RECOMMENDATION OF THE GTS BOARD

The GTS Board has unanimously approved the terms of the Offer and the
transactions contemplated thereby, including the Offer, and recommends that
holders of GTS Stock vote FOR approval and adoption of the proposal to issue New
GTS Stock to acquire, in the Offer, all issued Esprit Telecom Securities. See
"-- Background of and Reasons for the Offer -- GTS Board's Reasons for the
Offer; Recommendation of the GTS Board" (page 61).

STOCKHOLDERS ENTITLED TO VOTE; VOTE REQUIRED

The GTS Board has fixed the close of business on January 29, 1999 as the
record date for the determination of the holders of shares of GTS Stock entitled
to notice of and to vote at the Special Meeting
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(the "Record Date"). Accordingly, only holders of record of GTS Stock on the
Record Date will be entitled to notice of, and to vote at, the Special Meeting.
As of the Record Date, there were outstanding and entitled to vote 64,988,680
shares of GTS Stock (constituting all of the voting stock of GTS), which shares
were held by approximately 487 holders of record. Each holder of record of
shares of GTS Stock on the Record Date is entitled to one vote per share, which
may be cast either in person or by properly executed proxy, at the Special
Meeting. The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding GTS Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum at the Special Meeting.

The approval and the adoption of a proposal to issue New GTS Stock to
acquire, in the Offer, all issued Esprit Telecom Ordinary Shares and Esprit
Telecom ADSs will require the affirmative vote of the holders of a majority of
the GTS Stock outstanding on the Record Date.

A majority of the outstanding shares constitutes a quorum. Shares which
abstain from voting, and shares held by a broker nominee "street name" which
indicates on a proxy that it does not have discretionary authority to vote as to
a particular matter, will be treated as shares that are present and entitled to
vote at the Special Meeting for purposes of determining whether a quorum exists.
Because the proposal to issue New GTS Stock in connection with the Offer must be
approved by the holders of a majority of the shares of GTS Stock outstanding on
the Record Date, abstentions and broker non-votes will have the same effect as a
vote against such proposal.

Directors and executive officers of GTS who, as of December 31, 1998,
personally held 6,169,306 shares of GTS Stock, or approximately 9.53% of the GTS
Stock then outstanding of which 1,213,550 shares of GTS Stock were held in a
fiduciary capacity have not indicated how they intend to vote or direct the vote
of any or all of their respective shares of GTS Stock over which they have
voting control either in favor of or against the adoption of the proposal to
issue New GTS Stock to acquire, in the Offer, all issued Esprit Telecom
Securities.

PROXIES

This Offering Circular/Proxy Statement/Prospectus is being furnished to GTS
stockholders in connection with the solicitation of proxies by, and on behalf
of, the GTS Board for use at the Special Meeting, and is accompanied by a form
of proxy.

All shares of GTS Stock which are entitled to vote and are represented at
the Special Meeting by properly executed proxies received prior to or at the
Special Meeting, and not revoked, will be voted at such Special Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of broker non-votes), such proxies will be
voted for approval and adoption of the proposal to issue shares of GTS Stock in
connection with the Offer.

If any other matters are properly presented at the Special Meeting for
consideration, including, among other things, consideration of a motion to
adjourn such Special Meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Offer), the persons
named in the enclosed forms of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their judgment.

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of GTS, at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to GTS before the taking of the vote at the Special Meeting or
(iii) attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not in and of itself constitute a revocation of the
proxy). Any written notice of revocation or subsequent proxy should be sent to
GTS, 1751 Pinnacle Drive, North Tower-12th Floor, McLean, VA 22102, Attention:
Secretary, or hand delivered to the Secretary of GTS at or before the taking of
the vote at the Special Meeting.

All expenses of GTS' solicitation of proxies will be borne by GTS, and the
costs of preparing and mailing this Offering Circular/Proxy Statement/Prospectus
to GTS stockholders will be paid by GTS. In addition to
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<PAGE> 91

solicitation by use of the mails, proxies may be solicited from GTS stockholders
by directors, officers and employees of GTS in person or by telephone, telegram
or other means of communication. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. GTS has retained Georgeson &
Company Inc., a proxy solicitation firm, for assistance in connection with the
solicitation of proxies for the Special Meeting at a cost of approximately
$10,000, plus reimbursement of reasonable out-of-pocket expenses. Arrangements
will also be made with brokerage houses, custodians, nominees and fiduciaries
for forwarding of proxy solicitation materials to beneficial owners of shares
held of record by such brokerage houses, custodians, nominees and fiduciaries,
and GTS will reimburse such brokerage houses, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection therewith.

GTS STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.

THE OFFER AGREEMENT

GTS and Esprit Telecom entered into an Offer Agreement dated December 8,
1998, containing covenants to one another and giving one another their
irrevocable consent to the issuance of the Press Announcement and the mailing of
this Offering Circular/Proxy Statement/Prospectus.

In the Offer Agreement, Esprit Telecom agreed:

- that until the Offer lapses or is withdrawn it shall refrain from
knowingly taking any action or making any statement which is or may be
prejudicial to the success of the Offer, including, without limitation:

- soliciting, procuring, initiating or (subject to the fiduciary duties
of the Esprit Telecom Directors) engaging in discussions or
negotiations in relation to any transaction involving an offer by any
third party for the acquisition of all or any part of the issued share
capital or material assets of Esprit Telecom or any member of the
Esprit Telecom Group;

- (except as required by Rule 20.2 of the City Code) providing any
information or facilitating or cooperating with any such transaction;
or

- subject to certain limited exceptions, communicating or discussing the
terms of the Offer or related matters with any third party without the
prior, written consent of GTS;

- to refrain from discussing the terms of the Offer with any third party
without the prior consent of GTS subject to the fiduciary duties of the
Esprit Telecom Directors and certain limitations;

- to provide, subject to the fiduciary duties of the Esprit Telecom
Directors, such information as GTS or its advisors reasonably request in
relation to the Esprit Telecom Group as to its business, finances and
affairs, excluding commercially sensitive information which may prejudice
Esprit Telecom and, if GTS reasonably believes that circumstances exist
which would lead to any of the conditions to the Offer not being
satisfied, to provide such information regarding the Esprit Telecom as
GTS may reasonably require to establish whether or not the relevant
condition has been satisfied;

- to refrain from taking any action which would require shareholder
approval under Rule 21 of the City Code without the prior consent of GTS;
and

- to deliver a letter identifying all persons that may be "affiliates" of
Esprit Telecom under the Securities Act or the requirements to qualify
the Offer for pooling of interests accounting treatment under Accounting
Principles Board Opinion No. 16 and applicable SEC rules and regulations.
Further, Esprit Telecom agreed to use its best efforts to cause each such
persons (with the exception of those persons that have concurrently
entered into the Registration Rights Agreement) to deliver to GTS by the
close of the Offer a written undertaking in customary form.

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<PAGE> 92

In the Offer Agreement, GTS agreed:

- subject to its fiduciary duties, that the GTS Board would recommend the
Offer to the GTS stockholders and recommend that they vote in favor of
the issuance of the New GTS Stock;

- to maintain for six years after the Offer becomes wholly unconditional,
the level of directors' and officers' liability coverage currently
provided to Esprit Telecom's directors and officers under existing or
substitute policies of at least the same coverage and amounts;

- not to amend the Esprit Telecom Memorandum or Esprit Telecom Articles in
a manner adverse to Esprit Telecom's directors and officers and to
maintain the same level of indemnification of all such directors and
officers in the event their employment is transferred to any member of
the wider GTS Group or substantially all of Esprit Telecom's assets are
transferred;

- to make, on behalf of Esprit Telecom, the Change of Control Consent
Solicitation; and

- for the purposes of qualifying the Offer for pooling of interests
accounting treatment under Accounting Principles Board Opinion No. 16 and
the applicable SEC rules and regulations, to use its best efforts to
cause its "affiliates" to comply with applicable holding periods.

In the Offer Agreement both parties undertook with each other:

- to use all reasonable efforts to satisfy the conditions set out in Annex
A, to consummate the transactions contemplated by the Offer and, in
particular, to make members of management available to facilitate the
completion of the Offer and to provide all reasonable assistance to
satisfy the conditions to the Offer;

- that participants in the Esprit Telecom Share Option Schemes will have
the opportunity to roll over their options into options to acquire GTS
Stock on substantially the same terms as the existing Esprit Telecom
Share Option Schemes and on the same Exchange Ratio as the Offer and that
no further amendments will be made to the Esprit Telecom Share Option
Schemes which would cause the options to be exercised at a date earlier
than the date on which they would otherwise become exercisable; and

- to avoid taking any action, and to use their reasonable best efforts to
remedy any event or circumstance, that would prevent the transactions
contemplated by the Offer receiving a pooling of interests treatment for
financial accounting purposes.

The covenants in the Offer Agreement will automatically lapse if the Offer
is not declared wholly unconditional on or before the 60th day after this
Offering Circular/Proxy Statement/Prospectus is mailed (except as extended in
certain limited circumstances). The Offer Agreement is governed by English law.

For further details of the Offer Agreement refer to Annex B.

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<PAGE> 93

AGREEMENTS WITH CERTAIN SECURITYHOLDERS AND DIRECTORS

PRINCIPAL SECURITYHOLDERS

Certain holders of Esprit Telecom Securities have entered into irrevocable
undertakings dated December 8, 1998 to accept the Offer in respect of an
aggregate of 47,736,275 Esprit Telecom Ordinary Shares and 4,890,285 Esprit
Telecom ADSs. Together these represent a total of 81,968,270 Esprit Telecom
Ordinary Shares (including those represented by Esprit Telecom ADSs),
representing 65% of the issued share capital of Esprit Telecom as set forth in
the table below.

<TABLE>
<CAPTION>
BENEFICIAL HOLDINGS OF
ESPRIT TELECOM
NAME BENEFICIAL HOLDING OF ESPRIT TELECOM ADSs SHARES
- ---- ------------------------------------------- ----------------------
<S> <C> <C>
Gold & Appel Transfer
S.A....................... 4,662,555 16
(equal to 32,637,885 Esprit Telecom
Ordinary Shares)
Walter Anderson............. 47,230 9
(equal to 330,610 Esprit Telecom Ordinary
Shares)
Apax Funds Nominees Ltd..... 180,500 32,294,100
(equal to 1,263,500 Esprit Telecom Ordinary
Shares)
Warburg, Pincus Ventures
L.P....................... -- 15,442,150
</TABLE>

The holders of Esprit Telecom Securities who entered the agreements gave
their irrevocable consent to the issuance of the Press Announcement and the
mailing of the Offering Circular/Proxy Statement/ Prospectus and gave to GTS
certain covenants, undertakings and warranties in which, among other things,
they agreed:

- to accept the Offer in respect of all Esprit Telecom Securities held by
them;

- not to conditionally or unconditionally, sell, transfer, charge, pledge
or grant any option over or otherwise dispose or permit the disposition
of any or all of the Esprit Telecom Securities to which the irrevocable
undertaking relates prior to the lapsing or withdrawal of the Offer, with
the exception that a transfer or other disposition may be made if certain
conditions are satisfied including that:

- the respective independent auditors of Esprit Telecom and GTS will
have advised the companies that they concur with management's
conclusion that such transfer or disposition would not prevent the
transaction contemplated by the Offer from receiving pooling of
interests treatment for financial accounting purposes;

- such transfer or disposition would not delay the Offer becoming wholly
unconditional beyond certain periods;

- before any transfer or disposition, the transferee executes an
irrevocable undertaking for no consideration, in a form substantially
similar to the relevant Securityholder's Irrevocable, and delivers
certain documents;

- such transferee has been advised by Esprit Telecom's financial
advisors that the transfer or disposition would not be in breach of
the City Code;

- such transferee is not listed in a schedule to the Securityholders
Irrevocable and does not own more than 1% of the outstanding GTS
Stock; and

- prior to the Offer lapsing or being withdrawn, without the prior written
consent of GTS, not to purchase or otherwise acquire any Esprit Telecom
Securities or any interest therein or agree to do so;

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<PAGE> 94

- unless and until the Offer lapses or is withdrawn, to ensure that no
other agreement or arrangement is entered into (other than with GTS)
which could result in the disposal of or creation of any encumbrance on,
all or any of the Esprit Telecom Securities to which the irrevocable
undertaking relates or any interest therein or which might in any way
restrict their disposal and no other offer is accepted in respect of any
of the Esprit Telecom Securities to which the irrevocable undertaking
relates;

- that until the Offer lapses or is withdrawn they shall refrain from
knowingly taking any action or making any statement which is or may be
prejudicial to the success of the Offer, including, without limitation:

- soliciting, procuring, initiating or engaging in discussions or
negotiations in relation to any transaction involving an offer by any
third party for the acquisition of all or any part of the issued share
capital or material assets of Esprit Telecom or any member of the
Esprit Telecom Group;

- (except as required by Rule 20.2 of the City Code) providing any
information or facilitating or cooperating with any such transaction;
or

- subject to certain limited exceptions, communicating or discussing the
terms of the Offer or related matters with any third party without the
prior, written consent of GTS;

- to inform GTS (and provide reasonable details) immediately upon:

- being approached by a third party with respect to any transaction
involving an offer by any third party or acquisition of all or any
part of the issued share capital or assets of Esprit Telecom or any
member of the Esprit Telecom Group;

- being asked to provide information to any person with a view to any
person investigating or entering into such a transaction; or

- becoming aware of any material breach of the irrevocable undertaking;

- prior to the date the Offer becomes wholly unconditional or lapses or is
withdrawn not to deal in any way in any GTS shares or securities or any
interest therein;

- that until the Offer closes, lapses or is withdrawn, they will vote as
instructed by GTS on any resolution to enable the Offer to become
unconditional if it were passed or rejected at a general or separate
class meeting of Esprit Telecom.

The Securityholder Irrevocables above continue to be binding in the event
of a competing higher offer. However, they will lapse if there is a material
adverse change in the value of the GTS Group or if the Offer is not declared
wholly unconditional by the 60th day after posting (as extended in certain
limited circumstances). The irrevocable undertakings given by the Principal
Securityholders are governed by English law.

For further details of the irrevocable undertakings given by certain
holders of Esprit Telecom Securities refer to Annexes E to H.

DIRECTORS

The directors of Esprit Telecom entered into agreements with GTS dated
December 8, 1998 whereby they irrevocably consented to the issuance of the Press
Announcement and the mailing of this Offering Circular/Proxy
Statement/Prospectus.

In the Director Irrevocables, the Esprit Telecom Directors agreed among
other things:

- to recommend the Offer to holders of Esprit Telecom Securities subject to
their fiduciary duties and obligations under the City Code;

- to accept the Offer in respect of all Esprit Telecom Ordinary Shares
resulting under the exercise of their Esprit Telecom Options;

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<PAGE> 95

- soliciting, procuring, initiating or (subject to the fiduciary
duties of the Esprit Telecom Directors) engaging in discussions or
negotiations in relation to any transaction involving an offer by
any third party for the acquisition of all or any part of the issued
share capital or material assets of Esprit Telecom or any member of
the Esprit Telecom Group;

- (except as required by Rule 20.2 of the City Code) providing any
information or facilitating or cooperating with any such
transaction; or

- subject to certain limited exceptions, communicating or discussing
the terms of the Offer or related matters with any third party
without the prior, written consent of GTS;

- not to dispose or permit the disposition of their Esprit Telecom Options
or any interest therein, nor to enter any agreement or arrangement which
could result in the disposal of any Option or interest therein, or which
might restrict the disposal of their Esprit Telecom Options;

- prior to the lapsing or withdrawal of the Offer without the prior written
consent of GTS, otherwise than pursuant to the exercise of their Esprit
Telecom Options, not to acquire any Esprit Telecom Securities or any
interest therein;

- upon the Offer becoming unconditional, and subject to their fiduciary
duties, to appoint any person nominated by GTS to the Esprit Telecom
Board;

- prior to the date the Offer becomes wholly unconditional or lapses or is
withdrawn, not to deal in any GTS Stock, securities or interest therein;
and

- that subject to the receipt of satisfactory tax advice, it was their
current intention to accept the Rollover Offer in respect of their Esprit
Telecom Options.

The Director Irrevocables will automatically lapse if the Offer is not
declared wholly unconditional on or before the 60th day after this Offering
Circular/Proxy Statement/Prospectus is mailed (except as extended in certain
limited circumstances) or, in respect of any individual Director, in the event
that such Director ceases to be a Director of Esprit Telecom. The Director
Irrevocables are governed by English law.

For further details of the agreements with Director Irrevocables see
Annexes I to N.

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TAX CONSEQUENCES OF THE OFFER AND COMPULSORY ACQUISITION

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes the material United States federal
income tax consequences of the Offer and the Compulsory Acquisition to Esprit
Telecom and holders of Esprit Telecom Securities. The discussion is based on the
Internal Revenue Code of 1986, as amended, and administrative and judicial
interpretations as of the date hereof, all of which are subject to change,
possibly on a retroactive basis. Any such change could affect the continuing
validity of this discussion. The discussion does not address aspects of United
States federal taxation other than income taxation, nor does it address all
aspects of United States federal income taxation, including, without limitation,
aspects of United States federal income taxation that may be applicable to
particular shareholders (including banks and insurance companies, dealers in
securities, and holders of securities held as part of a "straddle," "hedge," or
"conversion transaction," those who acquired their Esprit Telecom Securities in
a compensation transaction or those holders that actually or constructively own
ten percent or more of the total combined voting power of Esprit Telecom). The
discussion also does not address the United States federal income tax
consequences of the Offer and the Compulsory Acquisition to any holders of
options or warrants to purchase Esprit Telecom Securities. In addition, it does
not address the state, local or foreign tax consequences of the Offer and the
Compulsory Acquisition, if any.

No ruling has been or will be obtained from the Internal Revenue Service
with respect to the Offer and the Compulsory Acquisition and no assurance can be
given that the Internal Revenue Service would not be able to successfully
challenge the United States federal income tax consequences set forth below.

HOLDERS OF ESPRIT TELECOM SECURITIES ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE OFFER AND THE COMPULSORY ACQUISITION.

US HOLDERS

Provided that in connection with the Offer and Compulsory Acquisition, GTS
acquires at least 80% of the Esprit Telecom Securities, the material United
States federal income tax consequences of the Offer and the Compulsory
Acquisition to Esprit Telecom and US Holders of Esprit Telecom Securities will
be as follows: (i) the Offer and the Compulsory Acquisition will qualify as a
tax-free "reorganization" within the meaning of Section 368 of the Code; (ii) no
gain or loss will be recognized by Esprit Telecom in the Offer and the
Compulsory Acquisition; (iii) no gain or loss will be recognized by holders of
Esprit Telecom Securities upon their receipt of New GTS Stock in exchange for
their Esprit Telecom Securities, except that holders of Esprit Telecom
Securities who receive cash proceeds in lieu of fractional shares of New GTS
Stock will recognize gain or loss equal to the difference, if any, between such
proceeds and the tax basis of Esprit Telecom Securities allocated to their
fractional share interests; (iv) such gain or loss, if any, will constitute
capital gain or loss if the fractional share interests exchanged are held as
capital assets at the time of the Offer and the Compulsory Acquisition; (v) such
capital gain or loss will be long-term capital gain or loss if the holding
period for the fractional share interests (including the holding period of
Esprit Telecom Securities attributed thereto as described below) exceeds one
year; (vi) the tax basis of New GTS Stock received by holders of Esprit Telecom
Securities will be the same as the tax basis of the Esprit Telecom Securities
exchanged therefor less the tax basis, if any, allocated to fractional share
interests; and (vii) the holding period of New GTS Stock in the hands of holders
of Esprit Telecom Securities will include the holding period of their Esprit
Telecom Securities exchanged therefor, provided that such Esprit Telecom
Securities are held as a capital asset at the time of the Offer and the
Compulsory Acquisition. If GTS acquires less than 80% of the Esprit Telecom
Securities in connection with the Offer, the Offer will not qualify as a
tax-free "reorganization" and US Holders will recognize gain or loss equal to
the difference between the fair market value of the New GTS Stock received over
their tax basis of Esprit Telecom Securities surrendered. Such gain or loss
would be taxed in the manner set forth in (iv) and (v) of the preceding
sentence.

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<PAGE> 97

NON-US HOLDERS

OFFER AND COMPULSORY ACQUISITION

Generally, Non-US Holders of Esprit Telecom Securities will not be subject
to United States federal income tax upon their receipt of New GTS Stock in
exchange for their Esprit Telecom Securities regardless of whether such exchange
qualifies as a tax-free reorganization. However, if a Non-US Holder of Esprit
Telecom Securities recognizes gain or loss under the rules discussed above under
"US Holders" such gain or loss will be subject to United States federal income
tax if (i) such gain or loss is effectively connected with such holder's conduct
of a trade or business in the United States or, if a tax treaty applies, such
gain or loss is attributable to a permanent establishment in the United States
("United States trade or business income"), (ii) the Non-US Holder is an
individual who is present in the United States for 183 or more days in the
taxable year of the Offer and Compulsory Acquisition and who meets certain other
requirements, or (iii) the Non-US Holder is subject to tax pursuant to the
provisions of United States tax law applicable to certain United States
expatriates.

DIVIDENDS ON NEW GTS STOCK

In general, dividends paid to a Non-US Holder of GTS Stock will be subject
to withholding of United States federal income tax at a 30% rate unless such
rate is reduced by an applicable income tax treaty. However, dividends that are
United States trade or business income generally are subject to United States
federal income tax on a net income basis at applicable graduated individual or
corporate tax rates and are not generally subject to withholding if the Non-US
Holder files the appropriate certification with GTS (or its paying agent). Any
United States trade or business income received by a Non-US Holder that is a
corporation under certain circumstances, may also, be subject to an additional
"branch profits tax" at a 30% rate, or lower rate as may be applicable under an
income tax treaty.

Dividends paid to an address in a foreign country are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding discussed above, and under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under United States Treasury
regulations (generally effective January 1, 2000), however, a Non-US Holder of
New GTS Stock who wishes to claim the benefit of an applicable treaty rate would
be required to satisfy applicable certification and other requirements, which
would include the requirement that the Non-US Holder file a form which contains
the holder's name and address and may require the Non-US Holder to provide
certain documentary evidence used by foreign governmental authorities as proof
of residence in a foreign country.

A Non-US Holder of New GTS Stock that is eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts currently withheld by filing an appropriate claim
for a refund with the Internal Revenue Service.

DISPOSITION OF NEW GTS STOCK

Except as described below and subject to the discussion concerning backup
withholding, a Non-US Holder generally will not be subject to United States
federal income tax in respect of gain recognized on a disposition of New GTS
Stock unless (i) the gain is United States trade or business income; (ii) the
Non-US Holder is an individual who is present in the United States for 183 or
more days in the taxable year of the disposition and certain other requirements
are satisfied; (iii) the Non-US Holder is subject to tax pursuant to the
provisions of United States tax law applicable to certain United States
expatriates; or (iv) GTS has been or does become a "United States real property
holding corporation" for United States federal income tax purposes. GTS believes
that it has not been and is not likely to become a United States real property
holding corporation. However, no assurance can be given that GTS will not be a
United States real property holding corporation when a Non-US Holder sells its
New GTS Stock. If GTS were to become a United States real property holding
corporation, gains realized by a Non-US Holder which did not directly or
indirectly own more than 5% of the New GTS Stock during a five-year testing
period generally would not be subject to

90
<PAGE> 98

United States federal income tax, provided that the New GTS Stock have been
regularly traded on an established securities market.

BACKUP WITHHOLDING AND INFORMATIONAL REPORTING

US HOLDERS

Payments in respect of Esprit Telecom Securities may be subject to
informational reporting to the Internal Revenue Service and to a 31% backup
withholding tax. Backup withholding will not apply, however, to such payments
made to a US Holder if such holder completes and signs the substitute Form W-9
included as part of the Letter of Transmittal or otherwise certifies, under
penalties of perjury, to GTS or the US Depositary that it is exempt from backup
withholding.

NON-US HOLDERS

Backup withholding will not apply to payments in respect of Esprit Telecom
Securities made to a Non-US Holder if such holder certifies as to its foreign
status under penalties of perjury or otherwise establishes an exemption.

GTS must report annually to the Internal Revenue Service and to each Non-US
Holder the amount of dividends paid to, and the United States federal income tax
withheld with respect to, each Non-US Holder. These reporting requirements apply
even if withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-US Holder resides. Under existing United States
Treasury regulations, the United States backup withholding tax will generally
not apply to dividends paid on the New GTS Stock to a Non-US Holder at an
address outside the United States. Under United States Treasury regulations,
generally effective January 1, 2000, a Non-US Holder could be subject to backup
withholding unless they provide certification of foreign status.

Non-US Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of New
GTS Stock effected by a foreign office of a foreign broker, provided however
that if the broker is a United States person or a "United States related
person," information reporting (but not backup holding) would apply unless the
broker receives a statement from the owner, signed under penalties of perjury,
certifying its foreign status or otherwise establishing an exemption or the
broker has documentary evidence in its files as to the Non-US Holder's foreign
status and the broker has no actual knowledge to the contrary. For this purpose,
a "United States related person" is a foreign person with one or more of certain
enumerated relationships with the United States.

Non-US Holders will be subject to information reporting and backup
withholding at a rate of 31% with respect to the payment of proceeds from the
disposition of New GTS Stock effected by, to or through the United States office
of a broker, United States or foreign, unless the Non-US Holder certifies as to
its foreign status under penalties of perjury or otherwise establishes an
exemption.

Any amounts withheld under the backup withholding rules from a payment to a
Non-US Holder will be allowed as a credit against such Non-US Holder's United
States federal income tax, and any amounts withheld in excess of such Non-US
Holder's United States federal income tax liability will be refunded, provided
that the required information is furnished to the Internal Revenue Service.

UNITED KINGDOM TAX CONSEQUENCES

The following paragraphs, which are intended as a general guide only, are
based on current legislation and Inland Revenue practice. They summarize the
material UK tax consequences of acceptance of the Offer by holders of Esprit
Telecom Securities who are resident or ordinarily resident in the UK for
taxation purposes and hold their Esprit Telecom Securities beneficially as an
investment but do not purport to be a complete analysis or listing of all the
potential UK tax consequences. If you are in any doubt as to your taxation
position or if you are subject to taxation in any jurisdiction other than the
UK, you should consult an appropriate professional advisor immediately.

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<PAGE> 99

TAX ON CHARGEABLE GAINS

Liability to tax on chargeable gains will depend on the individual
circumstances of holders of Esprit Telecom Securities and on the form of
consideration received. The position will generally be described below.

ACQUISITION OF NEW GTS STOCK

A holder of Esprit Telecom Securities who, either alone or together with
persons connected with him, does not hold more than 5% of any class of shares in
or debentures of Esprit Telecom will not be treated as having made a disposal of
his Esprit Telecom Securities for the purposes of tax on chargeable gains to the
extent that he receives New GTS Stock in exchange for his Esprit Telecom
Securities under the Offer. Any gain or loss which would otherwise have arisen
on a disposal of his Esprit Telecom Securities will be "rolled-over" into the
New GTS Stock and the New GTS Stock will be treated as the same asset as his
Esprit Telecom Securities acquired at the same time and for the same
consideration as he acquired his Esprit Telecom Securities.

Any holder of Esprit Telecom Securities who, either alone or together with
persons connected with him, holds more than 5% of any class of shares in or
debentures of Esprit Telecom is advised that the Inland Revenue has granted a
clearance under Section 138 of the Taxation of Chargeable Gains Act 1992 in
respect of the Offer. This means that any such holder will also be treated in
the manner described in the preceding paragraph.

DISPOSAL OF NEW GTS STOCK

A subsequent disposal of New GTS Stock may, depending on individual
circumstances, give rise to a liability to tax on chargeable gains. Any
chargeable gain or allowable loss on disposal of the New GTS Stock should be
calculated taking into account the allowable original cost to the holder of
acquiring the relevant Esprit Telecom Securities, and (when calculating a
chargeable gain but not an allowable loss) indexation allowance on the cost
(save that, except in the case of taxpayers liable to corporation tax, no
indexation will be allowable in respect of periods after April 1998 although
tapering relief may be available). In broad terms the allowable original cost of
the relevant Esprit Telecom Securities will be apportioned to the New GTS Stock
and cash received according to the market value of the GTS Stock at the time of
the exchange.

A holder of Esprit Telecom Securities who is neither resident nor
ordinarily resident in the UK for UK taxation purposes will not be liable for UK
tax on capital gains on his disposal of Esprit Telecom Securities pursuant to
the Offer or on any disposal or deemed disposal of his New GTS Stock unless such
securities are held in connection with a trade, profession or vocation carried
on by such holder in the UK through a branch or agency and those securities are
or have been used, held or acquired for the purposes of such trade, profession
or vocation.

TAX ON DIVIDENDS ON NEW GTS STOCK

A UK resident shareholder may, depending on his or its circumstances,
suffer a charge under UK taxation on dividends received from GTS.

A UK resident shareholder not otherwise exempt from tax on such dividends
will be liable for income tax or corporation tax, as appropriate, on the amount
of the gross dividend paid but will normally be entitled to a credit for any US
withholding tax charged on the dividend at the appropriate rate.

If dividends are paid through a paying or collecting agent in the UK, such
agent may be required to withhold an amount on account of UK income tax at a
lower rate (currently 20%) unless either a declaration in the required form has
been made to the paying or collecting agent in respect of such payment or the
Inland Revenue has given notice that it considers that tax should not be
deducted.

Both paying agents and collecting agents in the UK may, under current
Inland Revenue practice, give credit for any US withholding tax known to have
been levied in respect of the dividend. At current US and UK tax rates, this
would normally allow such an agent to withhold on account of UK income tax at a
reduced

92
<PAGE> 100

rate of 5% of the gross dividend because, in normal circumstances, a US
withholding tax of 15% will have been deducted by GTS.

OTHER TAX MATTERS

Special tax provisions may apply to holders of Esprit Telecom Ordinary
Shares who have acquired or who acquire their Esprit Telecom Ordinary Shares by
exercising options under the Esprit Telecom Share Option Schemes, including
provisions imposing a charge to income tax.

STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT")

No stamp duty or SDRT will be payable by holders of Esprit Telecom
Securities as a result of accepting the Offer.

A transfer of GTS Stock which is executed in, or relates to any matter or
thing to be done in the UK (e.g., if such stock is registered on a register of
GTS Stock maintained in the UK or is transferred in return for the issue of
shares in a UK company), will, in general, be subject to UK stamp duty at the
rate of 50 pence per L100 of the consideration paid. An agreement for the
transfer of GTS Stock will be outside the scope of stamp duty reserve tax
provided that the stock to be transferred is not registered on a register of
such stock maintained in the UK.

INHERITANCE TAX

GTS Stock will be within the scope of UK inheritance tax on the death of,
or a gift of such GTS Stock by, a shareholder who is domiciled or deemed to be
domiciled in the UK for tax purposes or in certain circumstances if such stock
is registered on a register of GTS Stock maintained in the UK.

HOLDERS OF ESPRIT TELECOM SECURITIES ARE URGED TO CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE FEDERAL INCOME AND OTHER TAX CONSEQUENCES OF THE
OFFER TO THEM.

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<PAGE> 101

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements have been
prepared from GTS' historical consolidated financial statements included in this
Offering Circular/Proxy Statement/Prospectus and Esprit Telecom's historical
consolidated financial statements included in this Offering Circular/Proxy
Statement/Prospectus. The accompanying unaudited pro forma combined statement of
operations presents the historical results of operations of GTS and Esprit
Telecom giving effect to the combination as if it had occurred at the beginning
of the earliest period presented in accordance with US GAAP under the "pooling
of interests" method of accounting.

The pro forma combined statement of operations combines the results of GTS
for each of the three years in the period ended December 31, 1997 and for the
nine months ended September 30, 1998 with the results of Esprit Telecom for each
of the three years in the period ended September 30, 1998 and for the nine
months ended September 30, 1998. The unaudited pro forma combined income
statement gives effect to the combination as if it had occurred on January 1,
1997. The unaudited pro forma combined balance sheet gives effect to the
combination as if it had occurred on September 30, 1998, combining the balance
sheets of GTS and Esprit Telecom at September 30, 1998.

The unaudited pro forma combined financial statements have been prepared in
accordance with US GAAP. The financial statements of Esprit Telecom have been
converted from UK GAAP to US GAAP and translated into US dollars for purposes of
this presentation. UK GAAP differs in certain significant respects from US GAAP.
A reconciliation of Esprit Telecom's net loss and stockholders' equity from UK
GAAP to US GAAP is presented in Esprit Telecom's historical consolidated
financial statements.

As described in this Offering Circular/Proxy Statement/Prospectus, the
exchange ratios are: (i) each outstanding Esprit Telecom Ordinary Share will be
converted into 0.1271 of a share of New GTS Stock and (ii) each outstanding
Esprit Telecom ADR will be converted into 0.89 of a share of New GTS Stock.
These exchange ratios were used in the accompanying unaudited pro forma combined
financial statements.

The unaudited pro forma combined financial statements are presented for
comparative purposes only and are not intended to be indicative of what the
actual results would have been if the combination occurred as of the dates
indicated above nor do they purport to be indicative of the results which may be
attained in the future. These unaudited pro forma combined financial statements
should be read in conjunction with the historical consolidated financial
statements of GTS and Esprit Telecom and the related notes thereto. See "Where
You Can Find More Information."

94
<PAGE> 102

GLOBAL TELESYSTEMS GROUP, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS(1)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
COMBINED (ESPRIT
NETSOURCE PRO FORMA (GTS & ESPRIT PRO FORMA TELECOM &
GTS(2) EUROPE(3) ADJUSTMENTS(4) NETSOURCE) TELECOM(2) PLUSNET(6) ADJUSTMENTS(7) PLUSNET)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES, NET:
Telecommunication and
other services..... $ 111,195 $ 29,364 $ 140,559 $ 115,309 $ 12,456 $ (475) $ 127,290
Equipment sales...... 6,104 -- 6,104 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
117,299 29,364 146,663 115,309 12,456 (475) 127,290
--------- --------- --------- --------- --------- --------- --------- ---------
OPERATING COSTS AND
EXPENSES
Cost of revenues:
Telecommunication
and other
services......... 77,525 31,089 108,614 91,131 8,559 (475) 99,215
Equipment sales.... 4,542 -- 4,542 -- -- --
Selling, general and
administrative..... 75,150 27,741 102,891 49,464 4,601 54,065
Depreciation and
amortization....... 13,953 3,077 7,295 24,325 17,758 1,613 3,771 23,142
Non-income taxes..... 5,140 -- 5,140 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
176,310 61,907 7,295 245,512 158,353 14,773 3,296 176,422
Equity in (earnings)
losses of
ventures........... (4,142) -- (4,142) -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
LOSS FROM
OPERATIONS........... (54,869) (32,543) (7,295) (94,707) (43,044) (2,317) (3,771) (49,132)
OTHER
INCOME /(EXPENSE):
Interest income...... 28,110 675 28,785 -- 246 246
Interest expense..... (52,603) (1,319) (53,922) (19,872) -- (8,774) (28,646)
Foreign currency
losses............. (10,364) (10,364) -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
(34,857) (644) -- (35,501) (19,872) 246 (8,774) (28,400)
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss before income
taxes, minority
interest and
extraordinary loss... (89,726) (33,187) (7,295) (130,208) (62,916) (2,071) (12,545) (77,532)
Income taxes.......... 2,151 -- 2,151 3 -- 3
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss before
minority interest and
extraordinary loss... (91,877) (33,187) (7,295) (132,359) (62,919) (2,071) (12,545) (77,535)
Minority interest..... 3,746 -- 3,746 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss before
extraordinary loss... $ (88,131) $ (33,187) $ (7,295) $(128,613) $ (62,919) $ (2,071) $ (12,545) $ (77,535)
Loss per share before
extraordinary loss...
Weighted average
common shares
outstanding..........

<CAPTION>
PRO FORMA
COMBINED
(GTS &
PRO FORMA ESPRIT
ADJUSTMENTS(8) TELECOM)
--------- ---------
<S> <C> <C>
REVENUES, NET:
Telecommunication and
other services..... $ (1,760) $ 266,089
Equipment sales...... 6,104
--------- ---------
(1,760) 272,193
--------- ---------
OPERATING COSTS AND
EXPENSES
Cost of revenues:
Telecommunication
and other
services......... (2,989) 204,840
Equipment sales.... 4,542
Selling, general and
administrative..... 156,956
Depreciation and
amortization....... 47,467
Non-income taxes..... 5,140
--------- ---------
(2,989) 418,945
Equity in (earnings)
losses of
ventures........... (4,142)
--------- ---------
LOSS FROM
OPERATIONS........... 1,229 (142,610)
OTHER
INCOME /(EXPENSE):
Interest income...... 29,031
Interest expense..... (82,568)
Foreign currency
losses............. (10,364)
--------- ---------
-- (63,901)
--------- ---------
Net loss before income
taxes, minority
interest and
extraordinary loss... 1,229 (206,511)
Income taxes.......... 2,154
--------- ---------
Net loss before
minority interest and
extraordinary loss... 1,229 (208,665)
Minority interest..... 3,746
--------- ---------
Net loss before
extraordinary loss... $ 1,229 $(204,919)
Loss per share before
extraordinary loss... $ (2.80)
=========
Weighted average
common shares
outstanding.......... 73,192
=========
</TABLE>

See accompanying notes.

95
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GLOBAL TELESYSTEMS GROUP, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS(1)

YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ESPRIT COMBINED
COMBINED TELECOM (ESPRIT
NETSOURCE PRO FORMA (GTS & YEAR ENDED PRO FORMA TELECOM &
GTS(2) EUROPE(3) ADJUSTMENTS(4) NETSOURCE) 9/30/97(2) PLUSNET(6) ADJUSTMENTS(7) PLUSNET)
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES, NET:
Telecommunication and other
services................. $ 41,300 $ 14,102 $ 55,402 $ 74,596 $ 27,072 $ (510) $ 101,158
Equipment sales............ 5,798 5,798 -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
47,098 14,102 -- 61,200 74,596 27,072 (510) 101,158
--------- --------- --------- --------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Cost of revenues:
Telecommunication and
other services......... 37,206 13,593 50,799 62,263 28,799 (510) 90,552
Equipment sales.......... 5,513 -- 5,513 -- -- -- --
Selling, general and
administrative........... 68,425 12,250 80,675 26,622 10,451 -- 37,073
Depreciation and
amortization............. 6,227 2,120 9,726 18,073 4,653 6,017 11,990 22,660
Non-income taxes........... 2,085 -- 2,085 -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
119,456 27,963 9,726 157,145 93,538 45,267 11,480 150,285
Write-off of
venture-related assets... 1,673 -- 1,673 -- -- -- --
Equity in losses of
ventures................. 14,599 -- 14,599 -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
LOSS FROM OPERATIONS........ (88,630) (13,861) (9,726) (112,217) (18,942) (18,195) (11,990) (49,127)
OTHER INCOME /(EXPENSE):
Interest income............ 11,361 -- 11,361 1,890 -- -- 1,890
Interest expense........... (39,086) (538) (39,624) (750) -- (26,880) (27,630)
Foreign currency losses.... (1,826) (1,826) -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
(29,551) (538) -- (30,089) 1,140 -- (26,880) (25,740)
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss before income taxes
and minority interest...... (118,181) (14,399) (9,726) (142,306) (17,802) (18,195) (38,870) (74,867)
Income taxes................ 2,482 (12) 2,470 3 -- -- 3
--------- --------- --------- --------- --------- --------- --------- ---------
Net loss before minority
interest................... (120,663) (14,387) (9,726) (144,776) (17,805) (18,195) (38,870) (74,870)
Minority interest........... 3,677 -- 3,677 -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
NET LOSS.................... $(116,986) $ (14,387) $ (9,726) $(141,099) $ (17,805) $ (18,195) (38,870) $ (74,870)
========= ========= ========= ========= ========= ========= ========= =========
Net loss per share..........
Weighted average common
shares outstanding.........

<CAPTION>
PRO FORMA
COMBINED
(GTS &
PRO FORMA ESPRIT
ADJUSTMENTS(8) TELECOM)
--------- ---------
<S> <C> <C>
REVENUES, NET:
Telecommunication and other
services................. (110) $ 156,450
Equipment sales............ 5,798
--------- ---------
(110) 162,248
--------- ---------
OPERATING COSTS AND EXPENSES
Cost of revenues:
Telecommunication and
other services......... (110) 141,241
Equipment sales.......... 5,513
Selling, general and
administrative........... 117,748
Depreciation and
amortization............. 40,733
Non-income taxes........... 2,085
--------- ---------
(110) 307,320
Write-off of
venture-related assets... 1,673
Equity in losses of
ventures................. 14,599
--------- ---------
LOSS FROM OPERATIONS........ (161,344)
OTHER INCOME /(EXPENSE):
Interest income............ 13,251
Interest expense........... (67,254)
Foreign currency losses.... (1,826)
--------- ---------
(55,829)
--------- ---------
Net loss before income taxes
and minority interest...... (217,173)
Income taxes................ 2,473
--------- ---------
Net loss before minority
interest................... (219,646)
Minority interest........... 3,677
--------- ---------
NET LOSS.................... -- $(215,969)
========= =========
Net loss per share.......... $ (3.87)
=========
Weighted average common
shares outstanding......... 55,772
=========
</TABLE>

See accompanying notes.

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GLOBAL TELESYSTEMS GROUP, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS(1)

YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ESPRIT PRO FORMA
TELECOM COMBINED
YEAR ENDED (GTS & ESPRIT
GTS(2) 9/30/96(2) TELECOM)
-------- ---------- --------------
<S> <C> <C> <C>
REVENUES, NET:
Telecommunication and other services.................. $ 19,210 $38,402 $ 57,612
Equipment sales....................................... 4,907 -- 4,907
-------- ------- --------
24,117 38,402 62,519
-------- ------- --------
OPERATING COSTS AND EXPENSES
Cost of revenues:
Telecommunication and other services............... 14,741 28,950 43,691
Equipment sales.................................... 4,200 -- 4,200
Selling, general and administrative................... 47,940 11,590 59,530
Stock compensation costs.............................. 3,498 3,498
Depreciation and amortization......................... 4,165 2,270 6,435
Non-income taxes...................................... 850 -- 850
-------- ------- --------
71,896 46,308 118,204
Equity in losses of ventures.......................... 10,150 -- 10,150
-------- ------- --------
LOSS FROM OPERATIONS.................................... (57,929) (7,906) (65,835)
OTHER INCOME/(EXPENSE):
Interest income....................................... 3,569 219 3,788
Interest expense...................................... (11,122) (533) (11,655)
Foreign currency losses............................... (1,176) -- (1,176)
-------- ------- --------
(8,729) (314) (9,043)
-------- ------- --------
Net loss before income taxes and minority interest...... (66,658) (8,220) (74,878)
Income taxes............................................ 1,360 -- 1,360
-------- ------- --------
Net loss before minority interest....................... (68,018) (8,220) (76,238)
-------- ------- --------
Minority interest....................................... 27 -- 27
NET LOSS................................................ $(67,991) $(8,220) $(76,211)
======== ======= ========
Net loss per share...................................... $ (1.69)
========
Weighted average common shares outstanding.............. 45,130
========
</TABLE>

See accompanying notes.

97
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GLOBAL TELESYSTEMS GROUP, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS(1)

YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ESPRIT PRO FORMA
TELECOM COMBINED
YEAR ENDED GTS & ESPRIT
GTS(2) 9/30/95(2) TELECOM
-------- ----------- ------------
<S> <C> <C> <C>
REVENUES, NET:
Telecommunication and other services.................... $ 5,979 $22,167 $ 28,146
Equipment sales......................................... 2,433 -- 2,433
-------- ------- --------
8,412 22,167 30,579
-------- ------- --------
OPERATING COSTS AND EXPENSES
Cost of revenues:
Telecommunication and other services................. 8,150 16,907 25,057
Equipment sales...................................... 246 -- 246
Selling, general and administrative..................... 37,291 6,534 43,825
Depreciation and amortization........................... 3,491 968 4,459
Non-income taxes........................................ 234 1,255 1,489
-------- ------- --------
49,412 25,664 75,076
Equity in losses of ventures............................ 7,871 -- 7,871
-------- ------- --------
LOSS FROM OPERATIONS...................................... (48,871) (3,497) (52,368)
OTHER INCOME/(EXPENSE):
Other non-operating income.............................. 10,270 41 10,311
Interest income......................................... 2,177 (394) 1,783
Interest expense........................................ (728) -- (728)
Foreign currency losses................................. (685) -- (685)
-------- ------- --------
11,034 (353) 10,681
-------- ------- --------
Net loss before income taxes and minority interest........ (37,837) (3,850) (41,687)
Income taxes.............................................. 2,565 -- 2,565
-------- ------- --------
Net loss before minority interest......................... (40,402) (3,850) (44,252)
Minority interest......................................... 2 -- 2
-------- ------- --------
NET LOSS.................................................. $(40,400) $(3,850) $(44,250)
======== ======= ========
Net loss per share........................................ $ (1.12)
========
Weighted average common shares outstanding................ 39,680
========
</TABLE>

See accompanying notes.

98
<PAGE> 106

GLOBAL TELESYSTEMS GROUP, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET(1)

AS OF SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
COMBINED (GTS &
NETSOURCE PRO FORMA (GTS & ESPRIT PRO FORMA ESPRIT
GTS(2) EUROPE(3) ADJUSTMENTS(5) NETSOURCE TELECOM(2) ADJUSTMENTS(8) TELECOM
---------- --------- -------------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents..... $ 993,928 $ 3,049 $(46,099) $ 950,878 $ 230,745 $1,181,623
Accounts receivable, net...... 59,822 13,602 73,424 50,037 123,461
Restricted cash............... 42,047 -- 42,047 83,218 125,265
Prepaid expenses.............. 22,122 3,255 25,377 -- 25,377
Other assets.................. 12,539 3,602 16,141 44,599 60,740
---------- -------- -------- ---------- --------- ----- ----------
TOTAL CURRENT ASSETS.... 1,130,458 23,508 (46,099) 1,107,867 408,599 1,516,466
Property and equipment, net..... 436,019 4,329 440,348 93,587 876 534,811
Investments in and advances to
ventures...................... 61,705 -- 61,705 -- 61,705
Goodwill and intangible assets,
net........................... 161,893 22,068 145,894 329,855 168,290 498,145
Restricted cash and other
noncurrent assets............. 24,818 222 25,040 -- 25,040
---------- -------- -------- ---------- --------- ----- ----------
TOTAL ASSETS............ $1,814,893 $ 50,127 $ 99,795 $1,964,815 $ 670,476 $ 876 $2,636,167
========== ======== ======== ========== ========= ===== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued
expenses.................... $ 135,565 $ 27,296 $ 2,000 $ 164,861 $ 123,937 $ 288,798
Debt maturing within one
year........................ 23,741 13,302 37,043 -- 37,043
Current portion of capital
lease obligations........... 31,130 -- 31,130 -- 31,130
Related party debt maturing
within one year............. 8,333 8,333 -- 8,333
Other current liabilities..... 32,408 -- 32,408 -- (353) 32,055
---------- -------- -------- ---------- --------- ----- ----------
TOTAL CURRENT
LIABILITIES........... 222,844 48,931 2,000 273,775 123,937 (353) 397,359
Long-term debt, less current
portion....................... 962,232 -- 962,232 526,370 1,488,602
Long-term portion of capital
lease obligations............. 187,900 -- 187,900 -- 187,900
Related party long-term debt,
less current portion.......... 3,530 -- 3,530 -- 3,530
Taxes and other non-current
liabilities................... 27,378 1,486 28,864 32,403 61,267
---------- -------- -------- ---------- --------- ----- ----------
TOTAL LIABILITIES....... 1,403,884 50,417 2,000 1,456,301 682,710 (353) 2,138,658
COMMITMENTS AND CONTINGENCIES
Minority interest............. 43,957 -- 43,957 -- 43,957
Common stock, subject to
repurchase.................. 15,643 -- 15,643 -- 15,643
SHAREHOLDERS' EQUITY
Common stock, 80,434,986 pro
forma combined shares issued
and outstanding............. 6,050 745 396 6,446 2,133 (536) 8,043
Additional paid-in capital.... 696,574 23,402 97,109 793,683 97,071 536 891,290
Accumulated other
comprehensive loss.......... (7,496) -- (7,496) -- (7,496)
Accumulated deficit........... (343,719) (24,437) (343,719) (111,438) 1,229 (453,928)
---------- -------- -------- ---------- --------- ----- ----------
TOTAL SHAREHOLDERS'
EQUITY................ 351,409 (290) 97,505 448,914 (12,234) 1,229 437,909
---------- -------- -------- ---------- --------- ----- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY................ $1,814,893 $ 50,127 $ 99,505 $1,964,815 $ 670,476 $ 876 $2,636,167
========== ======== ======== ========== ========= ===== ==========
</TABLE>

See accompanying notes.

99
<PAGE> 107

GLOBAL TELESYSTEMS GROUP, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1. The accompanying unaudited pro forma combined financial statements do not
include any transition costs and expenses which are expected to be incurred
in connection with consummating the combination and integrating the
operations of GTS and Esprit. It is not feasible to determine the actual
amount of these costs and expenses until the combination is completed and the
related operational and transitional plans are complete. These costs and
expenses relate directly to completing the transaction, such as professional
and registration fees; employee benefit-related costs such as severance,
relocation and retention incentives, facility consolidations, systems
integration, and satisfaction of contractual obligations. It is anticipated
that a significant portion of these costs and expenses will result in charges
to the earnings of the Combined Group. The exact timing of these charges
cannot be determined; however, management of the Combined Group anticipate
that plans and decisions will be completed and a substantial portion of the
related charges recorded in 1999. Additionally, while the pro forma combined
statement of operations does not reflect any anticipated cost savings or
other synergies that may be achieved by the combination, the combination is
expected to result in reduced costs for the combined group.

2. These columns represent historical results of operations and financial
position.

3. On November 30, 1998 GTS completed the acquisition of NetSource in a
transaction accounted for as a purchase. GTS' results of operations for the
year ended December 31, 1997 and the nine months ended September 30, 1998
have been adjusted to give effect to the acquisition of NetSource as if it
had occurred as of January 1, 1997. GTS' balance sheet as of September 30,
1998 has been adjusted to give effect to the acquisition of NetSource as if
it had occurred on that date.

4. This entry reflects the adjustment to amortization expense for the effect of
the excess of consideration over net assets acquired in the NetSource
acquisition. For purposes of the unaudited pro forma combined financial
statements, the excess consideration has been amortized over an estimated
life of 15 years. A final determination of the lives attributable to the
intangible assets has not yet been made. As discussed in Note 5, a portion of
the excess consideration may be allocated to certain in-process research and
development projects. To the extent amounts are allocated to certain
in-process research and development projects, pro forma amortization expense
would be reduced accordingly.

5. These adjustments reflect the acquisition of NetSource by GTS. A preliminary
allocation of the purchase price has been presented in the unaudited pro
forma combined financial statements. The excess of consideration over the
fair value of the net assets acquired from NetSource has been preliminarily
allocated to goodwill and other intangibles. A final allocation of the
purchase price to the fair value of the NetSource assets acquired and
liabilities assumed is dependent upon certain valuations and studies that
have not progressed to a stage where there is sufficient information to make
such an allocation in the accompanying pro forma financial information. GTS'
management believes that the consideration in excess of the historical book
value of NetSource's net assets acquired is comprised of goodwill, certain
in-process research and development projects and other intangible assets. To
the extent that a portion of the purchase price is allocated to in-process
research and development projects, a charge, which may be material to GTS'
results of operations, would be recognized in the quarter ended December 31,
1998. See Note 4.

6. During July 1998, Esprit Telecom completed the acquisition of Plusnet in a
transaction accounted for as a purchase. Esprit Telecom's results of
operations for the year ended September 30, 1997 and the nine months ended
September 30, 1998 have been adjusted to give effect to the acquisition of
Plusnet as if it had occurred as of October 1, 1996.

7. These adjustments reflect the elimination of intercompany revenue between
Esprit Telecom and Plusnet, the additional amortization expense associated
with amortizing the excess of consideration over net assets acquired in the
Plusnet acquisition, and the assumed interest expense incurred by Esprit
Telecom in order to finance the Plusnet acquisition.

100
<PAGE> 108

8. These adjustments reflect the following:

An adjustment to prepaid phone card revenue in order to conform Esprit
Telecom's revenue recognition policy to GTS' revenue recognition policy.
Esprit Telecom recognizes prepaid phone card revenue upon sale of the phone
card. GTS recognizes prepaid phone card revenue over the estimated service
period.

An adjustment to depreciation expense in order to conform Esprit
Telecom's fiber optic cable depreciation policy with GTS' policy. Esprit
Telecom depreciates fiber optic cable using an accelerated method whereas
GTS depreciates fiber optic cable on a straight-line basis.

To eliminate inter-company revenue.

To reclassify the stockholders' equity accounts as a result of the
pooling of interests.

101
<PAGE> 109

EXCHANGE RATES

All currency amounts in this Offering Circular/Proxy Statement/Prospectus
are, unless otherwise indicated, expressed in US dollars ("US$" or "$"). This
Offering Circular/Proxy Statement/Prospectus contains translations of certain
amounts in pounds sterling or pence ("L" or "p") into US dollars. For
convenience purposes only, unless otherwise indicated, translations of L into US
dollars have been calculated at the rate of L1 to $1.6530, which represents the
Noon Buying Rate as of December 7, 1998. These should not be construed as
representations that the UK amounts actually represent such US dollar amounts or
that such amounts could be converted into US dollars at the rate indicated or at
any other rate. The Noon Buying Rate at the end of each of five years ended
December 31, 1998 and the one month ended January 31, 1999 and the average, the
high and low exchange rates for each of such calendar-year and six-month periods
were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
JANUARY ------------------------------------------
1999 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
At end of period................... 1.6457 1.6628 1.6427 1.7123 1.5535 1.5665
Average for period*................ 1.6498 1.6573 1.6376 1.5607 1.5785 1.5319
High for period.................... 1.6585 1.7222 1.7035 1.7123 1.6940 1.6368
Low for period..................... 1.6308 1.6411 1.5775 1.4948 1.5302 1.4615
</TABLE>

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

* Represents the average of the Noon Buying Rates on the last practicable day of
each full month during the relevant period. For January 1999, it represents
the average of the Noon Buying Rates for each trading day of the month.

DESCRIPTION OF CERTAIN GTS INDEBTEDNESS

SENIOR NOTES DUE 2005

Concurrently with the IPO, GTS offered $105 million of 9 7/8% Notes. The
9 7/8% Notes were issued pursuant to an indenture between GTS and The Bank of
New York as trustee, dated February 10, 1998. The 9 7/8% Notes mature in 2005
and bear interest, payable semi-annually, at 9 7/8% per annum. The indenture
governing the 9 7/8% Notes does not provide for a sinking fund. The 9 7/8% Notes
are subject to redemption at any time on or after February 15, 2002, at the
option of GTS, in whole or in part, at declining redemption prices set forth in
the indenture governing the 9 7/8% Notes. Notwithstanding the foregoing, during
the first three years after the date of the indenture governing the 9 7/8%
Notes, GTS will be permitted to redeem up to 33 1/3% of the aggregate principal
amount of the 9 7/8% Notes at 109.875% of the principal amount thereof with the
net proceeds of any public equity offerings or strategic equity investments (as
such terms are defined in the indenture governing the 9 7/8% Notes) resulting in
aggregate gross proceeds to GTS of at least $75 million; provided, that at least
two-thirds of the principal amount of the 9 7/8% Notes originally issued remain
outstanding immediately after giving effect to any such redemption. GTS placed
net proceeds of US$19.6 million from the offering of the 9 7/8% Notes
representing funds that, together with the proceeds from the investment thereof,
are sufficient to pay the first four scheduled interest payments (but not
additional interest) on the 9 7/8% Notes, into an escrow account to be held by
The Bank of New York as trustee for the benefit of the holders of the 9 7/8%
Notes. GTS granted to the Trustee for the benefit of the holders of the 9 7/8%
Notes, a first priority and exclusive security interest in the escrow account
and the proceeds thereof. Funds will be disbursed from the escrow account for
interest payments (but not additional interest) on the 9 7/8% Notes. Pending
such disbursement, all funds contained in the escrow account are invested in
cash equivalents.

Upon a change of control (as defined in the related indenture) of GTS, or
in the event of asset sales (as defined in the related indenture) in certain
circumstances, GTS is required by the terms of the indenture to make an offer to
purchase the outstanding 9 7/8% Notes at a purchase price equal to 101% and
100%, respectively, of the principal amount thereof plus accrued and unpaid
interest thereon to the date of repurchase.

102
<PAGE> 110

The indebtedness of GTS evidenced by the 9 7/8% Notes ranks pari passu in
right of payment with all other existing and future unsubordinated indebtedness
of GTS and senior in right of payment to all existing and future obligations of
GTS expressly subordinated in right of payment to the 9 7/8% Notes. The
indenture governing the 9 7/8% Notes contains a number of covenants restricting
the operations of GTS and its restricted group members (as defined in the
indenture governing the 9 7/8% Notes), including those restricting: the
incurrence of indebtedness; the making of restricted payments unless no default
or event of default exists, its leverage ratio does not exceed 6.0 to 1.0 and
such restricted payments do not exceed the basket (as defined in the indenture
governing the 9 7/8% Notes); transactions with stockholders and affiliates; the
incurrence of liens; sale-leaseback transactions; issuances and sales of capital
stock of subsidiaries; the incurrence of guarantees by subsidiaries; dividend
and other payment restrictions affecting subsidiaries; consolidation, merger or
sale of substantially all of GTS' assets; and requiring the purchase of 9 7/8%
Notes, at the option of the holder, upon the occurrence of a change of control
and certain asset sales.

The events of default under the indenture governing the 9 7/8% Notes
include provisions that are typical of senior debt financings, including a
cross-acceleration to a default by GTS or any restricted group member on any
indebtedness that has an aggregate principal amount in excess of certain levels.
Upon the occurrence of such an event of default, the trustee or the holders of
not less than 25% in principal amount at maturity of the outstanding 9 7/8%
Notes may immediately accelerate the maturity of all the Notes as provided in
the related indenture.

THE CONVERTIBLE BONDS

In July, 1997, GTS issued $144.8 million principal amount of Senior
Subordinated Convertible Bonds. The Convertible Bonds were initially issued
under an indenture dated as of July 14, 1997 between GTS, The Bank of New York,
as trustee, registrar and paying, conversion and transfer agent. The Convertible
Bonds mature on June 30, 2000. At September 30, 1998, US$119.4 million aggregate
principal amount of the Convertible Bonds was outstanding. An aggregate
principal amount of US$25.4 million had been converted at that date into GTS
Stock. The conversion price of the Convertible Bonds is US$20 per share.

The Convertible Bonds bear interest payable at the rate of 8.75% per annum
from and including the date of their issuance. Interest is payable semiannually
in arrears on July 15 and January 15 of each year commencing January 15, 1998.
The Convertible Bonds are redeemable at the option of GTS, in whole but not in
part on or after the second anniversary of a complying public equity offering
(as defined in the indenture governing the Convertible Bonds), at the principal
amount thereof plus accrued interest to the redemption date. The IPO in February
1998 constituted a complying public equity offering.

Upon the occurrence of a change of control (as defined in the indenture
governing the Convertible Bonds), GTS will be obligated to make an offer to
purchase all of the outstanding Convertible Bonds at a purchase price equal to
113.5%, (if the date of such purchase occurs after June 30, 1998 but on or
before June 30, 1999) or 121.0%, (if the date of such purchase occurs after June
30, 1999), as applicable, of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase.

DEBENTURES DUE 2010

On July 8 and July 22, 1998, GTS issued approximately US$466.9 million of
Debentures. The Debentures were issued under an indenture between GTS and The
Bank of New York, as trustee, dated July 8, 1998. The Debentures will mature on
July 1, 2010 and are unsecured senior subordinated obligations of GTS. In the
event of a change of control of GTS, holders of the Debentures will have the
right to require GTS to purchase such holder's Debentures at a price equal to
100% of the principal amount plus accrued interest. The Debentures will bear
interest payable semiannually at a rate of 5 3/4% per annum.

Each Debenture will be convertible into such number of shares of GTS Stock
as is equal to the principal amount of such Debenture divided by US$55.05. GTS
covenanted that at all times it will cause there to be authorized and reserved
for issuance upon conversion of the Debenture such number of shares of common
stock as would be issuable upon conversion of all the Debentures then
outstanding. The Debentures are subordinated to all existing and future senior
indebtedness (as defined in the indenture) of GTS and to all
103
<PAGE> 111

current and future obligations of subsidiaries of GTS, including trade
obligations. The Debentures rank pari passu with the convertible bonds.

GTS, at its option, may elect to redeem all or a portion of the Debentures
commencing on July 1, 2001, at redemption prices beginning at 104.025% of
principal amount plus accrued and unpaid interest thereon for the twelve-month
period commencing July 1, 2001 declining to par at July 1, 2008 and thereafter.

HER NOTES

HER sold US$265 million aggregate principal amount of HER Notes in August
1997. The HER Notes have a ten year maturity and are unsecured, senior
obligations of HER. HER placed approximately $56.6 million of the net proceeds
in escrow for the first two years' interest payments on the HER Notes. The HER
Notes were issued pursuant to an indenture among HER, GTS and The Bank of New
York as trustee, dated August 19, 1997, containing certain covenants for the
benefit of the holders of HER Notes, including, among other things, covenants
limiting the incurrence of indebtedness, restricted payments, liens, payment
restrictions affecting certain subsidiaries, transactions with affiliates, asset
sales and mergers. The HER Notes are redeemable in whole or part, at the option
of HER at any time on or after August 15, 2002 at a price ranging from 105.75%
to 100.0% of the principal amount.

A portion of the HER Notes are also redeemable at any time or from time to
time prior to August 15, 2000 at a redemption price equal to 111.5% of the
principal amount of the HER Notes so redeemed, plus accrued and unpaid interest
thereon, if any, to the date of redemption with the net cash proceeds of one or
more public equity offerings or strategic equity investments resulting in
aggregate gross cash proceeds to HER of at least US$75 million provided that at
least two-thirds of the principal amount of the HER Notes originally issued
remain outstanding immediately after giving effect to any such redemption. In
the event of a change of control of HER, holders of the HER Notes have the right
to require HER to purchase such holder's HER Notes at a price equal to 101% of
the aggregate principal amount plus accrued and unpaid interest thereon to the
date of repurchase.

NEW HER NOTES

On December 21, 1998, HER sold US$200 million aggregate principal amount of
US dollar New HER Notes and Euro 85 million aggregate principal amount of Euro
denominated New HER Notes. This transaction closed on January 4, 1999. The US
dollar New HER Notes have a ten year maturity, and the Euro denominated New HER
Notes have a seven year maturity. The New HER Notes are unsecured, senior
obligations of HER. The New HER Notes were issued pursuant to two indentures
among HER and The Bank of New York as trustee, both dated January 4, 1999, which
are substantially similar to the indenture governing the HER Notes. Both
indentures dated January 4, 1999, contain certain covenants made by HER for the
benefit of the holders of New HER Notes, including, among other things,
covenants limiting the incurrence of indebtedness, restricted payments, liens,
payment restrictions affecting certain subsidiaries, transactions with
affiliates, asset sales and mergers. The US dollar New HER Notes are redeemable
in whole or in part, at the option of HER at any time on or after January 15,
2004 at a price ranging from 105.188% to 100.0% of the principal amount. The
Euro denominated New HER Notes are redeemable in whole or in part, at the option
of HER at any time on or after January 15, 2003 at a price ranging from 105.188%
to 100.0% of the principal amount.

A portion of the New HER Notes are also redeemable at any time prior to or
from time to time prior to January 15, 2002 at a redemption price equal to
110.375% of the principal amount of the New HER Notes so redeemed, plus accrued
and unpaid interest thereon, if any, to the date of redemption with the net cash
proceeds of one or more public equity offerings or strategic equity investments
resulting in aggregate gross cash proceeds to HER of at least US$75 million,
provided, however, that following such redemption at least two-thirds of the
principal amount of each of the original US dollar New HER Notes and Euro New
HER Notes remain outstanding. In the event of a change of control of HER or GTS,
holders of the New HER Notes have the right to require HER to purchase such
holder's New HER Notes at a price equal to 101% of the aggregate principal
amount plus accrued and unpaid interest thereon to the date of repurchase.

104
<PAGE> 112

EQUIPMENT FINANCING

In connection with the purchase of equipment and services for certain
cellular ventures in the CIS region, GTS entered into a credit agreement with a
bank providing for up to $30.7 million financing. The facility is guaranteed by
the vendor of such equipment and services, and is insured against certain
political risks by the Overseas Private Investment Corporation. The loans under
the facility bear interest at LIBOR plus 35 basis points, with principal and
interest payments due semiannually in June and December of each year through
December 15, 2002. At September 30, 1998, an initial US$18.6 million was funded
under the facility.

105
<PAGE> 113

DESCRIPTION OF GTS CAPITAL STOCK

GTS' authorized capital stock consists of 135,000,000 shares of GTS Stock,
par value $0.10 per share, of which 64,744,221 shares were issued and
outstanding as of December 31, 1998, and 10,000,000 shares of Preferred Stock,
none of which is outstanding. See "Risk Factors -- Shares Eligible for Future
Sale; Registration Rights; Potential Adverse Impact on Market Price from Sales
of GTS Stock" (page 37). The following summary of the rights, privileges,
restrictions and conditions of each of the classes of shares issued by GTS does
not purport to be complete and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the GTS Certificate and By-laws, and
to the applicable provisions of the DGCL.

GTS STOCK

Holders of GTS Stock are entitled to one vote for one share held of record
on all matters upon which shareholders have the right to vote. There are no
cumulative voting rights. All issued and outstanding shares of GTS Stock are,
and the GTS Stock to be issued hereunder, when issued and paid for, will be,
validly issued, fully paid and non-assessable. Holders of GTS Stock are entitled
to such dividends as may be declared from time to time by the GTS Board out of
funds legally available for that purpose. See "-- Dividend Policy" (page 107).
Upon dissolution, holders of GTS Stock are entitled to share pro rata in the
assets of GTS remaining after payment in full of all of its liabilities and
obligations, including payment of the liquidation preference, if any, of any
Preferred Stock then outstanding.

PREFERRED STOCK

The GTS Board may authorize the issuance of one or more series of Preferred
Stock having such rights, including voting, conversion and redemption rights,
and such preferences, including dividend and liquidation preferences, as the GTS
Board may determine, without further action by the stockholders of GTS.

The issuance of Preferred Stock by the GTS Board could adversely affect the
rights of holders of GTS Stock. For example, the issuance of Preferred Stock
could result in a series of securities outstanding that would have preferences
over the GTS Stock with respect to dividends and in liquidation and that could,
upon conversion or otherwise, enjoy all the rights appurtenant to the GTS Stock.
As of July 1998, GTS has authorized 200,000 shares of Series A Preferred Stock.
No other series of Preferred Stock has been authorized. There are no issued and
outstanding shares of Series A Preferred Stock and no such shares are being
offered hereby. A Right to purchase shares of Series A Preferred Stock, however,
is attached to each share of GTS Stock pursuant to the Rights Agreement
discussed below. GTS has authorized 200,000 shares of Series A Preferred Stock
initially for issuance upon exercise of such Rights.

The units of Series A Preferred Stock that may be acquired upon exercise of
the Rights will be nonredeemable and subordinate to any other shares of
preferred stock that may be issued by GTS. Each Unit of Series A Preferred Stock
will have a minimum preferential quarterly dividend of $.01 per Unit or any
higher per share dividend declared on the GTS Stock. In the event of
liquidation, the holder of a Unit of Series A Preferred Stock will receive a
preferred liquidation payment equal to the greater of $.01 per Unit and the per
share amount paid in respect of a share of GTS Stock.

Each unit of Series A Preferred Stock will have one vote, voting together
with the GTS Stock. The holders of units of Series A Preferred Stock, voting as
a separate class, shall be entitled to elect two directors if dividends on the
Series A Preferred Stock are in arrears for six fiscal quarters.

In the event of any merger, consolidation or other transaction in which
shares of GTS Stock are exchanged, each Unit of Series A Preferred Stock will be
entitled to receive the per share amount paid in respect of each share of GTS
Stock. The rights of holders of the Series A Preferred Stock to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary antidilution provisions. Because of the nature of the
Series A Preferred Stock's dividend, liquidation and voting rights, the economic
value of one Unit of Series A Preferred Stock that may be acquired upon the
exercise of each Right is expected to approximate the economic value of one
share of GTS Stock.

106
<PAGE> 114

DIVIDEND POLICY

GTS has not paid any dividend on GTS Stock and does not intend to pay
dividends in the foreseeable future. In addition, the indenture governing GTS'
9 7/8% Notes currently prohibits the payment of dividends. This indenture
contains restrictions on the making of restricted payments (in the form of the
declaration or payment of certain dividends or distributions, the purchase,
redemption or other acquisition of any GTS Stock, the voluntary prepayment of
pari passu or subordinated indebtedness and the making of certain investments,
loans and advances) unless no default or event of default (each, as defined in
the indenture governing the 9 7/8% Notes) exists, its leverage ratio does not
exceed 6.0 to 1.0 and such restricted payments do not exceed certain amounts.

SECTION 145 OF DGCL AND CERTAIN CHARTER PROVISIONS

Section 145 of the DGCL provides that a 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 or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he or she 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 or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
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 or her conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or such other court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.

Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omission not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.

The GTS Certificate provides that GTS' directors shall not be liable to GTS
or its stockholders for monetary damages for breach of fiduciary duty as a
director provided, however, that such exculpation from liabilities is not
permitted with respect to liability arising from items described in clauses (i)
through (iv) in the preceding paragraph. The GTS Certificate and GTS By-laws
further provide that GTS shall indemnify its directors and officers to the
fullest extent permitted by the DGCL.

The directors and officers of GTS are covered under directors' and
officers' liability insurance policies maintained by GTS.

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CERTAIN CHARTER AND BY-LAW PROVISIONS

Shareholders' rights and related matters are governed by the DGCL, the GTS
Certificate and the GTS By-laws. Certain provisions of the GTS Certificate and
the GTS By-laws, which are summarized below, may discourage or make more
difficult a takeover attempt that a shareholder might consider in its best
interest, although certain of such provisions in the GTS By-laws are subject to
final approval by the GTS Board. Such provisions may also adversely affect
prevailing market prices for the GTS Stock. See "Risk Factors -- Anti-takeover
Provisions" (page 38).

Classified Board of Directors and Related Provisions. The GTS Certificate
provides that the GTS Board be divided into three classes of directors serving
staggered three-year terms. The classes of directors (designated Class I, Class
II and Class III) shall be, as nearly as possible, equal in number. Accordingly,
one-third of the GTS Board will be elected each year. The term of the initial
Class I directors shall terminate on the date of the 2001 annual meeting of
stockholders; the term of the initial Class II directors shall terminate on the
date of the 1999 annual meeting of stockholders; and the term of the initial
Class III directors shall terminate on the date of the 2000 annual meeting of
stockholders. The classified board provision may prevent a party who acquires
control of a majority of the outstanding voting stock of GTS from obtaining
control of the GTS Board until the second annual shareholders meeting following
the date such party obtains the controlling interest.

Subject to the rights of the holders of any series of Preferred Stock or
any other class of capital stock of GTS (other than the GTS Stock) then
outstanding, directors may only be removed for cause by a majority vote of the
holders of capital stock of GTS issued and outstanding and entitled to vote
generally in the election of directors, voting together as a single class.

No Shareholder Action by Written Consent; Special Meetings. The GTS
Certificate prohibits shareholders from taking action by written consent in lieu
of an annual or special meeting, and thus shareholders may take action at an
annual or special meeting called in accordance with the GTS By-laws. The GTS
Certificate and the GTS By-laws provide that special meetings of shareholders
may only be called only by the Chairman of the GTS Board, the Chief Executive
Officer or a majority of the GTS Board. Special meetings may not be called by
the shareholders, except as permitted by the Shareholder Rights By-law described
below.

Amendments to the Certificate of Incorporation. The provisions of the GTS
Certificate described above may not be amended, altered, changed or repealed
without the affirmative vote of the holders of at least 75% of the shares of
capital stock of GTS issued and outstanding and entitled to vote.

SECTION 203 OF DELAWARE GENERAL CORPORATION LAW AND CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION

Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined as a person who,
together with any affiliates or associates of such person, beneficially owns,
directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of assets having an aggregate value in excess of 10% of the consolidated assets
of the corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder becomes an interested stockholder, unless (i)
the business combination is approved by the corporation's board of directors
prior to the date the interested stockholder becomes an interested stockholder,
(ii) the interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it becomes an
interested stockholder or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.

In addition, the GTS Certificate grants the GTS Board the authority to
issue up to 10,000,000 shares of preferred stock in one or more series and to
determine the rights, voting powers, dividend rate, conversion

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rights, redemption price, liquidation preference and other terms of such
preferred stock without any further vote or action by the stockholders. The
foregoing provisions of Section 203 of the DGCL and the GTS Certificate, and any
issuance of preferred stock with voting or conversion rights, may adversely
affect the voting power of the holders of GTS Stock and may have the effect of
delaying or preventing a change of control of GTS or adversely affect the market
price of GTS Stock.

SHAREHOLDER RIGHTS AGREEMENT AND SHAREHOLDER RIGHTS BY-LAW

Shareholder Rights Plan. GTS has entered into a rights agreement. In
connection with the rights agreement, the GTS Board declared a distribution of
one Right for each outstanding share of GTS Stock, each share of GTS Stock
offered hereby and each share of GTS Stock issued (including shares distributed
from treasury) by GTS thereafter and prior to the Distribution Date (as defined
below). Each Right will entitle the registered holder, subject to the terms of
the rights agreement, to purchase from GTS one unit of Series A Preferred Stock
at a purchase price of $75 per unit, subject to adjustment.

Initially, the Rights will attach to all certificates representing shares
of outstanding GTS Stock, and no separate rights certificates will be
distributed. The Rights will separate from the GTS Stock and the "Distribution
Date" will occur upon the earlier of (i) 10 days following a public announcement
(the date of such announcement being the "Stock Acquisition Date") that a person
or group of affiliated or associated persons (other than GTS, any subsidiary of
GTS or any employee benefit plan of GTS or such subsidiary) (an "Acquiring
Person") has acquired, obtained the right to acquire, or otherwise obtained
beneficial ownership of 15% or more of the then outstanding shares of GTS Stock
and (ii) 10 business days (or such later date as may be determined by action of
the GTS Board prior to such time as any person becomes an Acquiring Person)
following the commencement of a tender offer or exchange offer that would result
in a person or group beneficially owning 15% or more of the then outstanding
shares of GTS Stock. The Soros Associates and Alan B. Slifka and his affiliates
are excluded from the definition of "Acquiring Person" under the rights
agreement unless such persons increase the aggregate percentage of their
ownership interest in GTS to 20%.

Until the Distribution Date, (i) the Rights will be evidenced by GTS Stock
certificates and will be transferred with and only with such GTS Stock
certificates, (ii) new GTS Stock certificates issued after date of consummation
of the July 1998 Offerings (including the New GTS Stock and any shares
distributed from treasury) will contain a notation incorporating the rights
agreement by reference and (iii) the surrender for transfer of any certificates
representing outstanding GTS Stock will also constitute the transfer of the
Rights associated with the GTS Stock represented by such certificates.

The Rights will not be exercisable until the Distribution Date and will
expire at the close of business on the tenth anniversary of the rights agreement
unless earlier redeemed by GTS as described below.

In the event that (i) GTS is the surviving corporation in a merger with an
Acquiring Person and shares of GTS Stock shall remain outstanding, (ii) a person
becomes an Acquiring Persons, (iii) an Acquiring Person engages in one or more
"self-dealing" transactions as set forth in the rights agreement or (iv) during
such time as there is an Acquiring Person, an event occurs which results in such
Acquiring Person's ownership interest being increased by more than 1% (e.g., by
means of a recapitalization), then, in each such case, each holder of a Right
(other than such Acquiring Person) will thereafter have the right to receive,
upon exercise, Units of Series A Preferred Stock (or, in certain circumstances,
GTS Stock, cash, property or other securities of GTS) having a value equal to
two times the exercise price of the Right. The exercise price is the purchase
price multiplied by the number of Units of Series A Preferred Stock issuable
upon exercise of a Right prior to the events described in this paragraph.

In the event that, at any time following the Stock Acquisition Date, (i)
GTS is acquired in a merger or other business combination transaction and GTS is
not the surviving corporation (other than a merger described in the preceding
paragraph), (ii) any person consolidates or merges with GTS and all or part of
the GTS Stock is converted or exchanged for securities, cash or property of any
other person or (iii) 50% or more of GTS' assets or earning power is sold or
transferred, each holder of a Right (other than an Acquiring Person) shall
thereafter have the right to receive, upon exercise, GTS Stock of the ultimate
parent of the Acquiring Person having a value equal to two times the exercise
price of the Right.
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The purchase price payable, and the number of units of Series A Preferred
Stock issuable, upon exercise of the Rights are subject to adjustment from time
to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Series A Preferred Stock,
(ii) if holders of the Series A Preferred Stock are granted certain rights or
warrants to subscribe for Series A Preferred Stock or convertible securities at
less than the current market price of the Series A Preferred Stock or (iii) upon
the distribution to the holder of the Series A Preferred Stock of evidences of
indebtedness, cash or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).

At any time until ten US Business Days following the Stock Acquisition
Date, either (i) 75% of GTS Board or (ii) a majority of GTS Board and a majority
of the Continuing Directors (as defined below), may redeem the Rights in whole,
but not in part, at a nominal price. Immediately upon the action of a majority
of GTS Board ordering the redemption of the Rights, the Rights will terminate
and the only right of the holders of Rights will be to receive such redemption
price. As used in the rights agreement, a Continuing Director means any person
(other than an Acquiring Person or an affiliate or associate of an Acquiring
Person or a representative of an Acquiring Person or of any such affiliate or
associate) who was a director prior to the date of the rights agreement and any
person (other than an Acquiring Person or an affiliate or associate of an
Acquiring Person or a representative of an Acquiring Person or of any such
affiliate or associate) nominated for selection or elected to the GTS Board
pursuant to the approval of a majority of the Continuing Directors.

At its option, either (i) 75% of GTS' Board or (ii) a majority of GTS'
Board and a majority of the Continuing Directors, may exchange each Right for
(i) one unit of Series A Preferred Stock or (ii) such number of Units of Series
A Preferred Stock as will equal the spread between the market price of each unit
to be issued and the purchase price of such unit set forth in the rights
agreement.

Any of the provisions of the rights agreement may be amended without the
approval of either (i) 75% of GTS Board or (ii) a majority of GTS' Board and a
majority of Continuing Directors in order to cure any ambiguity, defect or
inconsistency, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or to
shorten or lengthen any time period under the rights agreement; provided,
however, that no amendment to adjust the time period governing redemption shall
be made at such time as the Rights are not redeemable.

Shareholder Rights By-Law. If a fully financed tender offer is made
publicly to purchase all GTS' outstanding shares of GTS Stock for cash or
securities that are traded on a nationally recognized exchange and, in the
opinion of an independent investment bank, provide sufficient value and
liquidity so that they would be treated as substantially equivalent to cash
consideration at a price that is at least 40% greater than the average closing
price of such shares on the principal exchange on which such shares are listed
during the 30 days prior to the date on which such offer is first published or
sent to security holders (the "Offer Date") and the GTS Board opposes such
offer, the holders of more than 50% of the outstanding shares of GTS Stock may,
at any time subsequent to the date that is nine calendar months after the Offer
Date, call a special meeting of the stockholders, notwithstanding the provisions
described in "-- Certain Charter and By-Law Provisions -- No Shareholder Action
by Written Consent; Special Meetings," at which meeting stockholders may be
asked to vote upon a proposal to request that the GTS Board amend the rights
agreement to exempt such offer from the terms of the Rights Agreement; provided,
however, if prior to the expiration of such nine-month period, the GTS Board
determines that it is in the best interests of the shareholders to undertake
efforts to sell GTS, such period shall be extended as long as the GTS Board
continues its efforts to solicit, evaluate and negotiate alternative bids to
acquire GTS. If the proposal to amend the rights agreement is approved by a vote
of 70% of the votes cast for or against such proposal at such meeting of
stockholders at which a quorum is present, the GTS Board shall amend the Rights
Agreement to exempt such offer from its terms no later than 60 days after the
date of such stockholders' meeting.

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COMPARATIVE RIGHTS OF SHAREHOLDERS

Esprit Telecom is a public limited company incorporated in England, and GTS
is a corporation incorporated under the laws of the state of Delaware. As a
result of the Offer Esprit Telecom Securityholders will become beneficial owners
of GTS Stock. The following is a summary of material differences between the
rights of Esprit Telecom Securityholders and the rights of GTS stockholders and
of the differences between the corporate laws of Delaware and England and Wales
and the companies' respective charter documents.

Certain differences between the rights of holders of GTS Stock under
Delaware law and the rights of holders of Esprit Telecom Securities under the
law of England and Wales are not discussed below where rights afforded under
Delaware law are more favorable to shareholders than under English law.
Furthermore, since both the Esprit Telecom ADSs and the GTS Stock are listed on
both the Nasdaq and EASDAQ, the Nasdaq and EASDAQ listing rules have not been
considered below.

VOTING RIGHTS

Under Delaware law, each shareholder is entitled to one vote per share
unless the certificate of incorporation provides otherwise. In addition, the
certificate of incorporation or by-laws may provide for cumulative voting at all
elections of directors of the corporation. Under the GTS By-laws, holders of GTS
Stock are entitled to one vote per share on all matters, and cumulative voting
is not permitted. A quorum consists of a majority of the outstanding shares of
capital stock entitled to vote, present in person or represented by proxy,
unless otherwise required by law or the GTS By-laws.

Under English law, the voting rights of shareholders are governed by a
company's articles of association, subject to the statutory right of
shareholders to demand a poll (a vote by the number of shares held) at a general
meeting. Cumulative voting is essentially unknown under English law. Two
shareholders entitled to vote and present in person constitute a quorum for the
purposes of a general meeting, unless the company's articles of association
specify otherwise. The Esprit Telecom Articles specify that two persons present
and entitled to vote upon the business to be transacted and each being either a
member or a proxy for a member or a duly authorized representative of a
corporation which is a member shall be a quorum for all purposes.

ACTIONS BY WRITTEN CONSENT

Under Delaware law, unless the certificate of incorporation provides
otherwise, any action required or permitted to be taken at any meeting of
shareholders may instead be taken without a meeting, without prior notice or
without a vote if a written consent to the action is signed by the shareholders
representing the number of shares necessary to take such action at a meeting at
which all shares entitled to vote were present and voted. The GTS Certificate
does not permit action to be taken by written consent in lieu of a meeting.

Under English law, a private company's articles of association may provide
that a resolution in writing executed by or on behalf of each shareholder who
would have been entitled to vote upon it if it had been proposed at a general
meeting at which he was present will be as effective as if it had been passed at
a general meeting properly convened and held. Esprit Telecom is a public company
and accordingly, the Esprit Telecom Articles do not contain any such provision.

SPECIAL MEETING OF SHAREHOLDERS

Under the Delaware law, a special meeting of shareholders may be called by
the board of directors, and by such other person or persons as may be authorized
to do so by the certificate of incorporation or by-laws. The GTS By-laws provide
that a special meeting of stockholders may be called by: (i) the Chief Executive
Officer; (ii) the GTS Board; or (iii) the Chairman of the Board.

Under English law, an extraordinary general meeting of shareholders may be
called by the board of directors or (notwithstanding any provision to the
contrary in a company's articles of association) requisitioned by a request from
shareholders holding not less than one-tenth of the paid-up capital of the
company carrying voting rights at general meetings. An ordinary resolution
requires 14 clear days notice, and requires a majority vote of those present and
entitled to vote. An extraordinary resolution requires 14 clear days notice
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and a 75% majority vote of those present and entitled to vote. A special
resolution requires 21 clear days notice and requires a 75% majority vote of
those present and entitled to vote. An annual general meeting requires 21 clear
days notice regardless of the type of resolution to be proposed thereat.
"Extraordinary resolutions" are relatively unusual and are confined to certain
matters out of the ordinary course of business such as a proposal to wind up the
affairs of the company. Proposals which are the normal subject of "special
resolutions" generally involve proposals to change the name of the company, to
alter its capital structure in certain respects, to change or amend the right of
shareholders, to permit the company to issue new shares for cash without
applying the shareholders' pre-emptive rights, to amend the company's objects
(purpose clause) and articles of association and to carry out certain other
matters where either the company's articles of association or the Companies Act
prescribe that a "special resolution" is required. All other proposals relating
to the ordinary course of the company's business, such as the election of
directors, would be subject to an "ordinary resolution."

Under the rules of EASDAQ to which both GTS and Esprit Telecom are subject,
shareholders should be notified at least three weeks prior to any meeting of
stockholders.

SOURCES AND PAYMENT OF DIVIDENDS

Delaware law permits the payment of dividends in cash, property or capital
stock out of surplus or if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year,
subject to any restrictions contained in the certificate of incorporation,
except that payment of dividends from such net profits is prohibited when
capital represented by stock having a preference on distribution of assets would
be impaired thereby. The GTS Certificate and By-laws do not restrict the payment
of dividends.

Under English law, a company may pay dividends on its ordinary shares,
subject to the prior rights of holders of its preferred shares (if any), only
out of distributable profits (namely its accumulated, realized profits less
accumulated, realized losses) and not out of share capital, which includes share
premiums (paid in surplus). Amounts credited to the share premium account
(representing the excess of the consideration for the issue of outstanding
shares over other aggregate par value of such shares) may not be paid out as
cash dividends but may be used, among other things, to pay up unissued shares
which may then be distributed to shareholders in proportion to their holdings.
In addition, a public company such as Esprit Telecom may only make a
distribution if, at that time and immediately after such distribution, the
amount of its net assets is not less than the aggregate of its called up (i.e.
issued and paid up) share capital and undistributable reserves.

The Esprit Telecom Articles provide that, subject to certain conditions,
the shareholders may by ordinary resolution, in respect of any dividend proposed
to be paid or declared in any period, offer ordinary shareholders the right to
elect to receive in lieu of such dividend (or a part thereof) an allotment of
additional ordinary shares.

RIGHTS OF PURCHASE AND REDEMPTION

Under Delaware law, a corporation may purchase or redeem its own shares out
of surplus, provided, with certain exceptions, that no repurchase or redemption
shall occur (i) when the capital is or would thereby become impaired, (ii) at a
price higher than the redemption price in the case of stock redeemable at the
option of the corporation, or (iii) where in the case of redemption, such
redemption is not authorized by other provisions of Delaware law or the
certificate of incorporation. The GTS Certificate does not restrict GTS' rights
to repurchase or redeem shares.

Under English law, a company may issue redeemable shares if authorized to
do so by its articles of association and subject to the conditions stated
therein. Such shares may be redeemed only if fully paid and, in the case of
public companies, only, subject as provided below, out of distributable profits
or the proceeds of a new issue of shares made for the purpose of the redemption.
Where redeemable shares are redeemed wholly out of profits the amount by which
the par value of the company's issued share capital is diminished must be
transferred to the capital redemption reserve, which is generally treated as
paid-up share capital. In addition, any amount payable on redemption of any
redeemable shares in excess of the par value must be paid out of distributable
profits unless the shares were issued at a premium. In that case, any amount
payable in excess of
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the par value thereof may be paid out of the proceeds of a fresh issue of shares
up to an amount equal to whichever is the lesser of the aggregate of the
premiums received by the company on the issue of those shares or the amount of
the company's share premium account as at the time of the redemption, including
any sum transferred to that account in respect of premiums on the new issue. A
company may purchase its own shares including any redeemable shares, if
authorized by its articles of association and provided that such purchase has
been previously approved by an ordinary resolution of its shareholders in the
case of an on-market purchase or a special resolution in other cases. The above
provisions that apply to redemption of redeemable shares apply also to purchases
of shares.

RIGHTS OF APPRAISAL

Under Delaware law, stockholders who follow prescribed statutory procedures
are entitled to dissent from certain corporate reorganizations and instead
demand payment of the fair value of their shares. Unless the certificate of
incorporation provides otherwise, dissenters do not have rights of appraisal
with respect to (a) a merger or consolidation by a corporation, the shares of
which are (i) listed on a national securities exchange or (ii) held by more than
2000 shareholders or (b) an exchange by shareholders of the constituent
corporation of their shares in such constituent corporation for (i) shares in
the surviving corporation, (ii) shares of another corporation that are publicly
listed or held by more than 2000 shareholders, (iii) cash in lieu of fractional
shares or (iv) any combination of the above, or (c) a corporation surviving a
merger if no vote of the shareholders of the surviving corporation is required
to approve the merger.

English law does not generally provide for appraisal rights. The Companies
Act, however, does allow a shareholder to apply to the court for an order on the
grounds of unfair prejudice. Also if a shareholder applies to a court as
described under "Shareholders' Votes on Certain Reorganizations" below, the
court may specify such terms for the acquisition as it considers appropriate.

PRE-EMPTIVE RIGHTS

Unless the certificate of incorporation expressly provides otherwise,
shareholders of a Delaware corporation do not have pre-emptive rights. The GTS
Certificate does not provide for pre-emptive rights.

Under English law, equity securities, which are shares in the company other
than (i) shares which with respect to dividends and capital carry a right to
participate only up to a specified amount in a distribution, and (ii) shares in
an employee share scheme and rights to subscribe for or convert into such shares
and which are to be issued for cash, must be offered in the first instance to
the existing equity shareholders in proportion to the respective nominal values
of their holdings, unless a special resolution has been passed at a general
meeting of the shareholders to disapply these pre-emptive rights.

The Esprit Telecom Articles authorize the directors to allot equity
securities up to the defined nominal amount for a specified period otherwise
than pro rata to its existing shareholders.

AMENDMENT OF GOVERNING INSTRUMENTS

Under Delaware law, the affirmative vote of a majority of the "outstanding
stock" entitled to vote and of the shares of each class entitled to vote on the
amendment as a class is required. In addition, the affirmative vote of a
majority of the shares of a class is required with respect to amendments which
would (as to the class) (i) increase or decrease the aggregate number of
authorized shares, (ii) increase or decrease the par value of shares, or (iii)
alter or change the powers, preferences, or special rights of shares so as to
affect them adversely. In addition, under the GTS Certificate the corporation
may amend, alter, change or repeal any provision contained in the GTS
Certificate, and all rights and powers conferred upon stockholders and directors
are granted subject to such power. In addition, the provisions governing
amendment to the GTS Certificate, the number, term and classification of
directors, and action by written consent, each as amended, and notwithstanding
the fact that a lesser percentage may be specified by law, may not be amended,
altered, changed or repealed without the affirmative vote of the holders of at
least 75% of the shares of capital stock of GTS issued and outstanding and
entitled to vote.

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Under Delaware law, the by-laws of a corporation may be amended or repealed
by shareholders entitled to vote, and the certificate of incorporation may
confer this power to the board of directors. The fact that such power has been
conferred upon the directors does not divest the shareholders of their power to
amend or repeal by-laws. The GTS Certificate provides that the GTS Board is
expressly authorized to make, alter or repeal the by-laws.

Under English law, the shareholders have the authority to alter most
provisions of a company's memorandum and all provisions of its articles of
association by special resolution, subject in the case of certain alterations to
the memorandum of association, to the right of dissenting shareholders to apply
to the courts to cancel the alterations. Under English law, the board of
directors is not authorized to change the memorandum or the articles of
association.

SHAREHOLDERS' VOTES ON CERTAIN REORGANIZATIONS

Delaware law requires a majority vote of the shares entitled to vote in
order to effectuate a merger between two Delaware corporations or between a
Delaware corporation and a corporation organized under the laws of another state
(a "foreign corporation"). However, unless required by the certificate of
incorporation, Delaware law does not require a vote of the shareholders of a
constituent corporation surviving the merger if (i) the merger agreement does
not amend that corporation's certificate of incorporation and (ii) each share of
that corporation's stock outstanding immediately prior to the effective date of
the merger is identical to an outstanding or treasury share of the surviving
corporation after the merger. Any sale, lease or exchange of all or
"substantially all" of a corporation's assets requires authorization by a
majority vote of the outstanding stock entitled to vote.

English law provides for schemes of arrangement, which are arrangements or
compromises between a company and any class of its shareholders (or any class of
its creditors) and are used for certain types of reconstructions, amalgamations,
capital reorganizations or takeovers. They require the approval at a special
meeting of the company of a majority in number of the shareholders representing
75% of the relevant class of shares present and voting, either in person or by
proxy, and the sanction of the courts. Once so approved and sanctioned, all
shareholders of the relevant class are bound by the terms of the scheme: a
dissenting shareholder would have no rights comparable to the appraisal rights
described above.

English law also provides that where a takeover offer (as defined therein)
is made for the shares of a company incorporated in the UK and, within four
months of the date of the offer the offeror has, by virtue of acceptances of the
offer, acquired or contracted to acquire not less than nine-tenths in value of
the shares to which the offer relates, the offeror may, within two months of
reaching the nine-tenths level, by notice require shareholders who do not accept
the offer to transfer their shares on the terms of the offer. A dissenting
shareholder may apply to the court within six weeks of the date on which such
notice was given objecting to the transfer or its proposed terms. The court is
unlikely (in the absence of fraud or oppression) to exercise its discretion to
order that the acquisition not take effect, but it may specify such terms of the
transfer as it finds appropriate. A minority shareholder is also entitled in
these circumstances to require the offeror to acquire his shares on the terms of
the offer. This is the compulsory acquisition procedure referred to in this
Offering Circular/Proxy Statement/Prospectus.

CERTAIN PROVISIONS RELATING TO SHARE ACQUISITIONS

Delaware law generally prevents a corporation from entering into certain
business combinations such as mergers, consolidations and sales of assets, with
an interested shareholder (defined generally as any person or entity that is the
beneficial owner of at least 15% of a corporation's voting stock) or its
affiliates for a period of three years after such stockholder because an
interested stockholder unless (i) the business combination or the transaction in
which the person becomes an interested stockholder is timely approved by the
board of directors of the corporation prior to the person becoming an interested
stockholder, (ii) the interested stockholder acquired 85% of the corporation's
voting stock in the same transaction in which it exceeded 15% or (iii) the
business combination is approved by the board of directors and by a vote of
66 2/3% of the outstanding voting stock not owned by the interested stockholder.
This statute does not apply to a corporation

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that so provides in an amendment to its certificate of incorporation or by-laws
passed by a majority of its outstanding shares at any time. Such stockholder
action does not become effective for 12 months following its adoption and would
not apply to persons who were already interested stockholders at the time of the
amendment. The GTS Certificate does not contain such a provision.

In the UK, takeovers of public companies are regulated by the City Code.
The City Code comprises rules administered by the Panel, a body comprised of
representatives of certain UK financial and professional institutions, which
oversees the conduct of such takeovers. Under the City Code, if a person,
together with any persons acting in concert (as defined in the City Code) with
him or her, acquires shares which, when taken together with shares already held
or acquired by such persons, carry 30% or more of the voting rights of a public
company, generally he or she must make an offer for all of the equity shares of
the company (whether voting or non-voting) and all voting, non-equity shares for
cash, or accompanied by a cash alternative, at not less than the highest price
paid by him or her or any person acting in concert with him or her for the
relevant shares during the offer period (as defined in the City Code) and during
the 12 months preceding the commencement of the offer period. An offer may also
be required to be in cash or to be accompanied by a cash alternative in certain
other circumstances, including where a person, together with person acting in
concert with him or her, has purchased for cash shares carrying 10% or more of
the voting rights during the offer period and within the preceding 12 months.

DISCLOSURE OF INTERESTS

There is no requirement under Delaware law relating to the disclosure of
interests of shares held by corporation shareholders.

English law provides that a person (including a company and other legal
entities) who acquires an interest or becomes aware that he has acquired a
material interest of 3% or more (including an interest of ADSs) or an interest
(whether or not including material interests) of 10% or more of the nominal
value of any class of shares comprised in a public company's "relevant share
capital" (which, for these purposes, means that company's issued share capital
carrying rights to vote in all circumstances at general meetings of the company)
in certain circumstances is obliged to notify that company, in writing, of his
interest within two days following the day on which the obligation arises.
Thereafter, similar notification must be made where the percentage level of
interest increases or decreases through 3% or 10% or any greater whole number
percentage.

In addition, English law provides that a public company may by notice in
writing require a person whom the company knows or has reasonable cause to
believe to be, or to have been at any time during the three years immediately
preceding the date on which the notice is issued, interested in shares comprised
in the company's "relevant share capital" to confirm that fact and where he
holds or has during the relevant time held an interest in such shares, to give
such further information as may be required relating to his interest and any
other interest in the shares of which he is aware.

For the purpose of the above obligations, the interest of a person in
shares means any kind of interest (including an interest in ADSs) in shares
including interests in any shares (i) in which his spouse, or his child or
stepchild under the age of 18 is interested, (ii) if a corporate body is
interested in them and either (a) that corporate body is or its directors are
accustomed to act in accordance with that person's directions or instructions or
(b) that person controls one-third or more of the voting power of that corporate
body, or (iii) if another party is interested in shares and the person and that
other party are parties to a "concert party" agreement under English law (being
an agreement which provides for one or more parties to it to acquire interests
in shares of a particular public company, which imposes obligations or
restrictions on any one or more of the parties as to the use, retention or
disposal of such interests acquired pursuant to such agreement and any interest
in the company's shares is in fact acquired by any of the parties pursuant to
the agreement).

Where a notice under English law is served by a company on a person who is
or was interested in shares of the company and that person fails to give the
company any information required by the notice within the time specified in the
notice, the company may apply to the court for an order directing that the
shares in question be subject to restrictions. In addition a person who fails to
fulfil the obligations described above is

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subject to criminal penalties in the UK. Under the Esprit Telecom Articles,
certain of the powers granted to the courts to impose restrictions may be
imposed by the Esprit Telecom Board in certain circumstances.

CLASSIFICATION OF THE GTS BOARD OF DIRECTORS

Under Delaware law, the certificate of incorporation or initial by-law or a
by-law adopted by a vote of the shareholders may provide for the classification
of the board of directors with respect to the terms for which directors
severally hold office. The term "classified board" generally means the
specification of selected board seats for a term of more than one year (but not
more than three years), with different classes of board seats coming up for
election each year. The GTS Certificate does provide for such classification of
the GTS Board.

The Esprit Telecom Articles provide that one-third (or the number nearest
to but not exceeding one-third) of the members of the Esprit Telecom Board,
shall be subject to retirement by rotation at each annual general meeting of
Esprit Telecom. The directors to retire by rotation at each general meeting will
be those who wish to retire and not to offer themselves for re-election and
otherwise will be those who, at the date of the notice of the meeting, have been
longest in office since their last appointment or re-appointment. As between
persons who became or were last re-appointed directors on the same day, those to
retire will be determined by lot unless otherwise agreed among themselves. A
retiring director is eligible for re-election. Like a classified board in the
United States, a provision by which directors retire by rotation provides
corporate stability and continuity in that it assures the shareholders that
irrespective of the outcome of any one annual election of directors, the board
of directors will generally consist of a majority of directors who have served
during the previous year. A director appointed by the Board since the last
annual general meeting holds office only until the next annual general meeting
following his appointment, when he will retire, but will be eligible for
re-election.

REMOVAL OF DIRECTORS

Under Delaware law, any director or the entire board of directors generally
may be removed, with or without cause by a majority vote of the shares then
entitled to vote at an election of directors. However, a director of a
corporation with a classified board of directors may be removed only for cause
unless the certificate of incorporation otherwise provides. The GTS Certificate
is silent as to removal of directors.

Under English law, shareholders have the right to remove a director by
ordinary resolution of which special notice (28 clear days) has been given to
the company. In addition to the power of removal conferred by English law the
Esprit Telecom Articles provide that the shareholders may by special resolution
remove any director before the expiration of his term of office notwithstanding
any agreement between Esprit Telecom and such director.

LIABILITY OF DIRECTORS

Delaware law permits a Delaware corporation to include in its certificate
of incorporation a provision that limits or eliminates a director's monetary
liability for certain breaches of his fiduciary duty of care in a lawsuit by or
on behalf of the corporation or in an action by shareholders of the corporation.
The GTS Certificate does contain such a provision.

Except under the limited circumstances described below under
"Indemnification of Officers and Directors," any provision of an English
company's articles of association or in any contract with the company exempting
an officer of the company (including a director) from or indemnifying him or her
against any liability in respect of any negligence, default, breach of duty or
breach of trust of which he or she may be guilty in relation to the company is
void. A company is permitted to purchase and maintain insurance against such
liabilities for its officers (including directors). The existence of such
insurance must be disclosed in the directors' report for each financial year of
the relevant company for as long as such insurance continues in effect. Under
the Esprit Telecom Articles the directors of Esprit Telecom have the power to
obtain, and have obtained, such insurance.

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INDEMNIFICATION OF OFFICERS AND DIRECTORS

Delaware law provides that a corporation may, and in certain circumstances
must indemnify its officers, directors, employees or agents for expenses,
judgments or settlements actually and reasonably incurred by them in connection
with suits and other legal proceedings if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful, and must indemnify such
individuals in connection with successful defenses of such actions. The GTS
Certificate and By-Laws provide that directors and officers of GTS and certain
others will be entitled to such indemnification, subject to certain conditions.
Delaware law permits a corporation to advance expenses to directors and
officers, so long as, in the case of officers and directors, they provide an
undertaking to repay the amounts advanced if it is ultimately determined that
the officer or director was not entitled to be indemnified. The GTS Certificate
provides for advancing expenses in the manner provided for in the Delaware law.

Under English law, a company may only indemnify its officers (including
directors) against any liability they may incur in defending any proceedings,
whether civil or criminal, in which judgment is given in his or her favor or in
which he or she is acquitted or in connection with any application in which
relief is granted to him or her by the court from liability for any amount
otherwise payable as a result of an acquisition of shares by a nominee of the
company or for negligence, default, breach of duty or breach of trust in
relation to the affairs of the company where he or she acted honestly and
reasonably. The Esprit Telecom Articles provide that the directors, other
officers and auditors of Esprit Telecom will be entitled to the benefit of such
indemnification, subject to certain conditions.

SHAREHOLDERS' AND CLASS ACTION SUITS

Under Delaware law, a stockholder may institute a lawsuit on behalf of the
corporation. An individual shareholder also may commence a class action suit on
behalf of himself or herself and other similarly situated shareholders where the
requirements for maintaining a class action under the procedural rules of the
court in which the suit has been brought have been met.

Under English law, a shareholder generally has no right to sue in the name
of the company; the proper plaintiff when a wrong has been done to the company
is normally the company itself. There are exceptions to this general rule in the
case of fraud on minority shareholders or where the act complained of is illegal
or ultra vires. English law permits an individual shareholder to apply for a
court order where the company's affairs are being or have been conducted in a
manner unfairly prejudicial to the interests of one or more of the shareholders
(including himself or herself) or that any actual or proposed act or omission is
or would be so prejudicial. A court when granting relief has wide discretion,
including the ability to authorize civil proceedings to be brought in the name
and on behalf of the company by a shareholder on such terms as the court may
decide. English law generally does not provide for class action lawsuits.

Although the above discussion sets forth information concerning the
material differences between the rights of GTS Stockholders and the rights of
Esprit Telecom Securityholders, the above summary does not purport to be
complete and is qualified in its entirety by reference to the laws of Delaware
and of England and Wales (and other laws or rules cited herein), the GTS
Certificate and the GTS By-laws, and the Esprit Telecom Articles and the Esprit
Telecom Memorandum.

LEGAL MATTERS

Certain legal matters with respect to the validity of the securities
offered hereby have been passed upon for GTS by Shearman & Sterling.

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EXPERTS

The consolidated financial statements of Global TeleSystems Group, Inc. as
of December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997 appearing in this Prospectus and Registration Statement,
have been audited by Ernst & Young, LLP, independent auditors, as set forth in
their report appearing elsewhere herein and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

The financial statements of EDN Sovintel as of December 31, 1997 and 1996,
and for each of the three years in the period ended December 31, 1997, appearing
in this Prospectus and Registration Statement, have been audited by Ernst &
Young (CIS) Ltd., independent auditors, as set forth in their report appearing
elsewhere herein and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Esprit Telecom Group plc as of
September 30, 1998, and for the year ended September 30, 1998, appearing in this
Prospectus and Registration Statement, have been audited by
PricewaterhouseCoopers, independent auditors, as set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Esprit Telecom Group plc as of
September 30, 1996 and 1997, and for each of the two years in the period ended
September 30, 1997 appearing in this Prospectus and Registration Statement, have
been audited by Price Waterhouse, independent auditors, as set forth in their
report appearing elsewhere herein and are included in reliance upon such report
given upon the authority of such firms as experts in accounting and auditing.

The financial statements of the Plusnet Business as of September 30, 1996
and 1997, and for each of the three years in the period ended September 30,
1997, appearing in this Prospectus and Registration Statement, have been audited
by KPMG, independent auditors, as set forth in their report appearing elsewhere
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.

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CERTAIN INFORMATION CONCERNING GTS

DESCRIPTION OF GTS

INTRODUCTION

GTS provides a broad range of telecommunications services to businesses,
other telecommunications service providers and consumers in Russia, the CIS and
Central Europe. Through its subsidiary HER, GTS is developing and operating a
pan-European high capacity fiber optic network that is designed to interconnect
a majority of the largest Western and Central European cities and to transport
international voice, data and multimedia/image traffic for other carriers
throughout Western and Central Europe. GTS' strategy in emerging markets to
develop its businesses generally has been to establish joint ventures with a
strong local partner or partners while maintaining a significant degree of
operational control. GTS' business activities consist of the ownership and
operation of (i) international long distance businesses, which operate through
international gateways that provide international switching services and
transmission capacity, (ii) local access networks, which provide local telephone
service, (iii) cellular networks, which provide wireless telecommunications
services, (iv) a domestic long distance business, (v) data networks, which are
wired and wireless, and (vi) carriers' carrier networks, which provide high
volume transmission capacity to other carriers. In addition, GTS has recently
developed a business plan to offer facilities-based telecommunications products
and services to businesses and other high-usage customers in certain
metropolitan markets throughout Europe. See "-- Business Strategy -- European
Services Strategy" (page 121) and "-- Western Europe -- European Services
Strategy" (page 139).

In Western Europe, GTS believes that it is well-positioned to establish
itself as the leading independent carriers' carrier through the development of
two ventures, HER and GTS-Monaco Access S.A.M. ("GTS-Monaco Access"). HER is one
of the leading carriers' carriers providing centrally managed cross-border
telecommunications transmission capacity in Europe. Its network, when completed
by the end of 2000, will extend approximately 25,000 kilometers, with points of
presence in approximately 50 cities in 20 European countries. GTS-Monaco Access
operates an international gateway in Monaco in partnership with, and utilizing
the existing gateway infrastructure of, the Principality of Monaco and provides
transit and routing of international calls to other telecommunications
operators. Through its HER and GTS-Monaco Access ventures, GTS is building a new
network for transporting voice, data and multimedia/image traffic for other
carriers throughout Western and Central Europe and for worldwide international
voice, data and multimedia/ image traffic that either originates or terminates
in, or transits through, Western and Central Europe. See "-- Western Europe"
(page 122).

In Central Europe, GTS' objective is to become one of the leading
alternative telecommunications providers in the region. GTS currently provides
private data communications services to government and commercial customers in
Hungary and the Czech Republic, Slovakia and Romania. In the Czech Republic, GTS
provides outgoing voice services and operates an international gateway and a
data services network. In Hungary, GTS operates a nationwide microwave network
and a VSAT network, which GTS believes is the largest VSAT network in Central
Europe as measured by number of VSAT sites. In Slovakia and Romania, GTS
provides VSAT services using its VSAT hub in Hungary. Subject to certain
regulatory approvals, GTS has also obtained a license to provide international
data services in Poland and expects to being operations during the first quarter
of 1999. GTS' strategy is to expand its service offerings as the regulatory
environment permits, leverage its existing VSAT and international gateway
infrastructure where possible and provide a broad range of services to its
target markets. See "-- Central Europe" (page 142).

In Russia and the CIS, GTS' objective is to become the premier alternative
telecommunications operator. To attain its objective, GTS has partnered with
regional telephone companies and with Rostelecom, the national long distance
carrier in Russia. GTS currently operates in 34 regions and the city of Moscow
in Russia, as well as in 14 additional cities in the CIS, and believes it is
well-positioned to become the leading independent telecommunications service
provider in Russia. These businesses include: (i) EDN Sovintel ("Sovintel"),
which provides Moscow and St. Petersburg with international long distance and
local telephone services and access to the major domestic long distance
carriers; (ii) TeleCommunications of Moscow

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("TCM"), which provides local access services in Moscow; (iii) TeleRoss (as
defined below), which provides domestic long distance services in 14 cities in
Russia, including Moscow, as well as VSAT services to customers outside its
primary long distance satellite network; (iv) Sovam Teleport ("Sovam"), which
provides data services, including high-speed data transmission, electronic mail,
Internet access services, as well as Russia On Line, the first Russian language
Internet service; and (v) GTS' cellular operations ("GTS Cellular"), which
operate cellular networks in 14 regions in Russia and also in Kiev, Ukraine,
with licenses covering regions with an aggregate population of approximately 42
million people at September 30, 1998. Whenever practical, GTS' businesses
integrate and co-market their service offerings in Russia and the other
independent republics of the CIS, utilizing TeleRoss as the domestic long
distance provider, Sovintel as the international gateway, TCM and GTS Cellular
for local access, and Sovam as the data communications and Internet access
network for business applications and on-line services. Together, GTS' Russian
and other CIS ventures carried approximately 442 million and 462 million minutes
of traffic for the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively, and had approximately 34,100 customers,
including approximately 25,200 cellular subscribers, as of September 30, 1998.
See "-- Russia and the CIS" (page 145).

GTS does not currently own or operate significant telecommunication assets
in Asia. See "-- Asia" (page 167).

Restructuring

In October 1998, GTS announced it would restructure its business operations
into five primary lines of business as follows:

- GTS Carrier Services, which will include HER's cross-border transport
carrier services in Europe, Ebone Internet transit services, transoceanic
infrastructure and services, and Internet service units;

- GTS Access Services, which will pursue GTS's entry into the Western
European CLEC market;

- GTS Business Services -- Western Europe, which will offer voice, data,
Internet and other telecommunications services to businesses in Western
Europe, principally in locations not served by GTS Access Services;

- GTS Business Services -- CIS, which will incorporate all of GTS's CIS
"wireline" assets, including Sovintel, Sovam, TeleRoss and TCM; and

- GTS Mobile Services, which will operate all of GTS's cellular businesses
in Russia and the Ukraine.

RECENT DEVELOPMENTS

On November 30, 1998, GTS completed the acquisition of NetSource for an
initial purchase price consisting of 4,037,500 newly issued shares of GTS stock
that has a value of $99.3 million and $46.1 million in cash. In addition to the
initial consideration paid at the closing, GTS has agreed to make additional
payments of up to $35 million in either cash or shares of GTS stock, contingent
on NetSource's achieving certain performance targets during the first two
quarters of 1999. NetSource is a pan-European provider of long distance
telecommunications services focusing primarily on small- to medium-sized
businesses, with operations in Norway, Sweden, Germany and Ireland, as well as
in the Netherlands, Belgium and Denmark. At June 30, 1998, NetSource had 27,900
business customers throughout Europe and 61,400 residential customers in Germany
and The Netherlands. NetSource will become part of GTS Business
Services -- Western Europe. The acquisition of NetSource provides the GTS
Business Services -- Western Europe line of business with a customer and revenue
base in several key Western European countries, a portfolio of licenses and
interconnection agreements and an entrepreneurial management team.

On January 4, 1999, HER issued in a private placement $200 million
principal amount of 10 3/8% Senior Notes due 2009 and Euro 85 million principal
amount of 10 3/8% Senior Notes due 2006. See "Description of Certain GTS
Indebtedness -- New HER Notes" (Page 104). The net proceeds of this offering,
approximately $289.7 million, will be used to finance the cost of HER network
assets, to expand the HER network beyond

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the currently contemplated scope, including by adding transatlantic capacity,
enhancing the speed of the HER network and continuing the buildout of the HER
network.

On January 12, 1999, GTS, through its subsidiary GTS Translantic Holdings
Ltd., entered into an agreement with FLAG Telecom to form a 50/50 joint venture
company in Bermuda, to be known as FLAG Atlantic Limited, that will build and
operate a transoceanic fiber optic link between Europe and the United States.
FLAG Atlantic Limited's link is designed to carry voice, high-speed data and
video traffic at speeds of 1.28 terabits per second, a 25-fold increase over
current transatlantic cable systems. The joint venture will also provide
backhaul links from the European landing points of the transoceanic link to
Paris and London. By interconnecting to FLAG Atlantic Limited, GTS Carrier
Services and its subsidiary HER will be able to provide their carrier and
Internet service provider customers with high-capacity cable access from major
European cities to New York City. GTS's investment in FLAG Atlantic Limited is
designed to enable it to participate in the growth opportunity represented by
the rapid increase in demand by business customers for Internet Protocol-based
telecommunications services. The high-capacity fiber optic link will be based on
synchronous digital hierarchy and use dense wave division multiplexing
technology. FLAG Atlantic Limited is expected to be offering service by the end
of the year 2000. The project is subject to financing, the execution of related
agreements and other conditions.

BUSINESS STRATEGY

GTS seeks to develop businesses to meet the rapidly expanding market demand
for telecommunications services. GTS seeks to position itself as the leading
independent telecommunication service provider in Europe through the development
of a pan-European fiber optic network and an international gateway in Monaco. In
addition, GTS has introduced a business plan to offer a broad range of
integrated telecommunications services to businesses and other high-usage
customers in certain metropolitan markets throughout Europe. See "-- Western
Europe -- European Services Strategy" (page 139). GTS' goal in emerging markets
is to establish itself as the leading alternative to the incumbent
telecommunications service providers and as a premier provider of value-added
services.

GTS has developed market strategies to achieve its goals in both emerging
markets and Western Europe. It has developed and is implementing a business plan
to offer comprehensive telecommunications services to business end users
throughout Europe.

Western Europe. GTS believes it is well-positioned to establish itself as
the leading independent carriers' carrier within Western Europe through the
development of HER's pan-European fiber optic network and the operation by GTS
of international gateway switching capacity. HER and the international gateway
switching capacity are complementary and enhance the services provided by PTOs
and New Entrants in a way that helps them to more successfully meet the needs of
their end-user customers. HER has been able to enter the market ahead of
competition and encourage a wide variety of carriers to use its network with
service offerings that meet their needs. To establish itself as the leading
carriers' carrier for international telecommunications within Europe, HER
intends to provide its customers with significantly higher quality transmission
and advanced network capabilities at a competitive price by utilizing advanced,
uniform technology across the region and providing redundant routing for higher
levels of reliability.

European Services Strategy. In June 1998, GTS introduced a business plan to
offer, through several new subsidiaries, a broad range of integrated
telecommunications services to businesses and other high usage customers in
certain metropolitan markets throughout Europe. GTS believes that the size and
growth potential of the European market combined with increasing liberalization
of European telecommunications regulations provides GTS with the opportunity to
successfully develop local networks and other end-user services. Through GTS
Business Services -- Western Europe, GTS intends to enter up to 50 metropolitan
markets as a reseller of services to end-users. Through GTS Access Services, GTS
proposes to develop CLECs in up to 12 European cities. Implementation of the
European Services Strategy may involve one or more of the following: (i) the
construction of fiber loop networks, (ii) the purchase or lease of dark fiber,
(iii) obtaining high frequency microwave licenses for "wireless fiber," or (iv)
partnership with, or acquisition of, resellers or facilities-based CLECs. In
evaluating potential markets GTS will consider among others the

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following characteristics of each market: (i) its business concentration, (ii)
the national and local regulatory environment, (iii) the technical difficulties
of local network construction and (iv) the extent of existing competition. See
"Risk Factors -- Risks Relating to European Services Strategy" (page 23),
"Recent Developments" (page 120), and "-- Western Europe -- European Services
Strategy" (page 139).

Emerging Markets. GTS pursues its goals in emerging markets through a
three-stage approach of market entry, market expansion and market integration.

- Market Entry. GTS identifies a market as a suitable target for entry
based upon: (i) superior growth prospects for such market, demonstrated
by growing demand for high quality telecommunications services; (ii) the
provision of inadequate services by incumbent providers, typically
resulting from the incumbents' unwillingness to offer high quality
services with reliable customer support at attractive prices; and (iii)
attractive regulatory environments in which emerging alternative
telecommunications providers such as GTS have, or are expected to have
over a clearly defined time horizon, the ability to compete on a
substantially equal basis with the incumbent providers in terms of
certain services and the cost of providing those services. Once GTS has
identified a market as suitable for entry, GTS seeks to establish its
presence in that market by establishing a venture with a strong local
partner or partners. In general, GTS maintains a significant degree of
operational control in such ventures. Through such ventures, GTS benefits
from its partners' ability to provide infrastructure, regulatory
expertise and personnel that will provide GTS with a competitive
advantage in entering that market. When entering a new market, GTS'
strategy is to provide its customers with service of higher quality than
that provided by incumbents.

- Market Expansion. Having entered a market successfully and established a
limited service offering to its targeted customer base, GTS then seeks to
expand the range of services it offers to existing and potential
customers and to further develop its relationships with local partners.
By broadening its service offerings and providing a bundled service
offering, GTS expects to both expand its customer base and increase GTS'
share of each customer's telecommunications spending. GTS also expects to
achieve increased economies of scale through the common use of
administrative and operating functions already in place. GTS also seeks
to expand its targeted geographic market by forming new partnerships and
installing infrastructure and offering services in additional geographic
regions, allowing GTS to further enhance its operating leverage and
ability to service its customers' telecommunications needs.

- Market Integration. GTS ultimately intends to integrate and co-market its
service offerings in each of the markets in which it operates. GTS
believes such integration will enable it to enhance its operating
efficiency by leveraging its distribution channels, infrastructure,
networks and management information systems. As customers develop a need
for a broader variety of telecommunications services, GTS believes that
GTS' integrated operations will represent an attractive service
alternative for customers seeking a single provider that can meet all
their telecommunications needs.

WESTERN EUROPE

Overview

GTS seeks to position itself as the leading independent carriers' carrier
within Western Europe through the development of two ventures, HER and
GTS-Monaco Access. HER is one of the leading carriers' carriers providing
centrally managed cross-border telecommunications transmission capacity in
Europe. Its high capacity fiber optic network, when completed by the end of
2000, will extend approximately 25,000 kilometers, with points of presence in
approximately 50 cities in 20 European countries. GTS-Monaco Access operates an
international gateway in Monaco in partnership with, and utilizing the existing
gateway infrastructure of, the Principality of Monaco and provides transit and
routing of international calls to other telecommunications operators. Through
its HER and GTS-Monaco Access ventures, GTS is building a new network for
transporting voice, data and multimedia/image traffic for other carriers
throughout Western and Central Europe and for worldwide international voice,
data and multimedia/image traffic that either originates or terminates in, or
transits through, Western and Central Europe.

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GTS believes that the international segment of the Western and Central
European telecommunications market will be an attractive market for new
telecommunications entrants because of its large size, the high operating costs
and low productivity of current providers, and the barriers to entry created by
the need to control a network and its rights-of-way.

The European telecommunications market has historically been dominated by
monopoly PTOs. This system has ensured the development of broad access to
telecommunications services in Europe, but it has also restricted the growth of
high quality and competitively priced pan-European voice and data services. The
current liberalization occurring in Europe is intended to address these
structural deficiencies by breaking down PTO monopolies, allowing new
telecommunications operators to enter the market and increasing the competition
within the European telecommunications market. In March 1996, the European
Commission adopted a directive (the "Full Competition Directive") requiring the
full liberalization of all telecommunications services in most EU member states
by January 1, 1998. GTS expects that full liberalization in these European
countries will lead to the emergence of New Entrants with new and competitive
service offerings. HER expects this increase in competition will result in lower
prices and a substantial increase in the volume of traffic and range of
telecommunication services provided. HER believes that as a result of the
increased call volume and growth in value added services, participants in these
markets will require significant amounts of new cross-border telecommunications
transport capacity to provide their services.

The HER network will offer PTOs and New Entrants an attractive alternative
for the transport of cross-border European telecommunications traffic. In the
traditional system, PTOs own and control circuits only within their national
borders, and as a result, cross-border traffic must be passed from one PTO to
another PTO at the national boundary. No single PTO therefore owns or controls
end-to-end circuits for cross-border calls. The alternative for carriers of this
traffic will be to build their own transport capacity or use IPLCs which are
provisioned by combining half-circuits on the networks of two or more PTOs. GTS
believes that there are a number of problems with these options that result in
HER being well-positioned to become the leading independent carriers' carrier in
Western and Central Europe. In particular, building their own transport capacity
is unlikely to be an attractive option for most carriers because of the high
traffic volumes required to justify the expense, the need to focus resources on
marketing and customer service, the time commitment and the regulatory and
administrative complexities involved, particularly in obtaining the rights of
way across national borders. Likewise, IPLCs provided by the PTOs also have a
number of disadvantages, including high prices, lack of end-to-end quality
control, lack of redundancy, low quality due to diversity of network systems and
equipment, limited availability of bandwidth and long lead times for
provisioning. See "Risk Factors -- Risks Specific to GTS -- HER Network
Roll-out" (page 21) and "Risk Factors -- Competition" (page 33).

HER

HER is one of the leading carriers' carriers providing centrally managed
cross-border telecommunications transmission capacity in Europe. Its network
when completed by the end of 2000, will extend approximately 25,000 kilometers,
with points of presence in approximately 50 cities in 20 European countries.
HER's customers include PTOs and New Entrants. HER offers these customers a
superior transport system than is currently available in Europe through PTOs
with a higher and more consistent level of transmission quality, redundancy,
network functionality and service at lower prices. HER currently operates in
Belgium, The Netherlands, the UK, France, Germany, Switzerland, Italy, Denmark
and Sweden. At present, the network links 17 cities: Brussels, Antwerp,
Rotterdam, Amsterdam, London, Paris, Frankfurt, Strasbourg, Zurich, Geneva,
Stuttgart, Dusseldorf, Munich, Milan, Berlin, Copenhagen and Stockholm. In
November 1998, HER leased capacity on a transatlantic cable linking the HER
network with North America and is exploring various interconnectivity options to
Russia. Although HER believes that its cost estimates and the build-out schedule
are reasonable, there can be no assurance that the actual construction costs or
time required to complete the network build-out will not substantially exceed
current estimates. Any significant delay or increase in the costs associated
with the completion of the HER network could have a material adverse effect on
HER and GTS.

HER intends to continue to build the network using an accessible and
cost-efficient infrastructure of railways, motorways, pipeline companies,
waterways and power companies. HER has a flexible approach to the network
build-out plan and intends to fine-tune the scope, route and design of the
network based upon the
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evaluation of customer demand. There can be no assurance that HER will be
successful in concluding necessary agreements, or that delays in concluding such
agreements will not materially and adversely affect the speed or successful
completion of the network. The successful and timely completion of the network
will also depend on, among other things, (i) timely performance by various third
parties of their contractual obligations to engineer, design and construct
portions of the network and (ii) HER's ability to obtain and maintain applicable
licenses and authorizations.

HER has entered into agreements for the construction and/or lease of fiber
optic routes for the network in Belgium, The Netherlands, the UK, France,
Germany, Switzerland, Italy, Denmark, Sweden and Spain. HER continues to
negotiate rights-of-way and other infrastructure arrangements in order to extend
its network in Western Europe and will need to negotiate similar agreements to
complete the network in four Central European countries. Buildout of the HER
network is subject to numerous risks and uncertainties that could delay
deployment or increase the costs of the network, or make the network
commercially infeasible. See "Risk Factors -- Risks Specific to GTS -- HER
Network Roll-out."

On June 24, 1998, HER completed the acquisition of a 75% interest in Ebone
for ECU 90 million (approximately $99.5 million based on the ECU/US dollar
exchange rate in effect on that date). Headquartered in Copenhagen, Denmark,
Ebone is a Tier 1 Internet backbone provider focused on connecting Internet
service providers in Europe to the Internet. As of September 30, 1998, Ebone
served more than 89 customers in 23 cities. As part of the transaction, Ebone
purchased under a transmission capacity agreement long-term capacity rights on
the HER network valued at ECU 90 million. The transmission capacity agreement is
expected to provide for the majority of Ebone's current and forecasted capacity
requirements. HER will provide Ebone with capacity of up to 622 megabits per
second between the majority of European cities that Ebone serves. In addition to
the majority interest held by HER, Ebone's new ownership structure will continue
to include many of Ebone's existing customers, which own the balance of Ebone's
shares through an association.

HIT Rail B.V. ("HIT Rail") formed HER on July 6, 1993. HIT Rail was
incorporated in 1990 by eleven national railways to carry out telecommunications
engineering activities in order to construct and exploit a data communications
network for railway traffic. GTS-Carrier Services, Inc. (formerly GTS-Hermes,
Inc.), a Delaware corporation ("GTS-CSI"), purchased a 34.4% interest in HER in
1994 and increased its interest to 50% in 1995 and to 79.1% in 1997. In March
1998, GTS-CSI increased its ownership of HER to approximately 89.4% by
purchasing a portion of HIT Rail's ownership interest in HER. GTS-CSI currently
owns an 89.9% equity interest in HER. GTS-CSI is a wholly owned subsidiary of
GTS. In an effort to expand its presence in Europe, HER has formed wholly owned
subsidiaries in The Netherlands, Ireland, the UK, Germany, France, Italy and
Spain to conduct marketing and other activities. In Belgium, the activities of
the Network Operations Center have been transferred to HER Network Services
B.V.B.A. (formerly Hermes Europe Railtel N.V.), a wholly owned subsidiary of
HER. Following the development of its corporate structure, HER will be a holding
company with limited assets and will operate its business through subsidiaries.

Business and Marketing Strategy

The overall strategy of HER is to offer PTOs and New Entrants pan-European
cross-border telecommunications transport services to help them, in turn, more
successfully meet the needs of their end-user customers. The HER network also
provides a vehicle through which a carrier can compete in markets where it does
not own infrastructure. HER's primary service offerings are large-capacity
circuits for "wholesale" customers such as PTOs and New Entrants. HER designed
its focus on carriers to complement and not compete with carriers' own business
objectives in providing services to end-users.

Following the acquisition of Ebone and given the increased market demand
for transatlantic low cost city-to-city services, HER now plans to expand its
objective to become a leading player in the provision of seamless transatlantic
city-to-city services. In November 1998 HER leased capacity on a transatlantic
cable linking the European network to North America. To meet its objective it
now needs to further augment its transatlantic capacity and invest further in
extending its network, as well as increasing the capacity of the network.

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To establish HER as the leading carriers' carrier for international
telecommunications within Europe, HER offers its customers significantly higher
quality transmission and extended/advanced network capabilities at a competitive
price by focusing on the following:

High Capacity Cross Border Network Facilities. The HER network is designed
to offer its customers access to high capacity network facilities outside their
domestic markets, providing cross-border capabilities without requiring
customers to invest in network infrastructure or being constrained by a narrow
range of capacity offerings. With DWDM upgrades, HER's fiber deployment plan
provides for a minimum of 800 Gigabits on all major routes. Options are in place
to expand fiber capacity further on a number of routes.

Uniform Network Architecture. The HER network is designed to offer managed
transport services from country to country and across multiple countries
utilizing a single uniform network, in contrast to services currently available
that use multiple providers over several networks with varying technologies and
each under the control of separate, not necessarily compatible, network control
systems. The HER network's uniform technology enhances service by providing
quality and reliability as well as uniformity of features throughout the
network.

Diverse Routing. The HER network architecture includes diverse, redundant
routes that are designed to provide high levels of reliability. The network is
designed to provide availability of over 99.9% for most routes and to provide
customers with a wide range of telecommunications transmission capacity. To
achieve this level of reliability without the use of a network similar to the
HER network, HER believes that carrier customers would need to purchase
additional dedicated circuits to provide for redundancy.

Rapid Provisioning. Customers can quickly obtain additional capacity on the
HER network. This access provides a level of capabilities that HER believes is
unavailable in Europe today. This ability to rapidly provide service is largely
due to HER's development of capacity substantially in excess of HER's forecasted
requirements.

Flexibility. HER services are focused on providing customers flexibility
across the network through which the customer may minimize risk by enabling
network rerouting, eventually even under customer direct control.

Advanced Technology. HER is deploying SDH and DWDM technology which is
upgradeable and will permit significant expansion of transmission capacity
without increasing the number of fiber pairs in the network. This technology
also provides the basis for structuring advanced operating features, such as
virtual private network service and IP Services.

Innovative Pricing. Currently the price of high-bandwidth circuits on
transborder European routes is artificially high and not necessarily related to
the cost of such circuits. HER offers competitive pricing. HER also offers
highly tailored contract terms and volume discounts, which allow carrier
customers to plan more efficiently the fixed costs of their service portfolio.
Customers can select varying capacity, access, guaranteed availability and
contract terms at competitive prices. Customers sourcing from PTOs are generally
limited to order from a very narrow set of capabilities offered under inflexible
pricing plans.

GTS intends to offer comprehensive, facilities-based telecommunications
products and services to business and other high-usage customers in certain
metropolitan markets in Europe. See "-- European Services Strategy" (page 139).
Many of GTS' planned service offerings will compete directly with services
offered by HER's customers, which may affect the perception of HER as an
independent carrier's carrier. There can be no assurance that GTS' European
Services Strategy will not negatively impact HER's ability to attract and retain
customers which would have a material adverse affect on HER and GTS.

Managed Bandwidth Services

HER's primary service is large capacity cross-border European circuits and
transatlantic services provided to carriers and service providers over an
integrated, managed pan-European network structure for wholesale customers such
as PTOs and New Entrants. The HER network, based on SDH and DWDM technology,
provides digital transmission capability upon which a broad range of advanced
functionality may

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be built and which offers network availability, flexibility, bandwidth speeds
and error performance not otherwise available to carriers for transport of
telecommunications traffic across national borders in Western and Central
Europe. The network is designed to provide customers with a wide variety of
bandwidth speeds, ranging from VC12/E1 Standard (equivalent to 2.048 Mbps) to
STM-16 Standard (equivalent to 155 Mbps).

Point-to-Point Transmission Capacity. The current market for cross-border
transport is served by IPLCs provided by PTOs. Traditionally, IPLCs are formed
by combining half-circuits from two PTOs between customer locations, often with
additional PTOs providing transit segments. Under the IPLC service, overall
service quality guarantees generally are not provided and only a limited range
of bandwidth is available, usually only E1 and in certain instances, E3. GTS
believes that its Point-to-Point Transmission Capacity will be a major
improvement to the PTO-based approach because it provides a greater range of
bandwidths (from 2 Mbps (E1 or VC-12) to multiple 140/155 Mbps (E4 or VC-4)) and
allows customers to choose a service level agreement with guarantees appropriate
for their applications, including guarantees for on-time service delivery and
service availability.

Point-to-Point Transmission Capacity consists of two services, "Integrated"
and "Node-to-Node." The HER "Integrated" service provides an end-to-end service
between customer-specified locations where the customer can request for HER to
arrange for "last mile" services from the HER node location to the customer's
location. The "Node-to-Node" service can be selected when the customer prefers
to provide its own services to reach the local HER node location. In
Node-to-Node Service, HER guarantees service only on its portion of the network
between HER nodes. Both services are competitively priced relative to current
service offerings. The customer can choose flexible contract terms from one to
ten or more years' duration, with discount schemes designed to ensure that HER
remains a cost-effective solution.

Virtual Network Transmission Services. Carriers and operators that plan to
expand their operations to become pan-European service providers as the European
marketplace is liberalized require a flexible and cost-effective means of
telecommunications transport. Such service providers have traditionally obtained
international transport service by leasing IPLCs. Leasing IPLCs requires a
carrier to lease channels on a segment-by-segment basis from multiple PTOs,
linking the target cities under arrangements having fixed capacity and pricing
structure for each segment of the carrier's network. Leasing IPLCs has several
disadvantages, including (i) difficulty in obtaining discount/volume pricing
schemes since there is no single provider of pan-European coverage, (ii) delays
in implementation due to numerous contractual negotiations and having to
interconnect numerous IPLCs, (iii) limited availability of pan-European leased
capacity at high bandwidth and (iv) variability of quality due to multiple
operators and the absence of a single uniform network. Operators could also
construct their own network, which is expensive, time-consuming and complex and
which may not be justified by such operators' traffic volume. See "Risk Factors
- -- Competition" (page 33).

HER's Network Transmission Service will offer a new solution and an
attractive alternative to leasing IPLCs or building infrastructure. This service
enables HER's customers to obtain a uniform pan-European or cross-border network
under one service agreement by allowing the customer to select any number of
cities along the HER network at a pricing structure based on the overall amount
of leased capacity for the customer's entire network.

Ring Service. Most medium to large carriers and operators purchase network
capacity in excess of actual requirements, and prefer to have physical
configuration control over their networks. The HER Ring Service connects
multiple customer locations with multiple VC-4 paths in a ring configuration.
All VC-4 paths within a ring are routed via physically diverse fibers to allow
the customer to have reliable and direct control over the configuration of its
VC-3 and VC-12 paths within the ring, and have exclusive control over the
routing. Additional ring capacity can be added with no service interruption and
additional customer locations may be added to the ring with minimal service
interruption. Because HER is not required to configure "idle" bandwidth or to
manage the "SDH subnet" this service can be provided at a very competitive rate
vis-a-vis other point-to-point services.

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Internet-Based Services

Ebone Internet Services. ISPs have been buying Internet access from Ebone
since 1991. Building on the expertise developed since these early days of the
Internet in Europe, Ebone now offers a carriers' grade Internet access service
with the following significant features:

- Reliable access to Internet service throughout the European and American
backbone of Ebone, which is made possible by always oversizing the
bandwidth capacity on HER's backbone that is allocated to Ebone's
Internet network;

- Access to one of the largest installed bases of ISP customers in Europe;

- Access to the other Internet networks with multi-point high speed
peerings with major Tier 1 Internet backbone providers in Europe and in
the US; and

- Access speeds ranging up to 140 Mbps.

IP Services. This new line of HER services is being developed for service
providers that focus on Internet, Intranet or voice over IP services. This IP
traffic has been traditionally supported by a combination of managed bandwidth
services (like the ring or the point-to-point services of HER) and Internet
backbone services (like the Ebone Internet services).

Today, service providers building their IP backbones demand the speed
offered by fiber infrastructure, the reliability of HER managed bandwidth
services and the flexibility of Internet backbone services.

The IP services carry the international Internet traffic of service
providers between their private points of presence and/or Internet exchange
points. These services combine the quality of a carrier class transmission
service with the easy bandwidth upgrades that are the strength of large Internet
backbone providers.

Pricing and Distribution

Sales of HER's services are conducted through its subsidiary Hermes Europe
Railtel (Ireland) Limited. HER accesses additional distribution channels using
local or regional network access providers.

Currently, the price of cross-border pan-European calls are often
significantly higher than the underlying cost of transport and terminating such
calls and higher than the price of intra-country calls or transborder calls to
and from liberalized markets. The low cost of operating the network enables HER
to attractively and competitively price services in the face of declining
overall tariffs for telecommunication services. HER's low-cost basis is due to,
among other things, its use of up-to-date technology without the burden of
legacy networks, which requires fewer employees to operate.

The term of a typical customer agreement currently ranges from one to three
years in length. The customer agrees to purchase, and HER agrees to provide,
cross-border transmission services. In general the customer agrees to pay
certain non-recurring charges upfront and recurring charges on an annual basis,
payable in twelve monthly installments. If the customer terminates the service
order prior to the end of the contract term, it is generally required to pay HER
a cancellation charge equal to three months service for each of the twelve
months remaining in the contract term. HER guarantees transmission services to a
certain service level. If such levels are not met or HER fails to deliver
service by the committed delivery date, the customer is eligible for a credit
against charges otherwise payable in respect of the relevant link.

Customers

HER's high capacity, SDH and DWDM-based fiber optic network is designed to
enable PTOs and New Entrants to integrate high quality, cross-border capacity
into their end user offerings. As of September 30, 1998, 48 customers contracted
for service on the HER network including PTOs, global consortia of PTOs, ISPs,
alternative carriers, an international carrier, VANs and resellers. For the
three months ended September 30, 1998, HER installed and sold capacity of
approximately 1,209 and 5,157 E1 equivalents, respectively. As of September 30,
1998, the HER backlog, cumulative contractually obligated future revenues, was
$257.3 million. The type and quality of HER's customers validates the concept of
the HER network and
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illustrates the type of customers who will be attracted to the full network. The
success of the existing network also demonstrates the demand for cross-border
transport services. In total, HER is targeting seven major market segments or
customer groups, which can be characterized as follows:

Existing PTOs. This customer segment consists of the traditional European
PTOs that generally participate in the standard bilateral agreements for
cross-border connectivity. HER provides a vehicle for PTOs to compete in
non-domestic markets both before and after January 1, 1998. As of January 1,
1998, both reserved and non-reserved traffic could be transported by alternative
infrastructure providers, thus vastly expanding the available PTO market for
HER.

Global Consortia of Telecommunications Operators. Many of the largest PTOs
and international carriers have pooled resources and formed consortia in order
to compete more effectively in important telecommunications markets, such as
those in Western Europe, particularly outside their home markets. Prior to
liberalization of the provision of switched voice services in Western European
markets, one of the primary objectives of these consortia is to provide
pan-European services to multinational business customers, including X.25/frame
relay (high speed data network) service and closed-user group voice services.
Under the current regulatory framework, consortia would otherwise be required to
purchase leased lines at negotiated retail rates, even within their home
countries. HER believes that it provides an attractive alternative at better
pricing in those environments where such a consortium does not already own its
infrastructure. Furthermore, HER believes that it is well positioned to provide
cross-border connectivity between different domestic infrastructures of these
alliances.

International Carriers. This customer segment consists of non-European
carriers with traffic between European and other international gateways.
Existing customers in this segment include Teleglobe and GTS-Monaco Access.
Targeted future customers include the US Regional Bell Operating Companies. HER
can provide these customers a pan-European distribution network to gather and
deliver traffic to and from their own and other hubs.

Alternative Carriers. This segment consists of second carriers, cable TV
and mobile carriers and competitive access providers. These new carriers have
chosen to compete with the incumbent PTOs in their respective countries, and GTS
believes that they would look favorably to an alternative such as HER. HER also
believes that non-PTO competitors in Europe will prefer to use a non-PTO
alternative like HER to meet their cross-border telecommunication transport
needs.

Internet Backbone Networks. Internet backbone networks are a fast emerging
segment and are expected to generate significant requirements for the services
HER offers. These require large capacity international connectivity services
between Internet nodes (point of interconnection between local Internet service
providers) in all local European markets. The Internet segment is experiencing
significant growth in demand for transmission capacity. On June 24, 1998, HER
entered into an agreement with Ebone, a Tier 1 Internet backbone provider which
at September 30, 1998 served 89 Internet service providers in 23 European
countries, to provide long-term transmission capacity of up to 622 megabits per
second across the majority of European cities that Ebone serves. As part of the
transaction, HER purchased a majority interest in Ebone.

Resellers. Resellers are carriers that do not own transmission facilities,
but obtain communications services from another carrier for resale to the
public. Resellers are also a growing segment of the market and are expected to
increase in conjunction with the liberalization of the European
telecommunications market. In the US, for example, resellers were a significant
factor in the expansion of competition.

VANs and other Service Providers. VANs 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 airlines and
financial institutions. VANs' basic network transmission requirement is to
connect data switches or processors. VANs currently purchase their own
international circuits and build additional resiliency into their network
infrastructure. HER will allow them to meet these needs cost-effectively, and to
extend their services to new markets or customers without substantial capital
investment.

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HER expects 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 corporations, "single
source" local and long distance services by small and medium-sized businesses
and emerging broad band applications such as cable TV programming distribution
(other than broadcast) to the end user.

Network Design

The network design is based on a layered architecture separating physical,
optical and telecom layers of the HER network with standard interfaces in order
to optimize design and operation and provide flexibility for introducing new
technologies such as IP.

The physical layer of the HER network is based on a mesh of dark fiber
routes interconnecting cities on the network via at least two or three
physically diverse paths for maximum resilience against fiber or facilities
failures. In each major city there will additionally be two customer access
sites for resilience.

The optical layer of the HER network, which is expected to be extended
during 1999 to cover ten countries, representing the core of the HER network, is
based on DWDM. This layer supports the provision of optical services direct to
customers at 2.5 Gbps and provides for the operation of multiple SDH and/or IP
systems to run concurrently on a single fiber pair in a highly cost efficient
manner. The HER network, currently in seven countries, is based on Ciena 40
wavelength systems with a capacity of 100 Gbps on a fiber pair.

The SDH layer of the HER network, running via DWDM channels in the core of
the network, and directly on the fiber elsewhere supports the provision of
point-to-point services to customers at speeds of E1/VC-12 (2 Mbps) up to STM-1
(155 Mbps). The SDH layer is itself a multilayered architecture consisting of
multiple SDH rings optimized for different traffic characteristics. Each SDH
ring supports full automatic re-routing of traffic in the case of a break in the
ring. This layer is based on Alcatel STM-16 (2.5 Gbps) systems which are
installed throughout the operational HER Network.

An IP layer is expected to be added to the HER network starting in the
second quarter of 1999. This layer will support high capacity IP routers, which
can deliver IP services to customers at speeds from 1 Mbps to 622 Mbps. These
routers will be supported on the DWDM layer of the network directly and/or via
ATM in the core of the HER network, and on top of the SDH layer elsewhere. HER
plans to extend IP service delivery capabilities to all cities on the network by
the end of the year 2000. This layer will be able to handle failures
independently of the lower layers via re-routing at the IP level.

The HER network is controlled by a single active Network Operations Center
in Brussels, Belgium, with a backup center, with equivalent management systems
continuously synchronized with the primary center, being maintained in
Amsterdam.

The Network Operations Center can pinpoint potential service impacting
problems and deal with service re-routing if required much more effectively than
in networks controlled by multiple operators in different countries. HER's
advanced operational support systems also provide comprehensive capabilities for
managing the large number of network components and local repair organizations
required in an extensive international network of this size, as well as for
advanced customer care in managing the large number of network components and
local repair organizations required in an extensive international network of
this size, as well as for advanced customer care in managing customer
operational activities.

Overall the combination of high levels of redundancy of physical and
management components and the ability to recover from individual failures at the
optical, SDH and IP layers provides for a high degree of network performance. As
a result, HER is able to enter into strong performance commitments with its
customers and services on most routes of its network has performed at above
99.9% availability.

HER expects to operate the network and to own substantially all of the
network equipment as well as some segments of the fiber optic cable. A
substantial part of the fiber is leased on a long-term basis. Long-term leases
for fiber are advantageous to HER because they reduce the capital expense burden
of building

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large quantities of capacity before they can be used. Where HER leases dark
fiber, the infrastructure provider will generally be responsible for maintaining
such fiber optic cable. HER will enter into agreements with equipment vendors
and infrastructure providers and other third parties to supply and/or maintain
the equipment for the HER network. See "Risk Factors -- Risks Specific to
GTS -- HER Network Roll-out" (page 21).

Network Capacity

The HER network is being built to include 40 wavelength DWDM systems on all
routes. This allows for incremental SDH and IP systems of 2.5 Gbps to be
installed when and only when required, thus providing for efficient management
of capital investment.

Should capacity be required beyond the initial 100 Gbps on the first fiber
pair, additional fiber pair(s) can be brought into operation utilizing either
higher capacity DWDM systems at 2.5 Gbps or at 10 Gbps. Such systems will be
available from 1999. HER plans to have a minimum of two fiber pairs on all
routes and to extend capacity both via additional routes providing further
resilience, as well as on selecting existing routes where available over time.
This approach to fiber utilization again provides for an optimal management of
fiber investment.

Network Agreements. HER has entered into agreements and letters of intent
with various infrastructure providers for construction and/or dark fiber lease
of portions of the HER network. HER's agreements for leases of portions of the
network typically require the infrastructure provider to provide a certain
number of pairs of dark fiber and in some cases, facilities along the network
route commencing on certain dates provided by HER. The term of a lease agreement
typically ranges from ten to 18 years. An agreement typically contains optical
specification standards for the fiber and methods of testing. HER is allowed to
use the cable for the transmission of messages and in other ways, including
increasing capacity. The infrastructure provider may also provide space for the
location of HER equipment and related maintenance. The infrastructure provider
is responsible for maintenance of the cable facilities. An agreement also
provides for an annual price for the provision of fiber and for the facilities
and maintenance. The agreements typically provide for termination by the parties
only for material breach, with a 90-day minimum cure period. The agreements
typically contain a transition period after termination of the agreement to
allow HER to continue to serve its customers until it can reach agreement with
an alternative infrastructure provider. In certain areas of the network, where
it is not possible to lease dark fiber, HER has signed agreements or letters of
intent for indefeasible rights of use to managed bandwidth. The terms of these
agreements typically range from ten to 25 years.

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Local Access. Access to the HER network will be primarily provided to
clients through SDH access lines including at the STM-1 or STM-4 level. However,
customers who continue to use the older PDH technology may also access the HER
network for optical service STM-16 level. In each city, as a HER point of
presence is deployed, HER may contract with one or more local access network
suppliers for "last mile" services to customer locations. HER will not invest in
building local access infrastructure, but such connectivity can be supplied on a
case-by-case basis via preferred local access partner arrangements. Currently,
HER has contracted with a number of local access providers to connect the HER
network to intra-city networks. Pursuant to such agreements, HER can offer its
carrier customers local connectivity in those cities. Various local access
network suppliers may also be interested in HER for the purpose of linking the
business centers in which they are active. Therefore, GTS believes that the
relationships between HER and local access network suppliers can benefit both
parties. Set forth below is an illustration of the connection between the HER
network and local access providers.

[SDH/WDM NETWORK CHART]

The portion of the HER network currently in operation extends approximately
9,200 kilometers. When completed by the end of 2000, the network will extend
approximately 25,000 kilometers. In November 1998, HER also leased capacity on a
transatlantic cable linking the European network with North America. During the
first quarter of 1999, the network is planned to be expanded through France,
Madrid and Barcelona in Spain, and in the second quarter of 1999, extended
further in Italy and to Luxembourg. By the end of 1999, the HER network will be
further extended to Austria, the Czech Republic and Portugal.

The routes to be completed by the first half of 1999 are currently under
construction. "Under construction" means that with respect to each of the
segments that make up each of these routes, one of the following is occurring:
(i) HER has contracted to build or is contracting to build the fiber optic cable
segment, and (ii) HER has leased or will lease such segment of dark fiber optic
cable from a third party who has built or is currently building such segment.
The dates set forth above may be subject to delays due to a variety of factors,
many of which are beyond the control of GTS. See "Risk Factors -- Risks Specific
to GTS -- HER Network Roll-out" (page 21).

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HER is deploying the network along the rights-of-way of a variety of
alternative sources, including railways, motorways, waterways, pipelines and
utilities. The rights-of-way of HER-built portions of the network will be
provided pursuant to long-term leases or other arrangements entered into with
railways, highway commissions, pipeline owners, utilities or others. It is the
policy of HER to evaluate multiple alternative infrastructure suppliers in order
to maximize flexibility. As a result of its network development activities to
date, HER has gained access to infrastructure for its network routes which, in
certain cases, HER believes will be difficult for its competitors to duplicate.
See "Risk Factors -- Risks Specific to GTS -- HER Network Roll-Out" (page 21).

Competition

The European and international telecommunications industries are
competitive. HER's success depends upon its ability to compete with a variety of
other telecommunications providers offering or seeking to offer cross-border
services, including (i) the respective PTO in each country in which HER
operates, (ii) global alliances among some of the world's largest
telecommunications carriers; and (iii) global operators. HER expects that some
of these potential competitors may also become its customers. HER believes that
the ongoing liberalization of the European telecommunications market will
attract additional entrants to the market and increase the intensity of
competition. Competitors in the market compete primarily on the basis of price
and quality. HER intends to focus on these factors and on service innovation as
well. HER business plan anticipates substantial head-to-head competition as well
as indirect competition.

Various telecommunications companies, including MCI WorldCom, Inc., Viatel,
Inc., KPN N.V., Deutsche Telekom AG and France Telecom S.A., Global Crossing
Ltd., British Telecommunications plc and Esprit plc, have announced plans to
construct, have begun to construct or are operating fiber optic networks across
various European countries. Some of these networks include, or their promoters
have expressed their intentions to include, transatlantic connectivity. The
Company also competes with respect to its "point-to-point" transborder service
offering against circuits currently provided by PTOs through International
Private Leased Circuits.

If HER's competitors, many of whom possess greater technical, financial and
other resources than HER, devote significant resources to the provision of
pan-European, cross-border telecommunications transport services to carriers,
such action could have a material adverse effect on HER's business, financial
condition and results of operations. There can be no assurance that HER will be
able to compete successfully against such new or existing competitors. See "Risk
Factors -- Competition" (page 33).

Licenses and Regulatory Issues

A summary discussion of the regulatory framework in certain countries where
HER has developed and is developing the HER network is set forth below. This
discussion is intended to provide a general outline, rather than a comprehensive
discussion, of the more relevant regulations and current regulatory posture of
the various jurisdictions.

National authorities in individual member states of the EU are responsible
for regulating the construction and operation of telecommunications
infrastructure. HER believes that the adoption of the Full Competition Directive
and the various related Directives adopted by the European Parliament and the
Council of the EU have resulted in the removal of most regulatory barriers to
the construction and operation of telecommunications infrastructure in the
countries of the EU and Switzerland where HER currently has operations.

HER requires licenses, authorizations or registrations in all countries to
operate the network. There can be no assurance that HER will be able to obtain
such licenses, authorizations or registrations or that HER's operations will not
become subject to other regulatory, authorization or registration requirements
in the countries in which it operates or plans to operate. Licenses,
authorizations or registrations have been obtained in Belgium, Denmark, France,
Germany, Italy, The Netherlands, Spain, Sweden, Switzerland, the UK and the
United States. HER intends to file applications in other countries in
anticipation of service launch in accordance with the network roll-out plan.

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European Union. On June 28, 1990, the European Commission, in an effort to
promote competition and efficiency in the European Union, issued the 1990
Directive requiring EU member states to immediately liberalize all
telecommunication services with the exception of voice telephony to the general
public (basic voice services provided over the public switched voice network).
This step liberalized value added services and voice services over corporate
networks and/or "closed user groups," although the exact definitions of the
terms used in the 1990 Directive were not altogether clear.

On March 13, 1996, the European Commission adopted the Full Competition
Directive extending the 1990 Directive to all services, requiring that licensing
procedures for these services be transparent and non-discriminatory, requiring
member states to fully liberalize alternative infrastructure to allow a
competitive market for "non-reserved" services such as data, value added
services and non-public (closed-user group) switched voice services by July 1,
1996 and mandating open competition in all public telecommunications services,
including voice telephony to the general public, by January 1, 1998. Deferrals
of the obligations to liberalize were granted to Spain, Ireland, Greece and
Portugal, subject to formal application and satisfaction of certain
requirements. Luxembourg, because of the small size of its market, is eligible
for a special transitional period of up to two years.

On November 5, 1997, the European Commission initiated several infringement
proceedings against those Member States which had not implemented the relevant
transposition measures of the 1990 Directive and other liberalization
directives. The Member States concerned were Denmark, Greece, Italy, Luxembourg,
Germany, Portugal and Belgium. The European Commission also decided to continue
the infringement procedure it had already opened against Spain. Subsequently, in
March 1998, it was reported in the press that several of these infringement
proceedings had been closed because the Member States concerned had properly
implemented the relevant provisions. The identity of the Member States for whom
such proceedings had been closed has not been made public.

On April 10, 1997, the European Parliament and the Council of Ministers
adopted a Directive on a common framework for general authorizations and
individual licenses in the field of telecommunications services, including
networks. Licenses must be awarded through open, non-discriminatory and
transparent procedures and applications will be required to be dealt with in a
timely fashion. The number of licenses may be restricted only to the extent
required to ensure the efficient use of radio frequencies or for the time
necessary to make available sufficient numbers in accordance with EC law.

On June 11, 1997, the European Parliament and the Council of Ministers
adopted a Directive on interconnection with regard to ensuring universal service
and interoperability through application of ONP principles; among other things
this requires Member States to ensure that PTOs with significant market power
should provide interconnection on the basis of cost-oriented charges.

On February 26, 1998, the European Parliament and the Council of Ministers
adopted a Directive on the application of ONP to voice telephony and on
universal service.

The European Commission has also recently initiated several infringement
proceedings for incomplete or wrong transposition into national law of the April
1997 Licensing Directive (against Austria, Italy, Belgium, France and
Luxembourg) and the June 1997 ONP Interconnection Directive (against Belgium,
France and Luxembourg).

Notwithstanding the above-mentioned infringement proceedings, HER believes
that many European countries have revised telecommunications regulations to
comply with the 1990 Directive and the Full Competition Directive and that such
changes will enhance HER's ability to obtain other necessary regulatory
approvals for its operations.

As a multinational telecommunications company, HER is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which HER operates.
There can be no assurance that future regulatory, judicial and legislative
changes will not have a material adverse effect on HER, that domestic or
international regulators or third parties will not raise material issues with
regard to HER's compliance or noncompliance with applicable regulations or that
regulatory activities will not have a
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material adverse effect on HER. See "Risk Factors -- Government Regulation"
(page 32). The regulatory framework in certain jurisdictions in which HER
provides its services is briefly described below.

Belgium. Belgium has implemented the "alternative infrastructure" provider
provision of the Full Competition Directive. Most of the EC telecommunications
liberalization package was adopted at the end of December 1997. The implementing
legislation (Royal Decrees) regarding the licensing regimes for the provision of
voice telephony services and the establishment of public network infrastructure
was approved by the Council of Ministers at the end of June 1998. The official
publication and the entry into force of that implementing legislation took place
in July 1998. Until such entry into force, the Belgian Telecommunication
Authority will continue to work with the system of provisional licenses. HER has
already obtained, through a wholly owned subsidiary, a license in February 1997
from the Belgian regulatory authority to build infrastructure between major
Belgian population centers and the relevant border crossings. HER also has an
authorization to provide liberalized services using alternative infrastructure.
The liberalization legislation requires all previously licenced operators to
apply for new licenses or authorizations. HER applied for a new license in
October 1998. HER expects that its existing license will be renewed in due
course although there can be no assurance that this will be the case or that
such license will be granted on terms acceptable to HER.

Denmark. With the liberalization of infrastructure as of July 1, 1997,
Denmark has fully liberalized its telecommunications markets in accordance with
the requirements of the relevant EC Directives. According to the Danish rules,
HER will not require any regulatory approval in order to install or operate the
network in Denmark.

France. A new regulatory agency, the Autorite de Regulation des
Telecommunications, was established in France effective January 1, 1997. In
1996, France approved legislation to implement the Full Competition Directive
and to remove all remaining restrictions on competition from January 1998. In
October 1997, HER obtained authorization to operate its network in specific
regions of France. In August 1998, HER was granted an extension of its license
in order to extend its network in France to reach Italy and Spain. Such
authorization requires prior notification to and approval of the Autorite de
Regulation des Telecommunications of any substantial changes in the capital of
HER or its controlling shareholder.

Germany. Germany has approved legislation to implement the Full Competition
Directive and remove all remaining restrictions on competition from August 1996.
HER was granted a license by the German regulatory authorities on July 18, 1997.
The license permits HER to operate the portions of the network in Germany
connecting Dusseldorf, Frankfurt and Stuttgart; Dusseldorf to the Dutch border;
and Stuttgart to the French border. In 1998, HER was granted extensions to its
license to include operation of routes linking Hamburg, Hanover, Munich and
Berlin and of routes to Denmark.

Italy. Although in the past Italy has been dilatory in implementing EC
liberalization measures, Italy enacted legislation on July 31, 1997 creating an
independent national regulatory authority for the telecommunications and
audiovisual sectors. On September 19, 1997, Italy enacted a regulation
implementing all EC directives in the telecommunications sector and since then
specific laws relating to licensing and interconnection have been approved. HER
was granted a license by the Italian authorities in August 1998, enabling the
development of its network in the northwest region of Italy, including Milan.

Luxembourg. A new Telecommunication Act entered into force in April 1997,
and a Royal Decree on licensing conditions entered into force in July 1998. HER
applied to the Luxembourg regulatory authority for a license to build and
operate its network in Luxembourg in October 1998. HER expects to be granted a
license in Luxembourg by the first quarter of 1999. There can be no assurance,
however, that such license will be granted on terms acceptable to HER.

The Netherlands. On July 1, 1997, the Dutch government abolished the
prohibition on the use of fixed infrastructure for the provision of public voice
telephony, thereby complying with the requirements of the Full Competition
Directive six months ahead of schedule. On August 1, 1996, HER was granted an
authorization for the installation, maintenance and use of a fixed
telecommunications infrastructure.

A new Telecommunications Act was adopted on October 13, 1998, and is now in
force. The new Act confirms the full liberalization of the telecommunications
market according to European Community
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standards. It is not expected that the new Telecommunications Act will
detrimentally affect the conduct of business by HER. HER's existing
authorization will lapse in June 1999. HER intends to register as a public
telecommunications network operator under the new Act before that time. This
will allow it to install, maintain and use a fixed telecommunications
infrastructure.

Spain. Under the Full Competition Directive, Spain was granted the right to
request a delay of up to five years in liberalizing fully its telecommunications
market. In April 1998, Spain adopted the LGT, its new telecommunications law.
The LGT was implemented through the use of secondary legislation. The LGT and
the secondary legislation resulted in the full liberalization of the Spanish
telecommunications market on December 1, 1998. On December 3, 1998, the Spanish
regulatory authority began to issue licenses under the new regime. HER was
granted a license to install and operate a telecommunications network in Spain
on January 14, 1999.

Sweden. Full liberalization of the Swedish telecommunications market
occurred in 1993. A new Telecommunications Act was passed in 1997 to reinforce
the powers of the national regulatory authority, to ensure conformity with EC
Directives and to supplement the pre-existing licensing regime with a general
authorization regime for certain services. HER registered with Swedish
authorities has been able to provide service in Sweden since July 1998.

Switzerland. The Swiss Parliament has passed a Telecommunications Law which
entered into force on January 1, 1998. Although Switzerland is not a Member
State of the EU, the effect of the law is largely to mirror the EC
telecommunications liberalization directives. From that date, voice telephony
monopoly was abolished and services fully liberalized. In September 1998, the
Swiss regulatory authority granted HER a definitive concession (replacing an
earlier provisional concession) to build and operate its network in Switzerland.

United Kingdom. Since the elimination in 1991 of the UK telecommunications
duopoly consisting of British Telecommunications and Mercury, it has been the
stated goal of Oftel, the UK telecommunications regulatory authority, to create
a competitive marketplace from which detailed regulation could eventually be
withdrawn. The UK has already liberalized its market beyond the requirements of
the Full Competition Directive, and most restrictions on competition have been
removed in practice as well as in law. HER has received a license from the
Secretary of State for Trade and Industry dated December 18, 1996 which grants
it the right to run a telecommunications system or systems in the UK connected
to an overseas telecommunications system and to provide international services
over such systems. Like the licenses granted to other providers of international
facilities-based services, the license granted to HER was for an initial six
months' duration and thereafter is subject to revocation on one month's notice
in writing. The short duration of these initial licenses was adopted for
administrative convenience to facilitate reforms to the licensing regime which
are expected in 1999. The Department of Trade and Industry has confirmed that it
intends to replace the initial licenses with new licenses and that it would not
revoke an initial license without replacing it with another license giving an
equivalent authorization. The Department of Trade and Industry is currently
discussing with license holders the arrangements to put these new licenses into
effect. Although the Department of Trade and Industry has indicated that the new
licenses are expected to be of 25 years' duration, there can be no certainty
that this will be the case or that the new licenses will not contain terms or
conditions unfavorable to HER.

United States. HER was granted a license by the FCC pursuant to section 214
of the Communications Act of 1934 authorizing it to provide limited global
facilities-based and global resale services (except US services, subject to
items and conditions imposed by law and the authorization, to and from Hungary,
Poland, the Czech Republic, Romania, Monaco, Russia, Ukraine, Kazakhstan,
Uzbekistan, Azerbaijan, China and India) effective October 23, 1998.

In addition to the discussion above, HER intends to file applications in
other countries in anticipation of service launch in accordance with the HER
network roll-out plan. The terms and conditions of HER's licenses,
authorizations or registrations may limit or otherwise affect HER's scope of
operations. There can be no assurance that HER will be able to obtain, maintain
or renew licenses, authorizations or registrations to provide the services it
currently provides and plans to provide, that such licenses, authorizations or
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registrations will be issued or renewed on terms or with fees that are
commercially viable, or that the licenses, authorizations or registrations
required in the future can be obtained by HER. The loss of, or failure to
obtain, these licenses, authorizations or registrations or a substantial
limitation upon the terms of these licenses, authorizations or registrations
could have a material adverse effect on HER.

GTS-Monaco Access

GTS owns a 50% interest in and manages GTS-Monaco Access, a joint venture
with the Principality of Monaco created to develop Monaco's existing
international telecommunications infrastructure into an international gateway
hub for transport of international traffic to European and overseas
destinations. The Principality has constructed and operates a sophisticated
gateway infrastructure that includes an international digital switching center
and a satellite earth station to support significant amounts of carriers'
carrier traffic. Through Monaco's network, GTS-Monaco Access is linked to
approximately 170 countries worldwide through its network. GTS believes that
this partnership provides it with the opportunity to build a strong
international gateway presence in lucrative Western European markets.

GTS-Monaco Access offers competitively priced international switching and
transit services, primarily to the "wholesale" international gateway and
carrier-to-carrier portion of the international calling market, as distinguished
from "retail" services offered to end users. Basic service offerings include (i)
international switched traffic; (ii) international private lines; (iii)
facilities management, including billing, customer management and fault
reduction systems; (iv) resale distribution for Internet service providers; and
(v) prepaid calling card platform services.

With the cooperation of Monaco Telecom ("MT"), GTS-Monaco Access is
entitled to exercise the privileges of signatories to international treaties
such as the ITU, and to international satellite agreements, such as Intelsat,
Inmarsat and Eutelsat. Other signatories are generally PTOs and other
quasi-governmental telecommunications entities. GTS-Monaco Access purchases
capacity on international fiber routes at rates available only to recognized
operators which are substantially below the rates charged to other service
providers. These fiber-based facilities are an important element for GTS-Monaco
Access's core network and provide it with capacity that may be leased or resold
to customers. Monaco inaugurated its independent country code, 377, on June 21,
1996, which made it eligible for certain privileges, including special terms
(generally reserved for PTOs) in connection with transmission agreements,
transit agreements, settlements and low-cost accounting rates with select
carriers.

GTS' partner in GTS-Monaco Access is an investment fund designated by the
Principality of Monaco to represent its interests. GTS-Monaco Access functions
in cooperation with MT under a commercial agreement governing, among other
things, the terms of use of existing facilities, access to and acquisition of
new international infrastructure. GTS exercises operational control of the joint
venture, and provides managerial and financial support, international
telecommunications expertise and strategic planning. Neither GTS nor its partner
is obligated to fund operations or capital expenditures of GTS-Monaco Access.
Losses and profits of GTS-Monaco Access are allocated to the partners in
accordance with their ownership percentages, in consideration of funds at risk.
As of September 30, 1998, GTS and its partner had each made equity contributions
of $0.8 million to GTS-Monaco Access. In addition, GTS-Monaco Access had
outstanding loans of $2.9 million to GTS as of September 30, 1998. See "GTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Accounting Methodology -- Profit and Loss Accounting" (page 173).
The agreement between GTS-Monaco Access and MT, by its terms, continues in
operation until 2020.

Business and Marketing Strategy

GTS' strategy for developing GTS-Monaco Access into an international
gateway hub includes the following:

Develop Advanced Carrier Services Offerings. GTS-Monaco Access may develop
its "advanced carrier services" offerings to include global 0800 services and
international free phone services, which GTS believes will broaden customer
relationships, enhance revenues and help to protect it from price-based
competition.
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Develop Relationships to Broaden Service Offerings. GTS-Monaco Access may
develop relationships to broaden its service offerings. GTS-Monaco Access has
entered into agreements with UUNET, one of its gateway customers, to provide
wholesale Internet access to GTS-Monaco Access's carrier customers in a number
of Western European countries. The agreement allows these services to be
"cobranded" with GTS' affiliates.

Pricing. Price is a critical factor in the market for international
switching as competition increases due to expanding international capacity,
advances in technology and falling regulatory barriers. GTS-Monaco Access
intends to price its services competitively with the prevailing price for
comparable inter-PTO transit and gateway services. GTS-Monaco Access is not
bound by legacy systems, infrastructure and personnel levels and can, therefore,
manage competitive cost operations.

Leverage Non-Aligned Position. Because GTS' Western European activities are
not allied with any of the major consortia or large Western European
telecommunications companies, GTS-Monaco Access may be considered an attractive
service provider for Western European carriers who may otherwise be reluctant to
obtain services from the larger operators of international gateways that are
often their competitors in the retail market.

Exploit GTS Synergies. GTS-Monaco Access may ally with other GTS companies
in Europe and the CIS. GTS-Monaco Access is expected to realize significant
reductions in its cost structure through access to low-cost pan-European
transmission capacity through alternative infrastructure providers such as HER,
Sovintel and C-Datacom International, Inc., GTS' Indian venture, already route
international traffic through GTS-Monaco Access's gateway.

Customers

Targeted customers for GTS-Monaco Access include:

Non-Aligned PTOs. GTS believes that various large American and Western
European PTOs that lack adequate international switching and transport
facilities of their own may be persuaded to purchase international services
from GTS-Monaco Access, rather than from competing PTOs or consortia.

Mobile Carriers. GTS believes that some of the non-PTO mobile
carriers, which currently provide only a small percentage of Western
European mobile telecommunications traffic, may prefer the "independent"
international gateway service offerings of GTS-Monaco Access to those of
their PTO competitors.

Internet Service Providers. Growth in Internet usage creates a
significant opportunity for a nonaligned Internet access provider such as
GTS-Monaco Access, since many Internet service providers will be in direct
competition with PTO-owned services in large European markets.

Second Carriers/Resellers. GTS believes that many second carriers will
seek to enter new markets quickly without investing in international
switching capacity.

Established ("Aligned") PTOs. This customer segment will be a niche
market for GTS-Monaco Access. As markets are deregulated and carriers
become increasingly competitive, traditional friendly correspondent
relations may become strained, and opportunities may emerge to leverage
GTS' non-aligned status to route traffic between rivals or to displace
incumbents for transit relationships.

Other GTS Companies. GTS-Monaco Access currently provides gateway
services indirectly to Sovintel, CDI and other GTS companies that aggregate
traffic or provide international long distance services. It may also
provide these services to HER.

In January 1998, GTS-Monaco Access terminated its relationship with a major
traffic partner as a result of which GTS expected that the venture would lose
approximately $6 million of revenues in 1998. GTS-Monaco Access has put in place
plans to replace such revenues from other sources.

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Network

GTS has enhanced MT's existing technology platform of digital switching,
fiber optic transmission, satellite and submarine cable facilities by
interconnecting this existing network infrastructure to multiple terrestrial
routes covering Europe and to undersea fiber optic cables connecting the
GTS-Monaco Access network to Asia and the Americas.

The network infrastructure of GTS-Monaco Access is complementary with that
of HER, with each serving the carriers' carrier market from different
perspectives; HER for bandwidth services and GTS-Monaco Access for switched call
terminations and other carrier services.

Licenses and Regulatory Issues

Because it operates in coordination with MT, the licenced operator of the
Monaco public network, and in indirect partnership with the government,
GTS-Monaco Access's telecommunications activities in Monaco require no
telecommunications license.

Because the Principality of Monaco is not an EU member state, GTS-Monaco
Access's telecommunications activities in the Principality are not directly
subject to European Community law. However, GTS-Monaco Access will have to
comply with EU regulation to the extent it does business in EU member states or
its business has an effect on trade between EU member states. The regulatory
requirements established by the EU create general guidelines under which the
national agencies of EU member states regulate. Accordingly, local laws and
regulations may differ significantly among these jurisdictions, and the
interpretation and enforcement of such laws and regulations may vary. In certain
of GTS' existing and target markets, there are laws and regulations which affect
the number and types of customers which GTS can address. For instance, certain
countries may and do require licenses for communication companies to
interconnect to the public network to originate traffic.

In addition, one of the services provided by GTS-Monaco Access is a form of
transit service, known in the industry as "re-filing." Re-filing is the practice
of routing traffic through a third country in order to take advantage of
disparities in settlement rates between different countries, allowing traffic to
a country of termination to be treated as if it originated in the third country
that enjoys lower settlement rates with the destination country, thereby
resulting in lower overall costs on an end-to-end basis. Re-filing is prevalent
in the industry even though the practice is technically in contravention of ITU
regulations. In practice, because of the widespread non-observance of these
regulations, such a contravention normally does not give rise to specific legal
problems. However, their enforceability essentially depends on the status given
to ITU obligations by Member countries' domestic laws. Accordingly, there can be
no assurance that GTS-Monaco Access's re-filing services might not be disrupted
or be the subject of legal process at some time in the future. In such event,
within the EU a defense may be available that the ITU regulations are
anti-competitive and contravene the Treaty of Rome, although there can be no
certainty that such a defense would succeed.

Competition

GTS-Monaco Access faces competition from consortia of telecommunications
operators, large PTOs and other international telephone operators with advanced
network infrastructures, access to large quantities of long-haul capacity and
established customer bases. PTOs currently providing large amounts of
international traffic have already established direct routes, transit
arrangements and correspondent relations and many have excess capacity that they
resell in competition with GTS-Monaco Access.

With the advent of deregulation in the Western European telecommunications
markets in 1998, opportunities for the establishment of international gateways
will likely develop in Europe and as a result competition in the market for
GTS-Monaco Access's services will increase. GTS-Monaco Access intends to
evaluate additional locations in Europe for the establishment of international
hubs based upon prospective costs and the availability of call routing at these
locations. GTS-Monaco Access plans to locate these prospective points of
presence in cities served by HER and to allow the termination of traffic through
HER.

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GTS-Monaco Access may benefit from the establishment of these points of presence
by incurring reduced transmission expenses.

While GTS believes that GTS-Monaco Access will be able to compete
effectively in certain identified market segments because most of its targeted
customers are in new and fast growing markets and have not established long-term
relationships with international gateway providers, and because it has equal
access to advanced infrastructure and international fiber routes, potential
access to low cost transport from HER and an "independent" status that allows it
to service a worldwide range of potential customers, GTS intends continually to
review the competitiveness of GTS-Monaco Access with respect to its competitors.

European Services Strategy

General. In order to capitalize on the increasing liberalization of
telecommunications regulation in Europe, GTS intends to become a leading
provider of a broad range of integrated telecommunications services to business
and other high-usage customers in certain metropolitan markets throughout
Europe. GTS presently provides end user services in Russia, the CIS and Central
Europe and carriers' carrier services in Western Europe and has experience in
developing cross-border networks in Western Europe through HER. Through GTS
Business Services -- Western Europe, GTS intends to establish service
capabilities as a reseller in up to 50 additional European metropolitan markets.
In furtherance of its European Services Strategy, in October 1998 GTS hired Les
Harris and Philip Blanchette as President and Vice President, Network Operations
and Engineering, respectively, of GTS Access Services. Since such date, GTS
Access Services has hired certain other key management and technical personnel.
Through GTS Access Services, GTS intends to leverage its experience in
developing and operating local, national and international telecommunications
networks by building, acquiring or leasing technologically advanced fiber optic
networks and establishing CLEC service capabilities in up to 12 metropolitan
markets throughout Europe, as regulatory conditions permit, within three years
after GTS commences implementing its European Services Strategy. Currently, the
regulatory regimes in Europe vary from country to country and some countries do
not permit competitive local exchange carriers to operate. See "Risk
Factors -- Risks Relating to European Services Strategy."

Recent Developments. On November 30, 1998, GTS completed the acquisition
of NetSource. NetSource is a pan-European provider of long-distance
telecommunications services focusing primarily on small-to medium-sized
businesses, with operations in Norway, Sweden, Germany and Ireland, as well as
in The Netherlands, Belgium and Denmark. The acquisition of NetSource provides
the GTS Business Services -- Western Europe line of business with a customer and
revenue base in several key Western European countries, a portfolio of licenses
and interconnection agreements and an entrepreneurial management team.

If the acquisition of Esprit Telecom is consummated, the combined business
will have (i) presence in 19 countries throughout Europe, (ii) increased network
capacity and resilience; (iii) a 500-person sales force, one of the largest
among independent telecommunications providers in Europe, (iv) the ability to
provide a wide array of services, and (v) increased management depth.
Furthermore, the combined business is expected to benefit from reduced network
operations costs, reduced administrative costs and capital expenditure savings.

Market and Business Strategy. GTS believes that the size and growth
potential of the European telecommunications market, and the increasing
liberalization of telecommunications regulations in Europe, offer considerable
opportunities to expand into end-user services into metropolitan markets
throughout Europe.

The size of the European telecommunications services market is estimated to
be approximately $188 billion in 1998. GTS estimates that the total European
addressable market (defined as non-residential core voice, enhanced voice,
non-residential international voice, data, leased line voice and internet) in
1998 is approximately $96.5 billion, which is estimated to grow at a compound
annual growth rate of approximately 13.7% to approximately $306.7 billion by
2007.

Through construction of owned facilities or acquisition or partnership with
other providers, GTS intends to enter up to 12 European metropolitan markets as
a CLEC. GTS' strategy with respect to entry into a

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specific market will be determined through an analysis of a number of
demographic, economic and telecommunications demand and spending
characteristics, including business concentration; presence of governmental,
financial and business end-user customers; local economic trends and prospects;
demand for switched and non-switched telecommunications services; feasibility of
construction; presence of existing and potential competitors; the regulatory
environment; the market's proximity to HER's network; and the presence of
potential CLEC or reseller acquisition candidates. In targeting cities in which
its entry strategy will be the construction of a fiber network, GTS, through GTS
Access Services, will initially focus on cities in which there are no CLEC
competitors or only one other such competitor. GTS Access Services' current
intention is to enter six metropolitan markets by the end of 1999 and to provide
services in up to 12 target metropolitan markets within three years after it
initiates implementing the European Services Strategy. GTS Business
Services -- Western Europe's current intention is to enter 50 metropolitan
markets as a reseller of retail services over the same time period.

GTS expects to use one or more of the following strategies to enter a
market: (i) construction of a fiber-loop network; (ii) purchase or long-term
lease of dark fiber; (iii) obtaining of high frequency microwave licenses for
"wireless fiber," (iv) partnership with or acquisition of a local
facilities-based CLEC or (v) acquisition or development of a local reseller. In
the case of market entry through a reseller, it is GTS' objective to build or
acquire facilities when economically justifiable. There are a number of risks
attendant with each of these strategies and there can be no assurance that GTS
will be successful in pursuing any of these strategies. See "Risk
Factors -- Risks Relating to European Services Strategy" (page 23).

Customers. GTS plans to offer its products and services primarily to
telecommunications-intensive businesses for which reliable telecommunications
services are critical, using GTS' facilities where available and/or reselling
other carriers' facilities as needed. These business segments include financial
services companies, multi-national companies, governmental agencies, resellers,
ISPs, disaster recovery service providers and wireless communications companies.

Products and Services. GTS intends to offer a broad array of competitively
priced, comprehensive services to meet customer telecommunications service
requirements, including private line services, local, national and international
switched telephony services, high-speed LAN interconnection services, virtual
private network services, video transmission services and IP-based services,
including IP telephony, Web hosting and data transmission services. According to
industry sources, bandwidth demand for data in the United States is currently
growing significantly faster than voice, and GTS expects that this trend will
develop in Europe as competitively priced capacity becomes available.
Additionally, GTS intends to develop competitively priced value-added
telecommunications services that are tailored to the specific needs of
individual customers. The types of services that GTS intends to offer include:

Switched Services. Switched services involve the transmission of voice,
data or video to locations specified by end-users or carriers. GTS expects to
have the technological capability to offer a full range of switched service,
including local, national and international calls as well as enhanced services.
GTS intends to own and operate switches and enter into interconnection
agreements with other telecommunication service providers, including HER, in
order to offer to customers cost- effective local, national and international
calling services. Switched service features are expected to include, as allowed
by local regulations, enhanced services such as conference calling, call
forwarding, analog or digital connectivity, desk-to-desk calling, four digit
dialing full network monitoring and maintenance, caller ID, voice mail/messaging
and E-mail to voice-mail conversion.

Non-Switched Services. Non-switched services involve a fixed, dedicated
communications link between two or more specific locations. Commonly this
service is utilized by an end-user to provide a private communications medium
between multiple business facilities or to another end-user/carrier. GTS expects
to provide high capacity, advanced technology to deliver customer traffic with a
lower cost and higher reliability as compared to the local PTO. Through its high
capacity, high reliability and cost-efficient network, GTS intends to provide
non-switched voice, data and video transmission between (i) end users, (ii) end
users and carriers and (iii) multiple carriers, allowing its customers the
option to bypass the older, less efficient technology and higher-priced services
of the incumbent PTOs.

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Other Services. GTS also intends to develop service offerings to take
advantage of emerging market opportunities. Such services are expected to
involve one or more of the following: frame relay, ISDN and ATM services;
IP-based services, including intranet and extranet services, high capacity
internet for multi-media applications, Web hosting, voice over IP and the
establishment of a pan-European IP backbone in alliance with others; calling
card services; and enhanced voice services. These products are expected to be
developed and offered as customer demand dictates and as the relevant regulatory
environment permits. GTS believes that there will be substantial demand for data
and internet services by large business and other high-usage customers, and that
a bundled service offering of national and international data and voice services
will be attractive to this targeted customer base.

Regulatory. GTS' European Services Strategy will subject GTS to significant
additional regulation at the EU, national and local level. GTS Access Services
has applied for licenses to operate as a CLEC in seven major cities in Germany
and has submitted a draft application to the French regulatory authorities,
pursuant to which informal discussions have been conducted with respect to the
greater Paris metropolitan area. GTS' determination as to which markets it may
enter will depend in part on GTS' evaluation of the regulatory regime in such
market. The detailed regulation varies from country to country. Delays in
receiving required regulatory approvals and licenses, or the enactment of
adverse regulations or regulatory requirements, may delay or prevent GTS from
entering a particular market or offering its services in any European market,
restrict the types of services offered by GTS, constrain GTS' deployment of its
networks or otherwise adversely affect GTS' operations. There can be no
assurance that GTS will be able to obtain the necessary regulatory approvals on
a timely basis or that GTS will not otherwise be affected by regulatory
developments, either of which may have a material adverse affect on GTS. See
"Risk Factors -- Risks Relating to European Services Strategy" (page 23).

Competition. The telecommunications industry is highly competitive.
Competition in the telecommunications industry is based largely on price,
customer service, network quality, value-added services and customer
relationships. Competition for the provision of local services in Europe is in
its early stages of development. Generally, PTOs offer both local and long
distance services and benefit greatly from their position as sole historic
provider in the markets they serve. PTOs generally have a number of competitive
advantages over emerging competitors, such as GTS and other CLECs, due to
substantially greater economic and human resources, close ties to local and
national regulatory authorities and control over virtually all local
telecommunications connectivity. Additionally, GTS believes that the market for
the provision of local services is sufficiently attractive to cause additional
CLECs, including multi-national carriers, to enter the market to offer products
and services which would compete with GTS.

GTS will compete with PTOs and, in certain markets, CLECs in the provision
of high quality, integrated telecommunications services to end-users and
resellers. CLEC competitors include, among others, COLT TeleCom Group plc, which
is providing service through networks in London, Frankfurt, Munich, Hamburg,
Berlin, Paris, Zurich, Amsterdam, Brussels, Madrid and Dusseldorf; and MCI
WorldCom, whose pan-European fiber network connects London, Amsterdam, Brussels,
Frankfurt and Paris. Reseller competitors include RSL Communications, Viatel and
Facilicom. GTS believes, based on its experience in providing end-user services
in Russia, the CIS and Central Europe and carrier's services in Western Europe
and in developing cross-border networks in Western Europe through HER, that it
has the knowledge and ability to develop products and services which will be
competitive with other CLECs and resellers in terms of content, quality and
price. However, there can be no assurance that GTS will be able to translate
such experience in other markets in order to compete effectively with PTOs,
CLECs or resellers in the European markets it has targeted. See"Risk
Factors -- Risks Relating to European Services Strategy" (page 23).

Network. In those markets which GTS determines to enter as a
facilities-based CLEC, GTS intends to construct, acquire or lease facilities to
operate advanced, competitive local telecommunications networks employing
current transmission technology with dual ring architecture and central system
monitoring and maintenance. GTS believes that a base of uniform, reliable
networks, which employ the most current technology and support a broad array of
high quality services, will allow GTS to compete cost-effectively against
products and services offered by PTOs and, in certain markets, other CLECs.

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GTS' plan for its basic transmission platform is optical fiber deployed in
rings, equipped with high-capacity SDH equipment. Such rings will provide
redundancy by using dual paths for telecommunications transmissions and will
extend to a customer facility either directly or on a point-to-point link from
the rings. Such rings will finally connect to the customer through
customer-dedicated or shared electronics on or near the customer premises.

Network Construction. Prior to undertaking acquisition or construction of a
network in a particular market, GTS will undertake an analysis of a number of
factors, as discussed above, to determine whether such acquisition or
construction is economically justifiable. Wherever appropriate, GTS will seek to
purchase or lease dark fiber or utilize high-frequency short-haul microwave as a
method of accelerated entry into a selected market.

GTS expects that construction and installation services will be provided by
independent contractors selected through a competitive bidding process. GTS
personnel are expected to provide project management services, including
contract negotiation, construction supervision, testing and certification of
installed facilities. The construction period of a network is expected to vary
greatly, depending on such factors as network route kilometers, number of
buildings involved in the initial installation and local construction
regulations. Upon completion of the first phase of construction, or the initial
loop, GTS expects to commence generating revenue. Further expansion of the
network will be dictated by customer growth and customers' relative proximity to
the initial loop.

The initial capital requirement for GTS Access Services and GTS Business
Services -- Western Europe to implement the European Services Strategy will be
financed with a majority of the proceeds of the July 1998 Offerings received by
GTS. In addition, GTS contemplates that it will raise additional debt financing
through a newly formed subsidiary of GTS, the proceeds of which will be applied
toward the implementation of GTS' European Services Strategy. The size and
timing of such financing has not yet been determined by GTS. GTS cannot estimate
with any degree of certainty the amount and timing of GTS' future capital
requirements for implementing the European Services Strategy, which will be
dependent on many factors, including the success of GTS' European services
business, the rate at which GTS expands its networks and develops new networks,
the types of services GTS offers, staffing levels, acquisitions and customer
growth, as well as other factors that are not within GTS' control including
competitive conditions, regulatory developments and capital costs. GTS believes,
however, that if the European Services Strategy is implemented, it is likely
that GTS will need to raise additional capital. See "Risk Factors -- Risks
Relating to the Combined Business and the Industry -- Additional Capital
Requirements" (page 18) and "-- GTS Management's Discussion and Analysis of
Financial Condition and Results of Operations -- European Services Strategy"
(page 186).

Sales and Marketing. In each of its target markets, GTS intends to
establish its own direct sales force. As GTS will be targeting large financial,
corporate and governmental customers with demanding telecommunications service
requirements, GTS expects that its internal sales force will include dedicated
sales and customer service representatives. The acquisition of NetSource
provides GTS with a sales force for its retail services business of 40 direct
sales personnel and 182 sales agents throughout Europe. If consummated, the
acquisition of Esprit Telecom will add an additional 230 direct sales personnel,
which is expected to grow to 350 in 1999.

Billing and Information Systems. Sophisticated information and processing
systems will be vital to GTS' success. Specifically, GTS will need to develop
systems to enter, schedule, provision, and track a customer's order from the
point of sale to the initiation of service and such systems will need to
include, or interface with, trouble-shooting systems, management, billing,
collection and customer service systems. GTS expects the development of its
systems to require substantial capital and management resources.

CENTRAL EUROPE

Hungary, GTS operates a nationwide microwave network and a VSAT network, which
GTS believes is the largest VSAT network in Central Europe as measured by number
of VSAT sites. In Slovakia and Romania, GTS provides VSAT services using its
VSAT hub in Hungary. Subject to certain regulatory approvals, GTS has also
obtained a license to provide international data services in Poland and expects
to begin operations during the first quarter of 1999. GTS' strategy is to expand
its service offerings as the regulatory environment permits, leveraging its
existing VSAT and international gateway infrastructure where possible and
providing a broad range of services to its target markets.

Hungary

GTS-Hungary. GTS-Hungary, a 99% owned subsidiary of GTS, is a leading
provider of customized data services offering high quality, reliable virtual
private network services to customers throughout Hungary and, through other GTS
affiliates, other countries in Central Europe. GTS-Hungary provides these
services through VSATs installed at customer sites throughout the country and a
microwave-based high speed overlay network for points in the Budapest
metropolitan area and in Hungary's 18 county capitals. Along with these data
transmission services, GTS-Hungary provides high quality customer service
including (i) significant system integration support in the initial
implementation of the customers' networks and in on-going expansion and
improvements and (ii) an excellent maintenance and technical support service,
which include "rapid response" service calls and 24-hour hub service operations
support, which can be backed by financial guarantees when required.

As of September 30, 1998, GTS-Hungary's VSAT network consisted of
approximately 993 owned and operated VSAT sites which GTS believes makes it the
largest VSAT-based network in Central Europe. GTS believes that its choice of
VSAT technology as a way of quickly deploying a full range of business services
nationwide will allow it to capture key customers and market segments. Such
positioning, GTS believes, will enable GTS-Hungary to expand its service
offerings as the Central European market matures and as regulatory authorities
further privatize and deregulate the telecommunications industry. GTS-Hungary
has recently completed a nationwide expansion of its microwave-based Budapest
overlay network and plans to develop two fiber loops in Budapest. The expansion
will increase GTS-Hungary's revenue base in the region and provide opportunities
to leverage further its other service offerings. There can be no assurance,
however, that this development will be completed on a timely and commercially
feasible basis.

The Hungarian state lottery is GTS-Hungary's largest customer, accounting
for more than 50% of GTS-Hungary's total revenue for the year ended December 31,
1997 and 48% of GTS-Hungary's total revenue for the nine months ended September
30, 1998. GTS-Hungary has also targeted its VSAT network services to business
customers in the domestic service industry and other government organizations.
Although GTS-Hungary continues to diversify its revenue and customer base, the
loss of the Hungarian state lottery as a customer would have a material adverse
effect on GTS-Hungary's business.

GTS-Hungary generally charges its data services customers a flat monthly
fee for a fixed amount of usage and usage-based fees for use above the
contractual amount. Customers are billed in Hungarian forints (indexed to US
dollars) on a monthly basis. In general, GTS-Hungary's strategy is to minimize
the initial customer investment in order to lower the barriers to purchase,
while committing customers to long-term contracts.

GTS-Hungary's major competitors include BankNet, Hungaro-DigiTel and MATAV,
the Hungarian PTO, each of which operates a network with at least 200 VSAT
sites. MATAV offers a broad range of services and has recently targeted the
business sector that GTS serves. Additionally, at least three new joint
ventures, all with international partners, have announced their intentions to
compete in the Hungarian telecommunications industry by leveraging existing
assets from the utility (electric, oil and gas), railway and cable industries.
GTS believes that, while some of its competitors have stronger financial
resources, GTS-Hungary remains the leading VSAT service provider in Hungary in
terms of number of VSAT sites, the size and quality of its infrastructure and
the quality of its service. GTS also believes it has a good reputation for
customer service.

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CZECH REPUBLIC

Czechnet. Czechnet, a wholly owned subsidiary of GTS, offers alternative
international telephony service in the Czech Republic, as well as a full range
of private data services, delivered through a combination of a fully digital
microwave overlay network and an international satellite gateway in Prague and
GTS-Hungary's VSAT network. Through an intercompany arrangement with
GTS-Hungary, Czechnet provides all of the same VSAT services offered by
GTS-Hungary. In addition, Czechnet offers high-speed Internet access service.
Czechnet is also targeting opportunities in Slovakia, based upon the historic
relationship between the Czech and Slovak markets.

The Czechnet network consists of an earth station linked to GTS-Monaco
Access and to British Telecom, a series of point-to-point and
point-to-multipoint microwave connections providing dedicated access to the
buildings served by Czechnet and individual VSATs based on, and controlled by,
GTS-Hungary's hub in Budapest.

Czechnet's target customers include real estate developers, hotels and
multinational companies which require international voice or data services or
Internet connectivity, where both GTS' own services and the services of GTS
partners are sold. Czechnet provides outgoing international voice services and
high-speed Internet access to large commercial buildings in Prague. As of
September 30, 1998, Czechnet had connected 35 buildings in Prague to its private
voice network. International voice services are offered at prices similar to
those of the Czech PTO. Czechnet plans to pursue customers who require
value-added services which may be offered at higher prices and better margins.

Czechnet is licenced to provide international satellite services, leased
line services and data services. It received its operating licenses in 1994 and
1995 and began offering services in 1995. The licenses grant permission to
install and operate up to 150 earth stations and, upon application, an
additional 150 earth stations. The licenses currently prohibit the provision of
switched voice services and the interconnection to public voice, telex and data
networks and telecommunications networks of other providers.

Czechnet is the only alternative international telephony provider licenced
in the Czech Republic. As such, its only licenced competitor is SPT Telecom, the
Czech PTO. Should SPT decide to compete aggressively with Czechnet, it has the
ability to discount prices below those which could be easily sustained by
Czechnet. Czechnet's international telephony business is also subject to
competition from unlicenced callback services, Internet telephony services and
services provided by unlicenced operators. In data services, Telenor, GITY and
Nextel (a subsidiary of SPT Telecom) are Czechnet's three major competitors for
data services in the Czech Republic. GTS believes that its experience in
establishing VSAT services in the region and its emphasis on integrated voice
and data services provides Czechnet with a competitive advantage. Additionally,
GTS' transmission facilities and infrastructure in Hungary and Monaco provide
them with a relatively low cost infrastructure and, as a consequence, greater
pricing flexibility than their competitors.

New Ventures

In September 1998 certain affiliates of GTS acquired 100% of the ownership
interests in Datanet kft., one of the leading Internet service providers in
Hungary. This acquisition has substantially increased GTS' market share in the
residential and business Internet markets in Hungary.

In July 1998, GTS became the largest single shareholder of Dattel, a.s., a
competitive local exchange carrier in the Czech Republic providing portions of
downtown Prague with telephony and leased line services. Dattel is also the
leading member of a consortium of Czech companies operating a fiber optic ring
in Prague.

In September 1998, GTS acquired a substantial minority stake in Catalina
Sp.z.o.o., a Polish company holding an international data services license. This
acquisition is subject to certain regulatory approvals. Catalina, however,
expects to begin operations in the first quarter of 1999.

In January 1999, GTS entered into two transactions to enter the market for
Internet services in Poland. GTS purchased a minority interest in ATOM S.A., an
Internet service provider in Poland. By the end of 1999, GTS contemplates that
it will increase its ownership in this company. In addition, GTS entered into an

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agreement to purchase Internet Technologies S.A., a company that owns 100% of
Internet Technologies Polska Sp. z.o.o., which provides Internet-related
services in Poland. Subject to satisfaction of certain conditions, the
acquisition of this company is expected to occur in February 1999.

RUSSIA AND THE CIS

Overview

GTS is a leading provider of a broad range of telecommunications services
in Russia. GTS' services include international long distance services, domestic
long distance services, high speed data transmission and Internet access,
cellular services and local access services. GTS was among the first foreign
telecommunications operators in the former Soviet Union, where it began offering
data links to the United States in 1986, international long distance services in
1992, local access to its networks in 1994 and cellular services in 1995. GTS
has developed these businesses into a leading provider of telecommunications
service offerings in Russia by building its own infrastructure, including a
fully digital overlay network and interconnections with its local Russian
telecommunications partners.

GTS believes that evolving changes in government policy over the last
several years and the overall inadequacy of basic telecommunications services
throughout Russia have created a significant opportunity. Before 1990, all
international, domestic long distance and local telecommunications in the Soviet
Union were provided by a monopoly state telecommunications company managed by
the Ministry of Posts and Communications. In 1990, the Council of Ministers
established a joint-stock company called Sovtelecom and transferred to it all of
the telecommunications assets and operations of the Soviet Ministry of Posts and
Communications. Following the dissolution of the Soviet Union in 1991, the name
of Sovtelecom was changed to Intertelecom. In 1992, the Russian government
decided to split Intertelecom into several components to foster privatization,
competition and investment. The international and long-distance assets and
operations were combined into Rostelecom, creating a monopolistic service
provider. The local telecommunications assets and operations were broken up into
88 independent regional joint-stock companies, seven of which serve cities,
including the Moscow City Telephone Network and the Petersburg Telephone
Network. Most of the regional companies have a telecommunications trunk operator
and provide domestic long distance service within their service region. Domestic
long distance calls to and from areas outside the companies' service area, as
well as international calls, are switched to and from Rostelecom, which forwards
the calls to and from another regional company or a foreign carrier for
international calls. Exceptions to this rule include the seven city operators.
In Moscow and St. Petersburg, the trunk operators have been isolated into
separate, long distance companies called Moscow MMT and St. Petersburg MMT. All
domestic long distance and international calls originating from or terminating
in Moscow and St. Petersburg are switched through the MMTs, which forward the
calls to and from Rostelecom.

Following the former Soviet Union's transformation from a centralized
economy to a more market-oriented economy, increased demand from emerging
private businesses and from individuals, together with the poor state of the
public telephone network, has led to rapid growth in the telecommunications
sector in Russia and the other independent republics of the CIS. In 1991 the MOC
was established as the Russian successor to the Soviet Ministry of Posts and
Communications to regulate and improve the Russian telecommunications industry.
In 1998, Goskomsvyaz was established as the successor to the MOC. As a result,
Goskomsvyaz succeeded to the MOC's role as the government's representative for
its ownership share of the 88 regional operating companies, the assets currently
held by Svyazinvest (then the monopoly international and domestic long distance
service provider), and the principal regulatory authority for national radio,
television and satellite operating companies. This enabled first the MOC and
later Goskomsvyaz and operating organizations to begin the privatization
process, attract foreign investment and initiate joint ventures with foreign
partners.

Although it remains subject to certain restrictions, significant progress
in privatization of the telecommunications industry in Russia and the other
independent republics of the CIS has occurred. Under Russian law, state-owned
enterprises within the telecommunications sector were subject to privatization
but only pursuant to a decision of the Russian government in each individual
case and with the state retaining a certain percentage of the stock of the
privatized entity for three years, subject to extension for national security

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reasons. At present, virtually all of the former state telecommunications
enterprises have been privatized and, subject to the above restrictions, shares
of the newly formed joint stock companies have been sold to the public. Also, a
significant number of private operators provide a wide variety of
telecommunications services pursuant to licenses from Goskomsvyaz to a growing
number of customers throughout Russia. Judging from the sequential numbering of
licenses issued since 1992 more than 10,000 licenses have been granted to
telecommunications operators in Russia, a large portion of which is assumed to
represent licenses reissued to the same operators as a result of their
reorganization or obligation to hold such licenses on counterfeit-proof paper,
among other reasons.

In October 1994, the President authorized the establishment of Svyazinvest
with the stated purpose of fostering greater efficiency and economies of scale
within the industry through competition. As a wholly government-owned company,
Svyazinvest was granted a controlling stake in approximately 85 regional
telecommunications companies in order to compete in these respective markets.
Svyazinvest was also given control of more than 20 million of the 25.5 million
telephone lines in Russia, except in Moscow and St. Petersburg.

In April 1997, President Yeltsin approved the transfer of the federal
government's 51% stake in Rostelecom, as well as similar stakes in Central
Telegraph (the national PTO), the Ekaterinburg City Telephone Network and
Giprosvyaz (a telecommunications research institute), to Svyazinvest. On July
30, 1997, Mustcom Limited, a Cyprus-based company that represents the interests
of a consortium which includes ICFI Cyprus, Renaissance International Limited,
Deutsche Morgan Grenfell, Morgan Stanley, and certain entities affiliated with
an affiliate of George Soros, purchased a 25% stake in Svyazinvest for $1.87
billion. The President had also authorized the sale of another 24% of
Svyazinvest at a future date. This sale was scheduled to occur in the second
half of 1998 and was subsequently opened to foreign investors. However, this
sale was first cancelled and then rescheduled to take place by July 1999 because
of the overall decline in the Russian economy. See "Risk Factors -- Risks
Relating to Operations in Russia and the CIS -- Economic" (page 28). The Russian
government has announced that it will retain a controlling 51% interest in
Svyazinvest.

Goskomsvyaz votes the Russian government's interest in Svyazinvest, which
was reclassified as the State Committee on Telecommunications and Information
Technology during a recent government reorganization. Goskomsvyaz remains the
central body of federal authority in the Russian Federation, having
responsibility for state management of the communications industry and
supervisory responsibility for the condition and development of all types of
communications systems. Its subordinated body, Gossvyaznador, is directly
responsible for supervising the proper operation and maintenance of such
systems.

Despite the recent changes in the Russian telecommunications industry, the
level of telecommunications service generally available from most public
operators in Moscow remains significantly below that available in cities of
Western Europe and the United States, although in recent years, the Moscow local
telephone infrastructure has benefited from significant capital investment. By
1995, there were approximately 16 lines per 100 persons in Russia and 45 lines
per 100 persons in Moscow. In comparison, there were 60 and 58 lines per 100
persons in the United States and Western Europe, respectively. In addition, the
quality of services, reflected as the percentage of digital switching in local
telephone networks, currently is approximately 12% in Russia compared to 65% and
66% in the United States and Western Europe, respectively.

Outside Moscow (and to a lesser extent St. Petersburg), most standard
Russian telecommunications equipment is obsolete. For example, many of the
telephone exchanges are electromechanical and most telephones still use pulse
dialing. The Russian population is over 145 million, of which approximately two-
thirds is concentrated in urban areas. The telecommunications market in Russia
currently includes a number of operators that compete in different service
offering segments -- local, inter-city, international, data and cellular
services. In large measure, the relative lack of economic development in the
regions accounts for the lack of improvement in local telecommunications
infrastructure. Although the regions still generally rely on an outdated
infrastructure inherited from the former Soviet Union, they are starting to
resort to sophisticated sources of finance, such as municipal bond offerings and
leasing, in order to upgrade the infrastructure.

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Businesses in Moscow requiring international and domestic long distance
voice and data services and consumers using mobile telephony have principally
driven growth in the Russian telecommunications industry. This growth has been
most significant as multinational corporations have established a presence in
Moscow and Russian businesses have begun to expand beyond the country's
political and financial capital. The service sector, which includes operations
in distribution, financial services and professional services and tends to be
the most telecommunications-intensive service sector of the economy, is growing
rapidly in Moscow. The telecommunications industry in the outlying regions has
experienced recent growth, principally as a result of growth in the industrial
sector as well as the establishment of satellite offices in the regions by
multinational corporations and growing Russian businesses. The extent of overall
market growth will depend in part on the rate at which the Russian economy
expands, although recent revenue growth in the sector has been significant (in
spite of a declining economy in certain regions) because of increasing traffic
from pre-existing customers and the normalization of tariffs for business
services. It is unclear, however, what the effects of the August 17 Decision and
its consequences will be on the Russian economy. See "Risk Factors -- Risks
Relating to Operations in Russia and the CIS -- Economics" (page 28).

GTS believes it is well-positioned to take advantage of market growth
factors due to (i) its early market entry, (ii) its strong infrastructure
position in Moscow, by far the most important regional market, (iii) the local
market experience of its local partners, (iv) the extent of its existing
customer base and (v) its extensive range of international and domestic
telecommunications services.

Strategy

GTS' objective is to become the premier alternative carrier in Russia and
other key growth markets of the CIS. To attain this objective, GTS has developed
and implemented the following strategy:

Develop Strong Local Partnerships. GTS has developed and continues to
develop its Russian and other CIS business through alliances with experienced
local partners. These ventures combine the management, financial and marketing
expertise of GTS together with its partner's ability to provide infrastructure
and local regulatory experience. GTS believes that these relationships lend it
credibility and increase its ability to anticipate and respond to the evolving
regulatory and legal environment. GTS maintains a significant degree of
managerial and operational control in its joint ventures through its foundation
documents, which enable GTS to develop them in a manner consistent with its
overall strategic objectives.

Expand Customer Base. GTS continues to expand its customer base through the
provision of basic telephone and digital services in markets where such services
are not currently provided. Once they have established a presence in a market,
GTS' ventures seek for opportunities to expand further into neighboring regions
and cities.

Increase Range of Digital Services. As its business customers expand their
operations throughout Russia and the CIS and as their telecommunications needs
become more sophisticated, GTS seeks to increase its revenues by expanding the
range of integrated digital services offered to its customers.

Offer High Quality Telecommunications Service and Customer Service. Subject
to stabilization of the political and economic situation in Russia, GTS will
continue to invest in and build sophisticated high-speed digital networks and
other infrastructure through which customers can gain local access to GTS'
services. In addition to providing advanced, high quality network
infrastructure, GTS emphasizes and offers its customers a level of customer
service which GTS believes cannot be found elsewhere in the market.

To date, GTS has made substantial progress employing this strategy. GTS
provides digital voice, data, Internet and local services in Moscow through its
Sovintel, Sovam and TCM ventures and provides these same services to fourteen
additional Russian cities through its TeleRoss long distance network. GTS
believes that attractive acquisition opportunities currently exist in the
markets in which it operates in Russia and the other independent countries of
the CIS. GTS continuously considers a number of potential transactions, some of
which may involve the contribution of certain of its Russian businesses in
exchange for an interest of equivalent or greater value in the surviving entity
and, if consummated, may be material to GTS' operations and financial condition.

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Operations

GTS provides a broad range of telecommunications services in Russia and
Ukraine, including international long distance services, domestic long distance
services, cellular services, high speed data transmission, Internet access and
local access services. These services are supported by operator assistance,
itemized call reporting and billing, and other value-added capabilities that
leverage GTS' investment in advanced switching, data collection and processing
equipment. GTS also provides customized systems integration, including PABXs,
key systems, wiring and interconnectivity. Dedicated and leased capacity
supplements GTS' own infrastructure, allowing GTS to bypass the severely
congested and poorly maintained local, domestic and long distance circuits of
the Russian and Ukrainian carriers.

Whenever practical, GTS' business units integrate and co-market their
service offerings, utilizing TeleRoss as the long distance provider, Sovintel as
the international gateway, TCM and GTS Cellular for local access, and Sovam as
the data communications and Internet access network for business applications
and on-line services. This integrated marketing approach enables GTS to provide
comprehensive telecommunications solutions to multinational corporations
operating throughout Russia and the other independent countries of the CIS.

The following table sets forth certain operating data related to GTS'
operating ventures in Russia and the Ukraine.

<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1996 1997 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Cities In Service................................... 33 40 40 58
Total Voice Minutes (millions)
Inter-city........................................ 15.8 57.1 35.8 73.4
Local............................................. 133.0 269.1 174.4 306.5
International Outgoing............................ 20.5 46.0 31.8 46.8
Incoming.......................................... 33.2 69.9 50.0 35.1
Total Data Customers (thousands).................... 6.2 9.9 8.3 9.0
Total Active Paying Subscribers (thousands)......... 9.8 20.4 14.9 25.2
</TABLE>

Sovintel

GTS owns 50% of Sovintel, a joint venture with Rostelecom, the national
long distance carrier. Sovintel was founded in 1990 by GTS, Rostelecom and GTE
Spacenet, with GTS acquiring GTE Spacenet's interest in 1994. Sovintel markets a
broad range of high quality telecommunications services by (i) directly
providing international direct dial access to over 180 countries and private
line dedicated voice channels and (ii) leveraging the infrastructure and
services of the other GTS ventures, including TeleRoss, TCM and Sovam. In
addition, Sovintel provides and installs for its customers equipment such as
PABXs, key systems and wiring and provides maintenance and other value-added
services. Sovintel customers, which primarily consist of businesses, hotels and
Moscow-based cellular operators, are able to access these telecommunications
services through Sovintel's fully-digital overlay network in Moscow. In
addition, Sovintel continues construction of its St. Petersburg network which is
interconnected to Sovintel's Moscow network and is intended to support
Sovintel's Moscow clients which have a presence in St. Petersburg. Sovintel
serviced over 51,410 Moscow telephone numbers, or "ports," for business
customers and cellular providers and had over 350 employees as of September 30,
1998.

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Sovintel has constructed and operates a fully-digital overlay network in
and around Moscow which consists of (i) an approximately 600-Kilometer fiber
optic ring, (ii) over 430 PABXs linked to the fiber optic ring, (iii) a
fully-digital microwave network, (iv) a wireless local loop and (v) an
international gateway connected to the fiber optic ring. In addition, Sovintel
leases dedicated international long distance channels. Customers are connected
to the Sovintel network via last mile connections to over 430 PABXs that provide
"points-of-presence" in and around Moscow. The PABXs are connected to the
network through a direct fiber connection or a digital microwave network. Some
of Sovintel's new customers are temporarily connected to the network through a
wireless local loop. The wireless local loop provides a competitive advantage
because it allows Sovintel to connect customers to its network more quickly than
alternative methods. As these customers are provided permanent connections to
Sovintel's network through direct connections to the PABXs, additional customers
are rolled onto the wireless local loop.

[GTS SOVINTEL MOSCOW NETWORK CHART]

After a customer is connected to the Sovintel network, local telephone
services are provided through the Sovintel fiber optic ring's interconnection
with the switches of either TCM or MTU Inform. These switches provide access to
local telephone service in Moscow through interconnections with the local
telephone network, which is operated by MGTS and the principal Moscow cellular
providers. Sovintel provides its customers access to domestic long distance
service through the TeleRoss long distance network, or through Rostelecom's
network in cities not currently served by TeleRoss. The Sovintel international
gateway primarily provides international service, transmitting international
traffic via dedicated international leased long distance channels. Sovintel's
customers also can receive high speed data services through Sovintel's
interconnection with the Sovam data network. Sovintel has obtained a license to
provide large business customers in Moscow and St. Petersburg high speed data
services and Internet access through private line channels, thus

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complementing Sovam's regional offering and supporting its customer base in
Moscow and St. Petersburg. Accordingly, from a customer's perspective, Sovintel
offers a broad range of telecommunication services.

The following table sets forth certain operating data related to Sovintel's
operations:

<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Minutes Of Use(1)
International
Number of Minutes.............. 10,516 20,839 43,664 30,628 43,440
Average Rate Per Minute........ $ 2.06 $ 1.55 $ 1.12 $ 1.19 $ 0.96
Domestic Long Distance
Number of Minutes.............. 2,047 10,098 26,606 16,946 35,663
Average Rate Per Minute........ $ 0.86 $ 0.65 $ 0.52 $ 0.55 $ 0.45
Moscow (Local) Fixed Line
Number of Minutes.............. -- -- 3,501 2,302 5,113
Average Rate Per Minute........ -- -- $ 0.05 $ 0.06 $ 0.03
Moscow (Local) Cellular
Number of Minutes.............. 21,478 83,673 118,447 82,333 76,835
Average Rate Per Minute........ $ 0.06 $ 0.08 $ 0.08 $ 0.08 $ 0.08
Incoming
Number of Minutes.............. 3,839 24,306 43,626 34,571 20,841
Average Rate Per Minute........ $ 0.58 $ 0.28 $ 0.30 $ 0.29 $ 0.29
Ports
Approximate Number of Ports
(cumulative)................... 6,079 29,646 43,976 40,563 51,410
Approximate Number Of Private Line
Channels (cumulative)
International..................... 26 89 201 162 306
Inter- and Intra-City............. 26 103 243 184 438
Approximate Equipment Sales
(thousands)....................... $ 1,400 $ 2,200 $ 3,400 $ 2,500 $ 3,651
</TABLE>

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

(1) Minutes in thousands. Amounts include minutes among affiliates.

Services. Sovintel markets a broad range of high quality telecommunications
services by (i) directly providing international direct dial access to over 180
countries and private line dedicated voice services and (ii) by leveraging the
infrastructure and services of the other GTS ventures. Sovintel's services
include:

Switched International, Domestic Long Distance and Local
Services. Customers are provided switched international long distance services
directly through Sovintel's international gateway in Moscow and its leased long
distance channels. Domestic long distance services are marketed by Sovintel and
provided either through the TeleRoss long distance network or, where the call
destination is not served by TeleRoss, through Rostelecom's network. Local call
service is provided by Sovintel indirectly as a result of its interconnection,
through TCM or MTU Inform, with the Moscow city telephone network. Based on its
familiarity with the market, GTS believes that Sovintel's services are
distinguished by a higher level of quality than those of its competitors,
particularly with respect to call completion rates for its domestic long
distance and local call services. In addition, GTS trains its employees to
provide customer service at a level which is comparable to that provided by
Western telecommunications companies.

Private Line Channels. Private line channels, which are provided over
dedicated leased lines, are principally utilized by customers with high-volume
data traffic needs, such as Sovam and large data providers. Private line
customers have access to intra-city service in Moscow through Sovintel's fiber
optic ring and to

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inter-city service between Moscow and St. Petersburg via fiber optic line or
channel leased by Sovintel, in each case benefitting from Sovintel's high
quality infrastructure. Private line domestic long distance service is provided
through TeleRoss and, for cities not served by TeleRoss, through Rostelecom.
International private line service is provided through dedicated leased fiber
channels from Rostelecom.

Equipment Sales, Installation Services and Project Planning and Management
Services. In providing the above services to its customers, Sovintel installs
and maintains equipment on its customers' premises, including PABXs, key systems
and wiring. Sovintel also provides project planning and management services,
including system design and management, to its customers.

World Access Service. Customers are able to access Sovintel's international
long distance services through the World Access Card, which provides customers
either direct or calling-card-based portable access to domestic and
international long distance service. The calling card can be used in 18 Russian
cities, including Moscow and St. Petersburg, and 25 countries.

Sovintel complements its service offerings by providing a wide range of
value-added services, including operator assistance, maintenance and customer
support and itemized call reporting and billing.

Customers and Pricing. Sovintel's customers consist primarily of
high-volume business and professional customers, such as IBM, Credit Suisse
Group and Reuters, other multinational corporations and Russian enterprises,
including a number of premium Moscow hotels and other telecommunications
carriers. In addition, Sovintel is one of the primary providers of domestic and
international long distance service for the major cellular service providers in
Moscow, including VimpelCom (Bee-Line), MTS and Moscow Cellular. Sovintel's
customers typically demand a higher level of service than generally available in
the market. Sovintel further provides to its large corporate customers data
services such as frame relay and Internet access contracted from Sovam in order
to offer an "one-stop shopping" telecommunications solution to these customers,
who increasingly require this type of service.

The pricing structure for international and domestic long distance calls is
based upon traffic volume and overall market rates, with Sovintel's rates
varying on the duration and destination of the call. Local calls, other than
calls placed to cellular phones, are completed without charge. Sovintel expects
to continue its practice of not charging to complete local calls unless and
until MGTS begins to charge for completion of such calls. Sovintel prices its
international long distance services competitively with those of its principal
competitors. Sovintel's average revenue per minute for outgoing international
long distance calls has declined from approximately $2.35 per minute for the
year ended December 31, 1994 to approximately $0.96 per minute for the nine
months ended September 30, 1998. Sovintel is experiencing increased pricing
pressure from competitors. Sovintel prices domestic long distance services in
line with those of its principal competitors. Due to its obligations under
certain agreements with affiliated entities, however, Sovintel's margins for
these services had been declining, though Sovintel recently succeeded in
reversing this trend by achieving lower settlements through least-cost routing.
Prices for domestic long distance services have increased significantly over the
last several years, although such prices stabilized in the second half of 1996.
Sovintel's private line services are priced competitively. Sovintel provides
private line channels by releasing lines it leases from Rostelecom. Sovintel
leases the lines from Rostelecom at wholesale rates and to its customers at
prices in line with Rostelecom's retail rate. In addition, Sovintel provides
private line channels through "one-stop shopping" arrangements with
international carriers, such as AT&T, British Telecom and Cable & Wireless.

Customers are billed monthly, with larger-volume customers receiving
discounts of up to 25%. GTS bills customers using Sovintel services, either in
US Dollars or Russian rubles. All underlying pricing is based on US Dollar
tariffs. For customers invoiced in rubles, Sovintel has the contractual ability
to recover devaluation losses that exceed 3% by re-invoicing the customer. To
the extent permitted by law, payment is made either in US Dollars or in rubles
at the ruble/dollar exchange rate at the time of payment, plus a conversion
charge in order to minimize the impact of currency fluctuations. To the extent
Sovintel receives remittances in rubles, Sovintel will have higher ruble cash
and receivable balances which will expose it to correspondingly greater exchange
risk. See "Risk Factors -- Risks of Conducting Business in Foreign Currencies"
(page 34). In addition, due to the ruble devaluation that was part of the August
17 Decision and the attendant scarcity of US Dollars, there may be a lower
general level of remittances to Sovintel in US Dollars. Sovintel currently
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bills on an invoicing system that was internally developed. Currently, the
system is adequate for Sovintel's present customer base; however, GTS is
evaluating alternatives for upgrading the system in anticipation of future
growth.

Sales and Marketing. Sovintel's sales and marketing strategy targets large
multinational and Russian businesses both directly and through contacts with
real estate developers and business center managers in the greater Moscow area.
These developers and managers typically determine which telecommunications
service provider will service their respective properties. By identifying and
building relationships with these developers and managers at an early stage
(typically up to one year prior to the completion of a new building project),
Sovintel seeks to enhance the likelihood of winning the service contract. In
addition to its traditional target market, Sovintel has recently begun to market
its services to smaller businesses. Sovintel utilizes a departmentalized sales
force in order to focus its sale efforts on the different segments within its
target market. The sales force is comprised of 17 account managers, all of whom
specialize in serving specific targeted industries. Dedicated marketing, project
management and customer support comprised of 23 personnel provide technical
support, customer service, training, market monitoring and promotional functions
for Sovintel. Sovintel's sales and marketing personnel are paid through a
combination of salary, commissions and incentive bonuses.

Ownership and Control. Sovintel is a joint venture between a wholly owned
entity of GTS and Rostelecom, with each having a 50% ownership interest. Under
Sovintel's charter, GTS and Rostelecom each have the right to appoint three of
the six members of Sovintel's managing board. Rostelecom has the right to
nominate the Director General (the highest ranking executive officer at
Sovintel), while GTS has the right to nominate the First Deputy Director General
(the next-highest ranking executive officer at Sovintel). In practice, the
Director General and the First Deputy Director General together perform the role
of a chief executive officer. Certain business decisions, including the adoption
of Sovintel's annual budget and business plan as well as the distribution of
profits and losses, require the approval of both GTS and Rostelecom. Neither GTS
nor Rostelecom are obligated to fund Sovintel's operations or capital
expenditures. Losses and profits of Sovintel are allocated to the partners in
accordance with their ownership percentages, in consideration of funds at risk.
As of September 30, 1998, GTS and Rostelecom have each made equity contributions
of $1.0 million to Sovintel. The Sovintel joint venture agreement does not have
an expiration date. See "Risk Factors -- Dependence on Certain Local Parties;
Absence of Control" (page 32) and "GTS Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Accounting
Methodology -- Profit and Loss Accounting" (page 173).

TCM

Subsequent to June 30, 1998, GTS increased its beneficial ownership of TCM
to 95%. TCM, a joint venture founded in 1994, provides a licensed numbering plan
and interconnection to the Moscow city telephone network for carriers needing
basic local access service in Moscow. GTS' partner in TCM is MTU-Inform, a
Russian telecom operator. TCM is currently licensed to provide 100,000 numbers
in Moscow, of which over 78,000 have been leased. However, TCM was unable to
lease an additional 22,000 numbers to VimpelCom, TCM's primary customer, during
1998 as it had previously expected it would. TCM is seeking alternative lessees
for these numbers, but there can be no assurance that these numbers will be
leased in a timely manner. TCM has completed agreements required to construct
and provide an additional 50,000 numbers. The construction started in 1998 and
is expected to be completed in the third quarter of 1999. TCM's switching
facilities are fully integrated with the networks of Rostelecom, Sovintel, and
MGTS, allowing it to provide high quality digital service to its customers.

Services. TCM acts as a local gateway by providing numbers and ports to
carriers in Moscow, including Sovintel, VimpelCom, MTS and Moscow Cellular, and
thus providing interconnectivity to the Moscow city telephone network. Access to
the Moscow city telephone network provides customers with the higher quality and
broader range of services available in Moscow, such as the services provided by
Sovintel. Access from outlying regions is typically obtained through a domestic
long distance service provider such as TeleRoss. See "-- Sovintel" (page 148)
and "-- TeleRoss" (page 153).

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<PAGE> 160

Customers and Pricing. TCM provides its services on the wholesale level to
primary carriers. VimpelCom is TCM's primary customer and accounts for
substantially all of TCM's revenues. Hence the loss of VimpelCom as a customer
would have a material adverse effect on GTS. TCM also provides ports to Sovintel
and to other network operators. TCM's ports are leased principally to carriers
in Moscow. Although local access services are priced upon the basis of supply
and demand factors in the local market, in general, for each port cellular
operators pay an approximately $360 installation fee and a $15 flat monthly fee
plus a per minute charge for traffic while other carriers pay a larger initial
fee of approximately $500 and a monthly fee of approximately $25. Local access
services are typically provided pursuant to five-year contracts that may be
renewed upon expiration for additional one-year periods. TCM has entered into an
agreement with Sovintel pursuant to which Sovintel bills and collects for
TCM-Sovintel joint customers, with Sovintel remitting such amounts (less
applicable settlement charges and administrative costs) to TCM. The rapid growth
of cellular services in markets like Moscow has placed a premium on new numbers,
which has translated into attractive prices for these numbers. TCM, however,
believes these prices will decline over time.

Ownership and Control. GTS' indirect interest in TCM is represented by its
100% interest in a holding company, which owns 95% of TCM. This structure
provides GTS with 95% beneficial ownership interest in TCM. At both the holding
company and TCM level, losses and profits are allocated to the partners in
accordance with their ownership percentages, in consideration of funds at risk.
None of the operative charters and agreements relating to the holding company or
TCM have expiration dates. See "Risk Factors -- Dependence on Certain Local
Parties; Absence of Control" (page 32) and "GTS Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Accounting
Methodology -- Profit and Loss Accounting" (page 173).

TeleRoss

TeleRoss, which began operations in 1995, consists of a wholly owned
subsidiary of GTS that operates a domestic long distance network (the "TeleRoss
Operating Company") and 14 joint ventures that are 50% beneficially-owned by GTS
that originate traffic and provide local termination of calls (the "TeleRoss
Ventures" and, together with TeleRoss Operating Company, "TeleRoss"). The
TeleRoss domestic long distance network serves 15 major Russian cities,
including Moscow and, through VSAT technology, 21 customers located outside
these cities. TeleRoss provides digital domestic long distance services and
other value-added services through its own infrastructure as well as access to
Sovintel's international gateway services and access to the Moscow city
telephone network through TCM's switching facilities. Sovam uses the TeleRoss
digital channels to provide regional data service and has co-located its access
facilities with TeleRoss. As of September 30, 1998, TeleRoss employed
approximately 231 persons of which approximately 98 people were based in Moscow
and approximately 133 people were deployed in the regions in which TeleRoss
operates.

TeleRoss's licenses cover the city of Moscow and a total of 38 regions
throughout Russia. Most of the 14 cities in which TeleRoss primarily operates
are regional capitals, with an aggregate population of approximately 13 million.
TeleRoss's licenses cover the entire region surrounding these cities, with
populations totaling approximately 41 million persons, and GTS intends
eventually to extend the reach of the TeleRoss network beyond the regional
capitals to the surrounding areas. The cities in which TeleRoss currently offers
its services are: Arkhangelsk, Ekaterinburg, Irkutsk, Khabarovsk, Krasnodar,
Nizhny Novgorod, Novosibirsk, Samara, Syktyvkar, Tyumen, Ufa, Vladivostok,
Volgograd and Voronezh.

The TeleRoss network architecture involves local city switches connected to
remote earth stations which communicate via satellite or satellite connection to
a Moscow-based hub. This hub consists of the network control center, earth
station equipment, multiplexing equipment and a switch. The earth stations, hub
and related equipment are owned by TeleRoss, which gives TeleRoss the
flexibility to redeploy network assets to other locations as necessary. The hub
interconnects to Sovintel's network providing access to Sovam's data networks,
TCM's switching facilities and Sovintel's international gateway, which
transports international traffic via dedicated international leased satellites
and fiber channels and provides access to Rostelecom's long distance networks.
Outside of Moscow, TeleRoss's local joint venture partners provide
interconnection to the local public telephone networks in each of the cities it
serves. In addition to providing services through its
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network, TeleRoss currently serves 21 customers in additional sites through VSAT
technology which links the customers via satellite to the Moscow hub.

The following table sets forth certain operating data related to TeleRoss's
operations:

<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- -----------------
1996 1997 1997 1998
------ ------- ------- -------
<S> <C> <C> <C> <C>
Minutes of Use(1)
Domestic Minutes (thousands).................. 4,035 23,233 14,440 31,244
Average Rate Per Domestic Minute.............. $ 0.99 $ 0.63 $ 0.66 $ 0.51
International Minutes (thousands)............. 272 744 486 806
Average Rate Per International Minute......... $ 2.76 $ 2.47 $ 2.56 $ 2.01
Number of Cities Served(2)...................... 13 14 14 15
World Connect Dial/Russia
Number of Connect Dial Ports.................. 472 1,112 961 2,106
Average Revenue Per Port Per Month............ $ 767 $ 370 $ 378 $ 339
Moscow Connect
Number of Ports............................... 49 78 56 66
Average Revenue Per Port Per Month............ $1,165 $ 1,358 $ 1,513 $ 1,295
Dedicated Circuits
Number of Dedicated Channels.................. 33 60 43 109
Average Price Per Channel..................... $4,553 $ 4,140 $ 4,264 $ 2,816
World Access Service
Number of World Access Card Users............. 3,929 4,595 4,360 3,675
Average Revenue Per Card Per Month............ $ 52 $ 48 $ 45 $ 57
VSAT Services
Number of VSATs............................... 12 24 20 21
</TABLE>

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

(1) Includes minutes among affiliates.

(2) Includes connection to Moscow.

Services. Through its network and VSAT offerings, TeleRoss offers the
following services:

Carriers' Carrier Services. TeleRoss provides services as a carriers'
carrier, providing domestic long distance carrier services to cellular
operators, Sovintel, the TeleRoss Ventures' regional partners and competitive
bypass operators from the cities in which the TeleRoss Ventures operate, and to
customers in remote sites using VSAT stations. These services are provided to
and from Moscow, and are provided by TeleRoss at wholesale rates competitive
with those offered by Rostelecom. TeleRoss also provides private line channels
to Sovam in cities where the TeleRoss Ventures operate. In addition, TeleRoss
has recently received a license to provide international private line service.

World Connect Dial/Russia Connect Dial. Customers in TeleRoss's cities are
provided dedicated local access to the regional TeleRoss switch through lines
leased from the TeleRoss Venture's regional joint venture partner. These
customers then have access to the domestic long distance service provided by
TeleRoss, international long distance service provided by Sovintel and are fully
integrated into the local phone networks operated by the applicable TeleRoss
Venture's partner and to the Moscow city telephone network through TCM.

Moscow Connect. Customers are provided with dedicated last mile connection
over lines leased from the regional joint venture partner and connected to a
local TeleRoss switch. The TeleRoss network and its interconnection to TCM
provide customers with a Moscow dial tone which allows users in remote locations
better access to Moscow's advanced telecommunications infrastructure. In
addition, Moscow Connect service provides better call quality at lower rates for
domestic and international long distance. Moscow Connect also

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<PAGE> 162

facilitates communications between users and their Moscow-based associates as
calls can be made to and from Moscow without the use of prefixes and without
long distance charges accruing to the Moscow-based parties.

Dedicated Circuits. Customers are provided with point-to-point clear
channel circuits within Russia and internationally through the TeleRoss backbone
and its interconnection with Sovintel's international gateway in Moscow.
Dedicated circuits are generally used by news services, banks and other
commercial customers who require high capacity and high quality service. This
service can be used for voice or data, depending on the user's needs. In
providing dedicated circuits, TeleRoss competes against other alternative
communications providers; however, TeleRoss believes that it has a price
advantage over its competitors because of the use of its own infrastructure and
the bulk purchase of satellite capacity.

World Access Service. TeleRoss and Sovintel co-market World Access Service
to their customers in each of the cities they serve through two products: World
Access Direct and World Access Card. Through World Access Direct, TeleRoss
customers can access domestic long distance and international service anywhere
within the customer's city through the local telephone network. The World Access
Card is a calling card which allows TeleRoss customers portable access to
domestic long distance and international service from 18 Russian cities,
including Moscow and St. Petersburg, and 25 countries. TeleRoss provides this
service through Sovintel's infrastructure.

VSAT Services. For customers that are located outside the cities serviced
by TeleRoss or that cannot be physically linked to TeleRoss's regional switches,
TeleRoss offers VSAT service which connects these customers directly to
TeleRoss's Moscow-based hub through a VSAT antenna installed at the customer's
location. TeleRoss provides both dedicated and switched services through these
VSAT arrangements.

In addition to continuing the development of its core domestic long
distance business, TeleRoss's strategy includes the development of local access
networks to capitalize on demand for local phone service and to capture
additional customers for its long distance and value-added service offerings.
Outside Moscow, TeleRoss has primarily pursued a strategy whereby it develops
its own intra-city trunking network with copper based or fiber optic facilities
leased from the regional joint venture partners. As of September 30, 1998,
TeleRoss, in conjunction with regional joint venture partners, has installed
approximately 30 kilometers of fiber optic cable in three cities and had plans
to install an aggregate of approximately 100 kilometers of additional fiber
optic cable in up to an additional six cities over the next 21 to 27 months.
Because of the economic crisis in Russia, GTS is reconsidering the advisability
of proceeding with such plans. Customers who obtain local phone numbers from
TeleRoss's venture partners are directly interconnected to the local telephone
company and to GTS' long distance network and Sovintel's international gateway
and may obtain a broad range of value-added services offered by GTS.

Customers and Pricing. TeleRoss's customers include businesses and other
telecommunications service providers such as carriers, PTOs, cellular operators,
Sovintel and Sovam. TeleRoss's business customers consist of large multinational
and Russian businesses in each of the regions it services, as well as medium and
small-sized businesses. Between 1993 and mid-1996, consumer prices in TeleRoss's
industry increased significantly as a result of Rostelecom raising its prices in
an effort to raise capital for investment and development of its network
infrastructure, although prices have stabilized over the past years. During the
first nine months of 1998, TeleRoss increased sales to carriers, which sales
were made at wholesale rates, resulting in a decrease in the average rate per
minute for TeleRoss. The financial crisis and consequent ruble devaluation
versus the US Dollar has affected the competitiveness of TeleRoss's business.
The regional operations, whose prices are defined in rubles need local
government approval for price increases. It is uncertain that substantial
increases will be granted soon, implying that TeleRoss may have to reduce its
tariffs substantially to remain competitive. Rostelecom may be more able to
raise its prices to higher levels. TeleRoss, however, also anticipates that to
remain competitive, it may have to reduce its wholesale tariffs for the
carriers' carrier business.

Although its tariffs are set in US Dollars, TeleRoss historically has
billed its customers in rubles. Since August 17, 1998, TeleRoss has signed new
contracts with the majority of customers to return to US Dollar invoicing. To
the extent permitted by law, payment is made either in US Dollars or in rubles
at the ruble/ dollar exchange rate at the time of payment, plus a conversion
charge in order to minimize the impact of
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<PAGE> 163

currency fluctuations. To the extent it receives remittances in rubles, TeleRoss
will have higher ruble cash and receivable balances which will expose it to
correspondingly greater exchange risks. See "Risk Factors -- Risks of Conducting
Business in Foreign Currencies" (page 34). In addition, due to the ruble
devaluation that was part of the August 17 Decision and the attendant scarcity
of US Dollars, there may be a lower general level of remittances to TeleRoss in
US Dollars.

Sales and Marketing. TeleRoss markets its services to carriers and
businesses through direct sales channels. As of September 30, 1998, TeleRoss
employed 42 sales and marketing personnel, approximately 15 of whom are based in
Moscow with the remainder deployed regionally to identify and contact
prospective customers. The Moscow-based sales and marketing personnel are
organized into industry groups in order to better identify and serve customer
needs. One or two sales representatives typically serve each region. TeleRoss's
sales efforts are supported by market research and promotional activities
carried out at the joint venture level and tailored to the specific market base
of each region. TeleRoss's marketing strategy is to attract carrier customers by
focusing on those carriers with high volume minutes operating in regions where
TeleRoss has a competitive advantage. Through cross-marketing agreements with
Sovintel and Sovam, TeleRoss markets many of the other service offerings of GTS'
Russian businesses to customers throughout its service regions. Billing
functions and the monitoring of quality control and technical issues are
performed centrally through the Moscow-based hub.

Ownership and Control. TeleRoss consists of the TeleRoss Operating Company,
and the 50% beneficially owned TeleRoss Ventures. GTS controls TeleRoss
Operating Company (which holds the network license) and co-manages the TeleRoss
Ventures under the terms of the applicable TeleRoss Ventures' foundation
agreements and charters. Under some of these charters, GTS generally has the
right to designate the Chairman of the board of directors, and GTS' local
partner has the right to designate the Deputy Chairman, for the first two-year
term (and thereafter GTS and the local partner nominate the Chairman and Deputy
Chairman for approval by the entire board on a rotating basis). The foundation
agreements and charters do not have expiration dates. While GTS has significant
influence within these ventures, decisions, including the decision to declare
and pay dividends, are generally subject to GTS' partner's approval. See "Risk
Factors -- Dependence on Certain Local Parties; Absence of Control" (page 32).
Neither GTS nor its respective joint venture partners are obligated to fund
operations or capital expenditures of the TeleRoss Ventures. Losses and profits
are allocated to the partners in accordance with their ownership percentages, in
consideration of funds at risk. As of September 30, 1998, GTS and its partners
had each made equity contributions aggregating $1.9 million to the various
TeleRoss Ventures. Contributions made by the partners include contributions of
cash and intangible assets, such as local support and assistance with respect to
the issuance of licenses in the name of the TeleRoss Operating Company. In
addition, the various TeleRoss Ventures had outstanding loans and interest of
$0.44 million to GTS and $2.3 million to Citibank as of September 30, 1998. In
addition, as of September 30, 1998, GTS had made equity contributions of $5.8
million to the TeleRoss Operating Company and the TeleRoss Operating Company had
outstanding loans and interest of $34.0 million to GTS and $7.0 million to
Citibank. See "GTS Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Accounting Methodology -- Profit and Loss
Accounting" (page 173).

Sovam

Sovam is a venture that is wholly owned by GTS. Sovam was founded in 1990
as a venture equally owned by GTS and the IAS. In 1992, Cable & Wireless
acquired a 33% ownership interest in Sovam, which interest was subsequently
acquired by GTS in 1994, bringing GTS' ownership interest to 66.7%. GTS
purchased IAS's interest in Sovam in February 1998, thereby making Sovam a
wholly owned subsidiary of GTS. Sovam provides high-speed data communications
services, electronic mail and database access over a high-speed packet/frame
relay network in 47 major Russian and CIS cities. Sovam also offers Russia On
Line, the first Russian language Internet service, which provides direct access
to the Internet as well as access to a wide range of local and international
information services and databases. (Russia On Line(TM) is a trademark of GTS.)
As of September 30, 1998, Sovam had approximately 1,500 data service customers
and approximately 3,914 Russia On Line customers (which includes approximately
345 trial subscribers). Sovam employed

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<PAGE> 164

approximately 158 persons in Moscow and other regions of the CIS as of September
30, 1998. Sovam provides equipment and maintains marketing and technical support
personnel at each location either through its own infrastructure or through the
infrastructure of partners, including TeleRoss.

In addition to serving the Moscow and St. Petersburg markets, Sovam
co-locates its operations with the TeleRoss Ventures, offering its services in
all TeleRoss cities, and also serves 32 additional cities in Russia and the CIS.
Sovam operates under its own license within Russia while applicable local
partner licenses provide services elsewhere in the CIS. The local partners of
the TeleRoss Ventures provide facilities, assist in the provision of leased
lines to Sovam customers that allow them to connect with Sovam's local data
switches and also provide technical support. Sovam utilizes Sovintel's
international capabilities and, in TeleRoss-served locations, TeleRoss's
satellite overlay network, to take data through its local data switches and over
the leased lines to its customers. Customers may obtain virtual private data
networks without investing in, acquiring, installing and maintaining their own
network nodes and switches.

The following table sets forth certain operating data related to Sovam's
operations:

<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS
AT AND FOR THE YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Basic Data Service
Percentage of Total Sovam Revenue....... 91% 79% 81% 80% 83%
Number of Customers..................... 1,587 1,726 1,571 1,667 1,500
Average Revenue Per Month Per
Customer............................. $ 201 $ 446 $ 728 $ 675 $1,077
Number of Cities in Service............. 11 25 30 30 47
Equipment and Hardware Sales Percentage of
Total Sovam Revenue..................... 8% 14% 8% 10% 6%
Russia on Line Service Percentage of Total
Sovam Revenue........................... 1% 7% 11% 10% 11%
Number of Subscribers(1)................ 407 1,854 3,159 2,606 3,569
Average Revenue Per Month Per
Subscriber........................... $ 49 $ 52 $ 64 $ 67 $ 65
</TABLE>

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

(1) In addition to the subscribers included above, Sovam frequently connects
potential Russia On Line subscribers on a complimentary one-month trial
basis. As of September 30, 1998, there were approximately 345 such potential
subscribers.

Services. Sovam's service offerings are comprised of data services,
equipment and hardware sales and its Russia On Line services.

Data Services. Sovam provided high speed connectivity, electronic mail,
database access and fax services to approximately 1,500 customers as of
September 30, 1998, in Russia and the CIS. Sovam customers can use electronic
mail systems to send and receive messages and data and to access public and
private data networks (including the Internet) worldwide. Customers may obtain
virtual private data networks without investing in, acquiring, installing and
maintaining their own network nodes and switches. In addition, Sovam offers its
customers value-added data services. For example, Sovam offers "one-stop
shopping" for hardware, software, installation and maintenance support and
products such as "SovamMail," an electronic mail service which allows customers
to use Sovam's data network to send telex or facsimile messages to overseas
recipients worldwide. Data services are currently available in 47 cities
throughout Russia and the CIS, including Moscow, St. Petersburg, each of the
cities served by TeleRoss and some cities outside of the TeleRoss network.

Equipment and Hardware Sales. Sovam sells communications equipment and
hardware, and provides related installation, maintenance and support functions,
to its customers. Sovam's primary customers in the equipment and hardware market
are banking clients who use the equipment to interface with Sovam's network.

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Russia On Line. Russia On Line is the first Russian language, as well as
the first dual language, graphical user interface online service for accessing
domestic and international information sources designed to appeal to a wide
commercial audience. This service, which is distributed via GTS' domestic long
distance infrastructure, provides customers with access to international
databases (including the Internet), as well as an array of proprietary Russian
and English language information services, such as news stories and market
updates. Sovam had 3,914 Russia On Line subscribers (which includes
approximately 345 trial subscribers) as of September 30, 1998. Sovam has
developed a modified version of Netscape's Internet browser, which utilizes the
Cyrillic alphabet, as part of its Russia On Line package. Sovam's enhanced
Russian version of Netscape's browser is provided by Sovam to its customers
under a distribution agreement with Netscape. In addition, Sovam has also
entered into agreements with equipment manufacturers, including an affiliate of
Motorola, to include Russia On Line software with their products.

Customers and Pricing. Sovam's data communications customers consist
primarily of banking and financial services organizations and large
multinational companies, while Sovam's Russia On Line customers consist of a
wide variety of commercial enterprises. Continued deterioration in the political
and economic environment in Russia may adversely affect Sovam's customer base.
See "Risk Factors -- Risks Relating to Operations in Russia and the CIS" (page
27). Sovam charges customers an installation fee when service is commenced and a
charge for any equipment which is installed. Thereafter, customers are billed on
a monthly basis for leased line fees, port access charges and charges for data,
and Russia On Line services rendered during the month. Sovam prices data
services on a two-tier structure with high volume users generally negotiating a
flat-rate fee and lower volume users paying a volume-based fee which on average
was $446 and $728 per subscriber in 1996 and 1997, respectively. Russia On Line
customers pay a fixed monthly access charge plus an additional volume-based fee.
Sovam bills customers in dollars and, customers remit payment in rubles and, to
the extent permitted by law, in US dollars, with a 2% to 5% conversion fee added
to ruble-denominated payments. To the extent it receives remittances in rubles,
Sovam will have higher ruble cash balances which will expose it to
correspondingly greater exchange risks. See "Risk Factors -- Risks Specific to
GTS -- Risks of Conducting Business in Foreign Currencies" (page 34). In
addition, the ruble devaluation that was part of the August 17 Decision and the
attendant scarcity of US Dollars may cause a lower general level of remittances
to Sovam in US Dollars.

Sales and Marketing. Sovam employs a dedicated sales and marketing force
comprised of three non-Russian nationals and 33 Russian nationals, 28 of which
are based in Moscow with the remainder deployed in the other Russian and CIS
regions. Sovam pays salespersons a fixed salary supplemented by sales
commissions and performance-based bonuses. Sovam's sales efforts are focused
primarily on the banking and financial communities and large multinational
companies, although small- and medium-sized entities are also emerging as
potential Sovam customers. Bundled service packages, which include Sovam's data
and Internet service, Sovintel's international service and TeleRoss's long
distance service, are frequently marketed together in order to offer customers a
comprehensive telecommunications solution. In addition to data communications
services, Sovam offers its customers hardware, installation and maintenance
service and is a distributor of Northern Telecom equipment.

Ownership and Control. At December 31, 1997, GTS owned 66.7% of Sovam and
IAS owned the remaining 33.3%. GTS purchased IAS's interest in Sovam in February
1998, thereby making Sovam a wholly owned subsidiary of GTS. See "GTS
Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Accounting Methodology -- Profit and Loss Accounting" (page 173).

GTS Cellular

GTS Cellular operates cellular businesses in Russia and Ukraine. In Russia,
GTS has a wholly owned subsidiary Vostok Mobile (which is organized in The
Netherlands), which currently operates AMPS cellular companies in Russian
regions located primarily west of the Urals under the trade name Unicel. Vostok
Mobile owns, between 50% and 100% of these cellular joint ventures (the "Unicel
Ventures") in Russia. In addition, through Vostok Mobile, GTS participates in
PrimTelefone, a 50%-owned joint venture that operates an NMT network in
Vladivostok and other cities in the Primorsky region of Russia. In April 1998,
PrimTelefone was also awarded a license to operate GSM-1800 in 14 regions of the
Russian Far East, including Vladivostok,
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<PAGE> 166

Khabarovsk and Irkutsk. In Ukraine, GTS has an approximately 57% beneficial
interest in Golden Telecom which operates a GSM-1800 cellular network in Kiev,
and an international overlay network in Ukraine. GTS Cellular entities possess
licenses covering major Russian and Ukrainian markets (excluding Moscow and St.
Petersburg) with an aggregate 1997 population of approximately 42 million
people.

GTS currently offers cellular services in the following regions as of
September 30, 1998:

<TABLE>
<CAPTION>
GTS' NUMBER OF
ECONOMIC ACTIVE
OPERATING COMPANY INTEREST(1)(2) CITY SUBSCRIBERS
----------------- -------------- ---- -----------
<S> <C> <C> <C>
Russia
Vostok Mobile(2)
Arkhangelsk Mobile Networks.................. 50.0% Arkhangelsk 646
Astrakhan Mobile............................. 50.0% Astrakhan 871
Altaisvyaz(3)................................ 50.0% Barnaul 330
Chuvashia Mobile............................. 70.0% Cheboksary 785
Lipetsk Mobile............................... 70.0% Lipetsk 809
Murmansk Mobile Network...................... 50.0% Murmansk 859
Penza Mobile................................. 60.0% Penza 517
Saratov Mobile............................... 50.0% Saratov 1,638
Parma Mobile................................. 50.0% Syktyvkar 476
Volgograd Mobile............................. 50.0% Volgograd 1,724
Votec Mobile................................. 50.0% Voronezh 2,055
Mar Mobile................................... 50.0% Yoshkar-ola 339
Novotel(4)................................... 100% Novgorod 169
PrimTelefone................................. 50.0% Vladivostok(5) 5,112
Ukraine
Golden Telecom............................... 56.8%(6) Kiev 8,836
------
Total................................ 25,166
======
</TABLE>

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

(1) Represents the indirect economic interest of GTS in each entity.

(2) Prior to September 26, 1997, GTS owned 62% of Vostok Mobile. On September
26, 1997, GTS acquired the minority interest in Vostok Mobile, making Vostok
Mobile a wholly owned subsidiary of GTS. Vostok Mobile owns between 50% and
100% of a series of 14 operational cellular joint ventures in various
regions in Russia. As of June 30, 1998, GTS' Vostok Mobile had established
new joint ventures which had received additional licenses to operate AMPS
networks in the regions of Bashkiria (Ufa), Yaroslavl, Bryansk and Kostroma.
Because of the current Russian economic crisis, GTS has decided not to
pursue operating under these licenses.

(3) Joint venture acquired in October 1997; cellular operations commenced in
February 1998.

(4) Acquired and started commercial service in April 1998.

(5) Includes Vladivostok and other cities in the Primorsky region.

(6) GTS has completed a restructuring of the capital and ownership of Golden
Telecom, which gives GTS an approximately 57% beneficial ownership.

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<PAGE> 167

The following table sets forth certain operating data related to GTS
Cellular's operations:

<TABLE>
<CAPTION>
AT AND FOR THE
AT AND FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
----------------- -----------------
1996 1997 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Vostok Mobile
Total Active Paying Subscribers.............. 6,884 11,527 9,562 11,218
Average Service Revenue Per Subscriber Per
Month..................................... $ 128 $ 159 $ 158 $ 144
Minutes of Use(1)(thousands)................. 10,561 27,771 18,800 26,262
Population Covered by Licenses (thousands)... 18,400 18,400 18,400 30,192
Population Covered by Networks (thousands)... 6,500 6,500 6,500 8,198
Subscriber Penetration of Population Covered
by Networks............................... 0.11% 0.18% 0.15% 0.14%
PrimTelefone
Total Active Paying Subscribers.............. 2,822 5,162 3,907 5,112
Average Service Revenue Per Subscriber Per
Month(2).................................. $ 236 $ 201 $ 199 $ 186
Minutes of Use(1)(thousands)................. 6,919 14,270 9,108 16,204
Population Covered by Licenses (thousands)... 2,200 2,270 2,200 13,334
Population Covered by Networks (thousands)... 1,175 1,175 1,175 1,170
Subscriber Penetration of Population Covered
by Networks(2)............................ 0.24% 0.44% 0.39% 0.44%
Golden Telecom Cellular Network Total Active
Paying Subscribers........................... 121 3,664 1,438 8,836
Average Service Revenue Per Subscriber Per
Month..................................... $ 62 $ 160 $ 185 $ 143
Minutes of Use(1)(thousands)................. 9 5,085 2,261 23,214
Population Covered by Licenses (thousands)... 4,500 4,536 4,500 4,536
Population Covered by Networks (thousands)... 1,669 2,507 1,669 2,507
Subscriber Penetration of Population Covered
by Networks............................... 0.01% 0.15% 0.09% 0.35%
Overlay Network Minutes of Use(1)(thousands)... -- 4,909 2,232 13,381
Number of Ports.............................. -- 751 555 1,566
Average Revenue Per Minute................... -- $ 0.34 $ 0.36 $ 0.25
</TABLE>

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

(1) Includes minutes among affiliates.

(2) Active Paying Subscribers differ from previously reported totals, which
included blocked subscribers. Active Paying Subscribers is the more accurate
portrayal of true revenue base. Vostok Mobile and PrimTelefone 1997 numbers
have been adjusted to reflect this difference.

Vostok Mobile. Through Vostok Mobile, GTS currently operates 14 cellular
joint ventures in Russia. Vostok Mobile owns between 50% and 100% interests in
each of the 14 Unicel Ventures with, in most cases, regional telephone companies
owning the remaining ownership interest. The Unicel Ventures, except
PrimTelefone, each operate an AMPS-based cellular network, which was chosen
principally because of the lower licensing fees.

AMPS technology is widely used by other cellular networks throughout
Russia, making roaming commercially feasible. The Unicel Ventures have entered
into roaming agreements with other AMPS-based cellular providers, which allow
their subscribers to manually roam throughout Russia. Manual roaming, as opposed
to automated roaming, requires subscribers to notify their local cellular
providers of their travel plans in order to receive roaming capability. In the
first quarter of 1998, Vostok Mobile, Vimpelcom and Millicom

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<PAGE> 168

entered into an agreement in principle to cooperate in the establishment of a
clearing center to support nationwide automatic AMPS roaming. Since executing
the agreement, such operators, in conjunction with other AMPS operators, have
been cooperating with Goskomsvyaz to define the terms and conditions under which
AMPS operators may offer automated roaming services under their current
licenses. GTS is unable to predict the final terms and conditions under which
AMPS operators will be allowed to offer automated roaming, but believes that the
clearing center will be established and that AMPS operators will be permitted to
introduce automated roaming in the first half of 1999.

Each region in which the Unicel Ventures operate has the potential for at
least five licensed operators, including one operator for each of the AMPS, NMT
and GSM cellular standards and two operators in the DCS cellular standard, and
GTS is experiencing increased competition and expects such competition to
increase further. Each of the Unicel Ventures operates independently within
uniform guidelines established by Vostok Mobile. The Unicel Ventures employ
local engineering and marketing personnel, which helps the ventures maximize
their presence in their respective markets and maintain quality control. Vostok
Mobile and its ventures employed approximately 448 persons as of September 30,
1998, with 390 persons employed regionally.

PrimTelefone. PrimTelefone, a 50% owned GTS subsidiary, conducts GTS'
cellular operations in Vladivostok with the local electrosvyaz which owns the
remaining 50%. PrimTelefone began operations in 1995 and operates an NMT-450
network in Vladivostok and four other cities in the Primorsky region.
PrimTelefone entered and penetrated the Vladivostok market by leveraging its
network design and full interconnection with the city telephone network. As a
result, PrimTelefone's active subscriber base was 5,112 as of September 30,
1998, capturing approximately half of the Vladivostok cellular market.
PrimTelefone has also updated its switch and billing system, which allows it to
offer automated roaming. PrimTelefone competes with a GSM operator and an AMPS
operator, both of which are fully interconnected to the city telephone network
and provide wide city coverage. PrimTelefone employs approximately 65 persons
which include dedicated sales, marketing and customer service personnel.

PrimTelefone holds licenses for NMT-450 and GSM-1800 to provide cellular
service to regions having populations of approximately 2.2 and 11.1 million
people and, as of September 30, 1998, its cellular network covered an area with
a population of approximately 1.2 million people. PrimTelefone received the
GSM-1800 license for the Russian Far East in April 1998. PrimTelefone has plans
to expand its NMT network's coverage and to deploy a GSM-1800 network to include
all major population centers in the Russian Far East over the next five years,
but is reconsidering them in light of the current economic crisis in Russia.

On April 27, 1998, the PKGCN issued the PKGCN Letters. As requested in the
PKGCN Letters, on April 28, 1998, PrimTelefone's management submitted a
compliance plan to the PKGCN specifying measures to be undertaken to bring
PrimTelefone's network into compliance with Gossvyaznadzor requirements and a
timetable for doing so. On April 29, 1998, the PKGCN agreed to the compliance
plan. To date, PrimTelefone's management has continued to timely perform its
obligations under the compliance plan and believes that the plan will be
completed on schedule. PrimTelefone's management has obtained approvals for new
frequency plans for certain base stations cited in the PKGCN orders. See "Risk
Factors-- Risks Relating to Operations in Russia and the CIS" (page 27).

On May 13, 1998, a local division of the Ministry for Internal Affairs
opened the PKMIA Investigation, a criminal investigation under Article 327 of
the Russian Federation Criminal Code against certain employees of PrimTelefone
concerning the use of forged state documents in connection with an application
for a frequency plan submitted (and subsequently abandoned) by PrimTelefone. On
June 22, 1998, several employees of PrimTelefone, among others, were interviewed
by a militia investigator in connection with this matter. On November 15, 1998
the investigator decided to suspend the investigation for lack of a person to be
charged and recommended that the matter be closed, subject to the concurrence of
the local prosecutor. PrimTelefone's management intends to cooperate fully in
this investigation until the matter is closed.

Although no assurance can be provided, GTS does not believe that either the
PKGCN Letters or the PKMIA Investigation will have a material adverse effect on
GTS' business, results of operations or financial condition.
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<PAGE> 169

Golden Telecom. GTS owns 75% of an intermediate holding company which holds
an approximately 49% interest in Golden Telecom, giving GTS an indirect
approximately 37% economic interest in Golden Telecom. The remaining
approximately 52% interest in Golden Telecom is owned by three Ukrainian
companies and a Ukranian national. One of the Ukrainian companies, which is a
wholly owned indirect subsidiary of GTS, owns 20% of Golden Telecom. As a
result, GTS' total economic interest in Golden Telecom is approximately 57%.
Golden Telecom is co-managed by GTS and its Ukrainian partners, with such
partners appointing the General Director and GTS appointing the Chief Operating
Officer, Chief Financial Officer and two Business Line directors. The current
General Director has been active in the development of the telecommunications
industry in Ukraine. Through Golden Telecom, GTS participates in the operation
of a cellular network and an international overlay network. With approximately
153 employees, Golden Telecom markets its services and closely monitors
technical and quality-related issues.

Cellular network. Golden Telecom operates a cellular network in Kiev under
the trade name Golden Telecom. The operation utilizes DCS-1800 cellular
technology and operates under a cellular license that covers Kiev City and Kiev
Oblast. Golden Telecom began cellular operations in 1996 by covering the city
center of Kiev and expanded its coverage to include the entire city in 1997.
Golden Telecom provides GSM cellular roaming with 25 cellular operators
worldwide, with the majority of roaming traffic coming from European countries.
Roaming agreements have also been signed with another nine operators and the
Iridium consortium.

Golden Telecom holds a license to provide cellular service to a region
having a population of approximately 4.5 million people and, as of September 30,
1998, its cellular network covered an area with approximately 2.5 million
people.

Overlay network. Golden Telecom provides local exchange carrier services
and international gateway services through its overlay network in Kiev. Golden
Telecom currently owns and operates a partitioned mobile switch for both its
cellular and overlay businesses. A second switch has been ordered and was
commissioned in 1998.

Golden Telecom has 14 central offices in the city and also provides last
mile connections (both copper and fiber optic) from the central offices to
customers. A 50-Kilometer fiber optic ring consisting of a main loop and two
sub-rings has been constructed in Kiev. Golden Telecom plans to extend the total
fiber optic network. Local traffic is routed to the local telephone network.
International outgoing and incoming traffic is routed via fiber optic cable to
the GTS-Monaco Access international gateway, Sovintel in Moscow and several
other international operators. Golden Telecom emphasizes its high quality
service and markets primarily to multinational companies, real estate developers
and hotels.

Sales and Marketing. The GTS Cellular entities have direct sales teams and
have also entered into agreements with local distributors to more effectively
reach their target markets. Particular emphasis is placed on product branding.
Vostok Mobile's sales and marketing efforts are focused on the branding of its
trade name, Unicel, which is marketed and promoted at the local level by each of
the Unicel Ventures. By promoting the Unicel trade name, local ventures can
emphasize their relationships with Vostok Mobile and the other Unicel Ventures,
allowing customers to view the Unicel Ventures as integrated parts of a larger
cellular organization rather than as lone, regional operators. Golden Telecom
operates under the trade name Golden Telecom.

Customers and Pricing. The customers of the various GTS Cellular Ventures
are primarily large, mid-sized and start-up businesses and wealthy individuals.
Increases in the number of customers for GTS Cellular's ventures are typically
linked to the economic health of the region in which such ventures operate.
Cellular service is generally a premium service in the cities in which GTS
Cellular operates and is priced as such. All GTS Cellular Ventures price their
service in US dollars and accept payment in local currency. Each venture begins
with at least two tariff plans, a "standard" tariff plan and a "premium" tariff
plan, which includes a fixed amount of airtime at a discounted per-minute rate.
Each plan prices late night and weekend calls at off-peak rates. GTS expects
that prices will decrease as competition increases. Connection fees are
minimized in order to reduce license fees in AMPS regions (which are partially
calculated by reference to connection fees), as well as to keep market entry
costs low. The GTS Russian and Ukrainian cellular ventures
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record cellular accounts in US dollars, and customers remit payment in rubles
and hryvnas, respectively, at the exchange rate on the date of the bill and, in
instances permitted by law, in US dollars. Payments in hryvnas are applied at
the rate of exchange on the date of payment. In order to lessen risks to its
receivables, GTS and its cellular ventures typically require advance payment
from customers with prepayments averaging approximately six to eight weeks of
service per customer. To the extent remittance is made by customers in rubles
and hryvnas, the GTS Cellular Ventures will have higher local currency cash and
receivables balances which will expose them to correspondingly greater exchange
risks. See "Risk Factors -- Risks Specific to GTS -- Risks of Conducting
Business in Foreign Currencies" (page 34). In addition, the ruble devaluation
that was part of the August 17 Decision and the attendant scarcity of US Dollars
may cause a lower general level of remittances to GTS Cellular in US Dollars.
The subsequent ruble devaluation in Russia also caused a significant price
increase in ruble terms (prices are recorded in dollars and paid in rubles) and
a resulting adverse effect on the customer base development.

Ownership and Control. GTS Cellular's Russian and Ukrainian operations are
conducted through ventures which require partner approval for most decisions.
The applicable foundation agreements and charters do not have expiration dates.
See "Risk Factors -- Dependence on Certain Local Parties; Absence of Control"
(page 32). Neither GTS nor any of its respective partners in its Russian or
Ukrainian operations are obligated to fund operations or capital expenditures.
Losses and profits of all such ventures are allocated to the partners in
accordance with their ownership percentages, in consideration of funds at risk.
As of September 30, 1998, GTS and its partners had made equity contributions
aggregating $13.5 million and $10.2 million, respectively, to the various GTS
Cellular Ventures. Contributions made by the partners include contributions of
cash and intangible assets, such as local support and assistance with respect to
the issuance of licenses in the names of each of the GTS Cellular Ventures. In
addition, the various GTS Cellular Ventures had outstanding loans of $17.8
million to GTS as of September 30, 1998. See "GTS Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Accounting
Methodology -- Profit and Loss Accounting" (page 173).

Licenses and Regulatory Issues

Telecommunications operators in Russia are nominally subject to the
regulations of Goskomsvyaz, the successor of the Russian Ministry of
Communications, and its subordinated bodies, Gossvyaznadzor and the State Radio
Frequency Commission. As a practical matter, these national telecommunications
authorities as well as certain regional and local authorities generally regulate
telecommunications operators in their jurisdictions through their power to issue
licenses and permits.

The Communications Law sets out a comprehensive legal and regulatory
framework for the sector. It also sets forth general principles for the right to
carry on telecommunications activities, describes government involvement in
telecommunications regulation and operation, establishes the institutional
framework involved in regulation and administration of telecommunications, and
deals with various operational matters, such as ownership of networks,
protection of fair competition, interconnection, privacy and liability. Separate
legislation implements this institutional framework.

Goskomsvyaz issues licenses to provide telecommunications services on the
basis of a decision by the Licensing Commission at Goskomsvyaz. Goskomsvyaz has
generally issued no new licensing regulations since the enactment of the
Communications Law, and in practice Goskomsvyaz continues to issue licenses
based on the pre-existing licensing regulations (the "General Licensing
Regulations"), except licenses to provide cellular services (the "Cellular
Licensing Regulations"). According to the Licensing Regulations, licenses for
rendering telecommunications services may be issued and renewed for periods
ranging from 3 to 10 years and several different licenses may be issued to one
person. Under the Cellular Licensing Regulations, licenses for rendering
cellular services may be issued only on the basis of a competitive tender for
longer periods, which range from 5 to 15 years. Once the licenses are received,
the licensee is required to register its right to hold and operate under the
license with Gossvyaznadzor, the national authority responsible for monitoring
compliance with regulatory and technical norms. Renewals may be obtained upon
application to Goskomsvyaz and verification by appropriate government
authorities that the licensee has conducted its activities in accordance with
the licenses. Officials of Goskomsvyaz have fairly broad discretion with respect
to both the issuance and
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<PAGE> 171

renewal procedures. The Communications Law as well as the General and Cellular
Licensing Regulations provide that a license may not be transferred or assigned
to another holder. Regional authorities also exercise some influence especially
in the issuance of AMPS licenses because AMPS has been designated a "regional
standard." In August 1995, the Russian government created Svyazinvest, a holding
company, to hold the federal government's interests in the majority of Russian
local telecommunications operators. In addition, entities such as Svyazinvest at
the federal level, as well as other entities at the oblast and krai levels
(administrative regions within Russia) and Moscow and St. Petersburg exercise
significant control over their respective local telephone networks, and may
therefore affect the licensing process.

License procedures for GTS' cellular services include frequency licensing
from Goskomsvyaz through a two step process. A license must first be obtained
from Goskomsvyaz for permission to operate mobile cellular services on a
commercial basis in a specific standard and frequency bandwidth. Thereafter, an
approval to use specific frequencies within the band must be received from the
State Radio Frequencies Commission. Once the licenses are received,
Gossvyaznadzor confirms the rights of an operator to offer radio frequency
transmissions on specific frequencies, administers type acceptance procedures
for radio communications equipment and monitors compliance with licensing
constraints. Both the General and the Cellular Licensing Regulations require GTS
to obtain additional permits with respect to the use of equipment and the
provision of services.

Telecommunications laws and regulations in Ukraine are similar in many
respects to those of Russia, but are subject to greater risks and uncertainties.
Regulations currently prohibit foreign entities from directly owning more than
49% of any telecommunications operating company. GTS' Ukrainian joint venture
agreements provide it with the option of purchasing an additional 1% of the
cellular network if these rules are liberalized. The Ukrainian government has
imposed substantial frequency permit fees in connection with providing GSM
service in Ukraine, and Golden Telecom has paid a $2.9 million frequency license
fee on Golden Telecom's license. There can be no assurance that additional fees
will not be imposed in the future upon the reissuance and/or renewal of such
license. See also "Risk Factors -- Risks Relating to Operations in Russia and
the CIS" (page 27).

GTS' subsidiaries and ventures hold the following licenses in Russia and
Ukraine which are materially significant to their operations:

Switched Services. In Russia, GTS indirectly holds two licenses for
switched services. The first license was reissued to Sovintel in November 1996
and authorizes Sovintel to operate as an international overlay network with the
ability to interconnect with the Moscow region and St. Petersburg PSTN. This
license ultimately requires Sovintel to provide service to at least 50,000
subscribers and expires in May 2000. It was amended in February 1997 to cover
the Leningrad region. The second license was reissued to TeleRoss, a wholly
owned subsidiary of GTS in October 1998, for provision of intercity services in
40 regions including the city of Moscow with ability to interconnect with the
PSTN. In Kiev, Ukraine, GTS holds a license for provision of overlay network
services, including international services, in the name of its affiliate, Golden
Telecom. In addition, Sovintel is an ITU RPOA, which enables it to maintain a
separate dialing code (7-501) that can be directly dialed from over 170
countries. Sovintel's status as an RPOA also enables it to terminate calls
directly with other operators.

Leased Circuits. In September 1996 the MOC issued to Sovintel a five-year
license to lease local, intercity and international circuits in the territory of
Moscow, the Moscow region and St. Petersburg, valid until September 2001. The
total number of circuits leased is in excess of 500 and may be increased up to a
total authorized capacity of 2,500.

Data Services. In November 1998, Goskomsvyaz reissued to Sovam a 5 1/2-year
license to provide data transmission services via a dedicated network to a
number of regions covering a large portion of Russia. The license permits a
network capacity of not less than 14,000 customers and allows it to interconnect
with other data transfer networks in Russia.

Local Access Services. In January 1997, the MOC licensed TCM to provide
local telephone service in Moscow to not less than 100,000 subscriber local
access lines. The license expires in May 2006. TCM has

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received authorization from Goskomsvyaz to construct an additional 50,000
numbers. TCM has also completed negotiations with MGTS to interconnect these
numbers with the Moscow city telephone network. TCM is currently discussing with
Goskomsvyaz whether an amendment to its license is necessary to add these
numbers to its license.

Cellular Services. In connection with cellular operations, Russian law
apportions the responsibility for regulating and licensing cellular businesses
between national and regional regulators. National telecommunications regulators
have been assigned the responsibility of regulating and licensing cellular
businesses utilizing the GSM and NMT-450 cellular standards prevalent in Europe.
These regulators have auctioned licenses to provide these services to a number
of ventures that have included large, well capitalized western
telecommunications providers such as US WEST and Nokia during the last four
years. Regional telecommunications authorities have been given the rights to
supervise the observance of licenses by cellular businesses utilizing AMPS
cellular standard service. However, AMPS licenses are issued by the MOC based on
the recommendations of regional administrations. GTS believes that, in many
instances, cellular operators obtaining AMPS standard licenses, particularly
those in second tier cities, pay license fees that are lower than those paid for
the GSM and NMT-450 "national standards". Licenses for cellular providers have a
term of approximately 10 years. It is unclear whether the competitive tender
requirement in the new Cellular Licensing Regulations will apply to all cellular
operators or only those utilizing the GSM and NMT-450 standards.

GTS' 14 Russian cellular companies have licenses which expire between 2005
and 2008. One of the companies initially received an operating license in 1994,
five companies initially received an operating license in 1995, five companies
initially received an operating license in 1996, and one company initially
received an operating license in 1997, and one company has renewed its license
in 1999 for an extended term of more than 8 years. Additionally, Vostok Mobile
has received licenses for five cities where it intends to begin operations later
this year, if economic conditions improve.

Golden Telecom holds a license for provision of DCS-1800 mobile services in
the Kiev oblast.

Competition

Overview. GTS faces significant competition in virtually all of its
existing telecommunications businesses in the CIS. Many of GTS' competitors and
potential competitors, which include large multinational telecommunications
companies, have substantially greater financial and technical resources than GTS
and have the ability to operate independently or with global or local partners
and to obtain a dominant position in these markets. GTS believes that it has
certain competitive advantages in each of these markets because of its operating
history, its ability to bundle a broad range of telecommunications services in
the region and its ability to make rapid decisions in pursuing new business
opportunities and addressing customer service needs. GTS also believes that its
local partnerships and reliance on nationals in the management of its businesses
and joint ventures provide it with better knowledge of local political and
regulatory structures, cultural awareness and access to customers.

International Services. Sovintel faces significant competition from more
than ten other existing service providers in Moscow, including Rostelecom and
joint ventures between local parties and multinational telecommunications
providers. Large competitors include the "Combellga" joint venture, an RPOA
operator in which Alcatel and the Belgian PTO participate as foreign investors,
"Comstar," a joint venture between GPT Plessey and MGTS, providing services
similar to those provided by GTS, TelMos, a joint venture between AT&T, MGTS,
Global One, through its Moscow based ventures, and Peterstar, in Petersburg,
which is part of the PLD Telekom group. Several smaller companies, such as
DirectNet and Aerocom, provide high-volume and carrier's carrier services in
Moscow. Golden Telecom competes in the switched international traffic market
with the Kiev electrosvyaz and UTel, a joint venture that includes Western
partners with substantial capital and technical resources who together hold a
dominant share of the Kiev market. GTS expects that market consolidation will
take place among the competitive field in international services.

Domestic Long Distance Services. GTS believes its major competitors in the
Russian domestic long distance market consist of Rostelecom, the electrosvyazs,
including those which are partners in GTS' TeleRoss Ventures, and a variety of
ventures that include foreign partners with substantial financial resources.
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<PAGE> 173

The most significant of such competitors include: Global One, through its
regional operations; Rustel, a venture that includes Rostelecom, other Russian
partners and International Business Communication Systems, a Massachusetts
telecommunications firm; Belcom, a private company in which Comsat has a
majority interest and which provides VSAT services primarily to the energy
sector; Satcom, a Russian joint venture licensed to provide local, long distance
and international service over private and public switched networks; Teleport
TP, a satellite overlay company jointly owned by Rostelecom and Petersburg Long
Distance that provides satellite teleports in cities throughout Russia; and
Comincom, a Russian private venture. In the Russian Far East, TeleRoss competes
with Vostok Telecom, which is owned by the Japanese companies KDD and NIC and
certain Russian partners; and Nakhodka Telecom, which is owned by Cable &
Wireless and certain Russian partners.

GTS both cooperates and competes with Rostelecom. Rostelecom provides only
international and long distance services to international carriers and regional
electrosvyazs, and does not provide end-to-end customer services. GTS provides
last mile, account management, and transit services for Rostelecom in Moscow,
and uses Rostelecom channels and switches for both international and long
distance services. GTS provides long distance and international services on an
end-to-end basis, using service elements of Rostelecom, the electrosvyazs and
its own resources. However, Rostelecom does compete with TeleRoss, in that
TeleRoss provides intercity services to customers, using satellite channels
provided by other state agencies (Intersputnik), and provides transit services
to various electrosvyazs, on a traffic overflow basis.

GTS believes that it enjoys a number of competitive advantages in the
Russian domestic long distance market, the most important being the maturity of
its international and data service businesses in Russia. This provides GTS with
access to the services, customers, products, licenses and facilities of its
other businesses. GTS also believes that it has more experienced management, a
more comprehensive strategy to build out a nationwide long distance network and
stronger relationships with many regional telephone companies and with satellite
capacity providers, such as Intersputnik, than most of its competitors.

Data Services. Sovam has several primary competitors in the market for data
services: Global One, which began packet-switched service in Moscow and St.
Petersburg in June 1992, under the Sprint Networks venture; Demos, an Internet
service provider; and Relcom, a cooperative affiliation of computer users that
relies on an older generation of technology that supplies slower and lower-cost
messaging facilities to customers (primarily domestic commodities traders) that
do not require higher levels of service. In addition, MCI and Rostelecom have
recently announced their agreement to create a national Internet access network
utilizing Rostelecom's domestic network and MCI's international infrastructure.
Several voice operators including Sovintel have also announced the intention to
provide Internet access and other data services. Although Sovam's business has
grown quickly, GTS believes that Global One is the market leader. GTS believes
that other potential competitors, including foreign PSTNs, Infotel, Infocom and
Glasnet, are also active in this market.

Although GTS faces significant competition in this market, it believes that
it enjoys certain competitive advantages, including the ability to reach a wide
area throughout Russia, innovative service offerings such as Russia On Line, the
maturity of its business in the key banking services segment, high levels of
customer service and support, and high speed digital channels.

Local Access Services. GTS believes that its major competition in the
Moscow local access market consists of a number of ventures with Western
partners, including Telmos (which includes AT&T), Comstar (which includes GPT
Plessey) and Combellga. However, since TCM has obtained an allocation of up to
150,000 numbers, GTS believes that TCM will account for a substantial proportion
of the new capacity to come onto the market within the next five years.

Cellular Services. Most Russian cellular markets have the potential for at
least five licenced operators, including one operator for each of the GSM and
NMT-450 cellular standards, which Russia has adopted as national standards, one
operator using the AMPS cellular standard, which has been set as a regional
standard and two operators in the DCS Cellular Standard. Many large Western
telecommunications operators, including U S WEST, Deutsche Telekom, STET and
Millicom, have participated in auctions for licenses to provide GSM and NMT-450
cellular service to certain significant Russian urban centers. In addition, a
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CDMA auction recently occurred which could result in one or more CDMA "fixed
wireless" providers entering the markets, where GTS has cellular operations. In
Ukraine, Golden Telecom competes primarily with an NMT-450 and GSM-900 operator,
a D-Amps operator, and a national DCS cellular standard operator, a CDMA
operator.

ASIA

GTS does not currently own or operate significant telecommunications assets
in Asia.

China

Through Shanghai V-Tech Telecommunications Systems Co., Limited ("V-Tech"),
a venture in which GTS holds a 75% interest, GTS provides financing, operational
consulting, technical and engineering services to a Shanghai-based VSAT network
operator. With respect to V-Tech, in addition to GTS' initial equity
contribution of $3.75 million, GTS committed to fund up to an additional $3.0
million (all of which has been funded by the end of the third quarter of 1997).
The joint venture expires in April 2015, and profits and losses are allocated
according to ownership interests in consideration of funds at risk. See "GTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Accounting Methodology -- Profit and Loss Accounting" (page 173).
GTS has reached an agreement to sell its ownership interest in V-Tech in
consideration of an equity interest in the purchaser of GTS' interest in such
venture. Consummation of such sale is subject to certain conditions precedent.

GTS China Investments LLC, a company in which GTS holds a 75% interest and
in which an affiliate of a shareholder of GTS owns a 25% interest, holds an
indirect 63% interest in Bejing Tianmu Satellite Communications Technology Co.
Limited ("Bejing Tianmu") which has provided technical, operational and
financial support for a tourist industry VSAT network operated by the minority
holder in Bejing Tianmu. The VSAT license of that partner was revoked in
December 1998. Accordingly, Bejing Tianmu no longer provides the support for the
network described above and GTS has no plans to make additional investments or
to arrange additional investments in Bejing Tianmu. GTS China Investments LLC
had made an initial equity contribution of $8.75 million in Bejing Tianmu. See
"GTS Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Accounting Methodology -- Profit and Loss Accounting" (page 173).

India

GTS' operations in India are conducted through C-Datacom International,
Inc. ("CDI"), a wholly owned subsidiary which provides digital international
private line communications to targeted business customers to and from India for
multiple applications, including data and voice.

EMPLOYEES

On September 30, 1998, GTS, its consolidated subsidiaries and joint
ventures in which GTS participates, employed approximately 1,935 persons. GTS
believes its future success will depend on its continued ability to attract and
retain highly skilled and qualified employees. GTS believes that its relations
with its employees are good.

Although GTS' employees are not unionized, unions represent employees of
GTS' railroad partners in HER. Under the agreements contemplated between HER and
its railroad partners, some of these employees will be required to construct and
maintain certain portions of the HER network. There can be no assurances that
unionized employees of HER's partners will not experience labor unrest.

PROPERTIES

GTS leases, under long-term leases, office space to serve as sales office
and/or administrative facilities, including its 15,000 square-foot headquarters
in McLean, Virginia with a five year lease expiring December, 2000. GTS has
entered into a new lease for its headquarters in McLean covering 33,000 square
feet,

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which lease will expire September, 2005. GTS expects to relocate to the new
space in 1999 and plans to sublease its current offices. GTS maintains regional
headquarters offices in Moscow and Budapest, as well as facilities in McLean,
Virginia and London. HER is headquartered just outside of Brussels, Belgium.

HER leases, under long-term leases, portions of railroad, utility and other
rights-of-way for its fiber-optic routes. HER is creating a fiber optic network
consisting of optical fiber pairs, which are leased under long-term leases, and
technical sites leased under long-term leases. See "Description of
GTS -- Western Europe -- HER" (page 123).

LITIGATION

In addition to routine legal proceedings incidental to the conduct of its
business, GTS, GTS-Hungaro and GTS-Hungary are named as defendants in an action
captioned USH Ventures and USH Telecom, L.L.C. v. Global TeleSystems Group, Inc.
and GTS-Hungaro, Inc., Civil Action No. 97C-08-86, commenced in August 1997,
which is currently pending in the Superior Court of the State of Delaware in and
for New Castle County. The complaint alleges breach of contract and interference
with a business relationship. On May 21, 1998, the Superior Court of the State
of Delaware denied GTS' motion to dismiss the claim. While it is not possible at
this time to make a meaningful assessment of the outcome of this litigation,
based upon information currently available and upon consultation with counsel,
GTS does not believe that the outcome of this litigation will have a material
adverse effect upon the financial condition of GTS.

On March 27, 1998, V-Tech brought a claim for approximately $1.1 million
against Gilat Satellite Networks, Limited, the vendor of a Ku-band VSAT hub and
system which V-Tech purchased in 1996, in an arbitration proceeding under the
Rules of Arbitration of the ICC International Court of Arbitration. V-Tech has
demanded in the request for arbitration that Gilat accept return of the
equipment, which V-Tech has not accepted or commissioned because it has failed
to meet contract specifications, and refund purchase amounts already paid under
the contract, plus other sums. On June 2, 1998 Gilat filed a counterclaim
against V-Tech seeking the balance due under the contract and other alleged
damages, in the aggregate amount of $685,000. Gilat has stated its intention to
join GTS as a third-party respondent to its counterclaim. Although it is not
possible at this time to make an assessment of the outcome of the arbitration
proceeding, GTS does not believe that Gilat's counterclaim, even if successfully
asserted against GTS, would have a material adverse effect upon GTS' financial
condition.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GTS

The following selected historical consolidated financial data as of and for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 are derived from
GTS' audited Consolidated Financial Statements. The following unaudited selected
historical consolidated financial data as of September 30, 1998 and for the
three and nine months ended September 30, 1997 and 1998 are derived from GTS'
unaudited Consolidated Financial Statements. The selected financial data
presented below should be read in conjunction with "GTS Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the audited
Consolidated Financial Statements and related notes thereto appearing elsewhere
in this Prospectus.

Under generally accepted accounting principles, many of GTS' ventures are
accounted for by the equity method of accounting. Under this method, the
operating results of the ventures are included in our Consolidated Statement of
Operations as a single line item, "Equity in (losses) earnings of ventures." GTS
recognizes 100% of the losses in ventures where we bear all of the financial
risk (which includes all of our significant ventures except for Sovintel and,
historically, HER). Also, the assets, liabilities and equity of the ventures are
included in GTS' Consolidated Balance Sheets as a single line item "Investments
in and Advances to Ventures." See Note 3 to GTS' audited Consolidated Financial
Statements and "GTS Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview." Financial information about GTS' equity
ventures is included below under "Supplemental Information -- Selected
Historical Financial Data -- Combined Equity Investments."

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------- ------------------- --------------------
1993 1994 1995 1996 1997(1) 1997 1998 1997 1998
------- -------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net................ $ 328 $ 2,468 $ 8,412 $ 24,117 $ 47,098 $ 12,921 $ 63,834 $ 30,216 $ 117,299
Gross margin................. 328 23 16 5,176 4,379 (2,468) 24,985 1,864 35,232
Operating expenses........... 3,340 12,863 41,016 52,955 78,410 24,971 42,833 53,732 94,243
Equity in earnings (losses)
of ventures................ 472 (135) (7,871) (10,150) (14,599) (8,067) (3,485) (18,234) 4,142
Other income (expense)....... 100 990 11,034 (8,729) (29,551) (10,942) (15,484) (16,902) (34,857)
Loss before extraordinary
loss....................... (2,440) (11,985) (40,400) (67,991) (116,986) (48,185) (37,478) (87,872) (88,131)
Extraordinary loss(2)........ -- -- -- -- -- -- -- -- (12,704)
Net loss..................... (2,440) (11,985) (40,400) (67,991) (116,986) (48,185) (37,478) (87,872) (100,835)
Loss per share before
extraordinary loss......... (0.29) (0.74) (1.70) (2.33) (3.26) (1.34) (0.62) (2.49) (1.65)
Extraordinary loss per
share(2)................... -- -- -- -- -- -- -- -- (0.24)
Net loss per share........... (0.29) (0.74) (1.70) (2.33) (3.26) (1.34) (0.62) (2.49) (1.89)
</TABLE>

<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1993 1994 1995 1996 1997(1) 1998
------- -------- -------- -------- --------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents........................ $ 3,641 $ 29,635 $ 9,044 $ 57,874 $ 318,766 $ 993,928
Property and equipment, net...................... 829 8,393 29,523 35,463 236,897 436,019
Investments in and advances to ventures.......... 794 13,841 56,153 104,459 76,730 61,705
Total assets..................................... 5,968 61,957 115,621 237,378 780,461 1,814,893
Total debt....................................... 725 2,152 27,454 85,547 639,359 1,208,533
Minority interest and stock subject to
repurchase..................................... -- 8 5,273 6,248 31,255 59,600
Shareholders' equity............................. 4,685 54,684 55,322 113,668 26,967 351,409
</TABLE>

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

(1) As a result of GTS' increase in ownership interest and amendment to the HER
Shareholders Agreement that was completed on July 16, 1997, GTS accounts for
its ownership interest in HER under the consolidation method of accounting.
Prior to this date, GTS accounted for HER under the equity method of
accounting.

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SUPPLEMENTAL INFORMATION -- SELECTED HISTORICAL
FINANCIAL DATA OF GTS -- COMBINED EQUITY INVESTMENTS

The following unaudited selected historical financial data -- equity
investments for the years ended December 31, 1995, 1996 and 1997 and for the
three and nine months ended September 30, 1997 and 1998, are derived from GTS'
financial records. It is intended to supplement the aforementioned selected
historical consolidated financial data. The financial data set forth below
represents 100% of the results of operations for each of the entities.

GTS believes that this information provides additional insight on GTS'
unconsolidated equity method investments. Generally accepted accounting
principles prescribe inclusion of revenues and expenses for consolidated
interests (generally interests of more than 50%, absent some other factors), but
not for equity interests (generally interests of 20% to 50%) or cost interests
(generally interests of less than 20%). Further, equity accounting ordinarily
results in the same net income as consolidation; however, the net operating
results are reflected on one line within the income statement.

<TABLE>
<CAPTION>
OWNERSHIP COST OF OPERATING NET
INTEREST(1) REVENUES REVENUES EXPENSES INCOME/(LOSS)
----------- -------- -------- --------- -------------
(IN THOUSANDS, EXCEPT OWNERSHIP INTEREST)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Sovintel........................................... 50% $44,292 $26,247 $ 7,047 $ 7,648
TCM................................................ 50% 49 -- 57 (7)
TeleRoss........................................... 50% 176 59 242 (193)
Sovam.............................................. 66.7% 4,434 2,914 3,273 (1,789)
GTS Cellular Companies............................. 50%(2) 4,574 2,834 2,960 (2,165)
Other.............................................. 50%(2) 526 957 9,379 (9,874)
-------- -------- -------- --------
Total........................................ 54,051 33,011 22,958 (6,380)
ADJUSTMENTS FOR INTER-AFFILIATE TRANSACTIONS(3).... (2,270) (2,215) (6,967)

YEAR ENDED DECEMBER 31, 1996
Sovintel........................................... 50% $75,040 $43,910 $ 10,411 $ 14,762
TCM................................................ 50% 16,507 3,330 1,854 8,874
TeleRoss........................................... 50% 2,413 832 2,293 (841)
Sovam.............................................. 66.7% 11,671 8,236 5,714 (2,138)
GTS Cellular Companies............................. 50%(2) 25,778 11,883 13,614 (3,406)
Other.............................................. 50%(2) 12,063 12,235 21,132 (22,471)
-------- -------- -------- --------
Total........................................ 143,472 80,426 55,018 (5,220)
ADJUSTMENTS FOR INTER-AFFILIATE TRANSACTIONS(3).... (15,385) (13,562) (8,083)

YEAR ENDED DECEMBER 31, 1997
Sovintel........................................... 50% $113,962 $72,629 $ 17,020 $ 18,464
TCM................................................ 50% 29,308 7,169 3,286 12,512
TeleRoss........................................... 50% 6,794 2,138 3,612 71
Sovam.............................................. 66.7% 17,808 10,684 5,653 780
GTS Cellular Companies............................. 50%(2) 44,275 21,355 17,678 (906)
Other.............................................. 50%(2) 14,013 13,757 27,596 (26,591)
-------- -------- -------- --------
Total........................................ 226,160 127,732 74,845 4,330
ADJUSTMENTS FOR INTER-AFFILIATE TRANSACTIONS(3).... (24,927) (23,250) (8,357)
</TABLE>

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<TABLE>
<CAPTION>
OWNERSHIP COST OF OPERATING NET
INTEREST(1) REVENUES REVENUES EXPENSES INCOME/(LOSS)
----------- -------- -------- --------- -------------
(IN THOUSANDS, EXCEPT OWNERSHIP INTEREST)
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1997
Sovintel........................................... 50% $82,029 $51,048 $ 12,324 $ 14,215
TCM................................................ 50%(2) 20,715 4,733 2,270 9,653
TeleRoss........................................... 50% 5,113 1,419 2,460 512
Sovam.............................................. 66.7%(3) 12,877 7,867 4,635 (168)
GST Cellular Companies............................. 50%(4)(5) 29,412 14,227 13,022 (2,746)
Other.............................................. 50%(4) 8,860 8,400 25,736 (25,146)
---- -------- -------- -------- --------
Total........................................ 159,006 87,694 60,447 (3,680)
ADJUSTMENTS FOR INTER-AFFILIATE TRANSACTIONS(6).... (17,049) (15,853) (11,105)

NINE MONTHS ENDED SEPTEMBER 30, 1998 (2)(3)(5)
Sovintel........................................... 50% $99,498 $65,779 $ 17,653 $ 6,891
TCM................................................ 50%(2) 21,586 5,689 1,857 8,843
TeleRoss........................................... 50% 7,436 2,163 3,241 (121)
GTS Cellular Companies............................. 50%(4)(5) 40,186 18,737 14,158 458
Other.............................................. 50%(4) 18,838 18,107 3,961 (2,591)
---- -------- -------- -------- --------
Total........................................ 187,544 110,475 40,870 13,480
ADJUSTMENTS FOR INTER-AFFILIATE TRANSACTIONS(6).... (25,001) (23,960) 1,493
</TABLE>

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

(1) The ownership interest column indicates GTS' legal ownership percentage for
the respective equity investments. The information is being provided to
assist an investor or analyst in determining GTS' legal rights associated
with the presented financial data.

(2) During the quarter ended September 30, 1998, GTS purchased the remaining
47.36% interest in GTS Vox Limited, the intermediate holding company of TCM.
As a result, effective July 1998, GTS will have a 95% interest in TCM and
will also account for its interest in TCM using the consolidation as opposed
to the equity method of accounting. The results of TCM for the six months
ended June 30, 1998 have been included within the nine months ended
September 30, 1998 presented above.

(3) GTS purchased the remaining 33% interest in Sovam in February 1998 and as a
result, effective February 1998, Sovam is accounted for by the consolidation
as opposed to the equity method of accounting.

(4) GTS generally maintains a 50% ownership interest in these equity
investments.

(5) Prior to July 1, 1998, GTS beneficially owned approximately 25% of Golden
Telecom and included its results within the GTS Cellular companies accounted
for under the equity method. During the second quarter of 1998, GTS
completed a restructuring of the capital and ownership of Golden Telecom,
which results in GTS beneficially owning approximately 57% of Golden
Telecom. As a result, effective June 30, 1998, Golden Telecom is accounted
for under the consolidation as opposed to equity method of accounting. The
results of Golden Telecom for the three months ended March 31, 1998 have
been included within the nine months ended September 30, 1998 presented
above.

(6) The adjustment amounts represent the effect of inter-affiliate transactions
between GTS' consolidated and equity method ventures. More detailed
information about inter-affiliate transactions is included under "GTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Accounting Methodology" (page 173).

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

The following is a discussion of the financial condition and results of
operations of GTS as of September 30, 1998 and December 31, 1997 and 1996 and
for the three and nine months ended September 30, 1998 and 1997 and for the
years ended December 31, 1997, 1996 and 1995. The following discussion should be
read in conjunction with GTS' Consolidated Financial Statements and the notes
related thereto included elsewhere in this Offering Circular/Proxy
Statement/Prospectus.

OVERVIEW

Business. GTS is a provider of a broad range of telecommunications services
to businesses, other telecommunications service providers and consumers in
Russia and the CIS, Central Europe and Asia. In Western Europe, through HER, GTS
is operating and continuing to develop a pan-European high capacity fiber optic
network which is designed to interconnect a majority of the largest Western and
Central European cities and to transport international voice, data and
multimedia/image traffic for other carriers throughout Western and Central
Europe. GTS' strategy to develop its businesses generally has been to establish
joint ventures with a strong local partner or partners while maintaining a
significant degree of operational control. GTS' business activities consist of
the ownership and operation of (i) international long distance businesses, which
operate through international gateways that provide international switching
services and transmission capacity, (ii) local access networks, which provide
local telephone service, (iii) cellular networks, which provide wireless
telecommunications services, (iv) a domestic long distance business, (v) data
networks and (vi) carriers' carrier networks, which provide high volume
transmission capacity to other carriers.

GTS began to acquire interests in numerous telecommunications ventures
beginning in 1994 and continued to acquire such interests throughout 1995 and
1996. Ventures with significant financial results in 1994 included Sovintel (an
international long-distance and domestic and local access telecommunications
service provider) and GTS-Hungary (a VSAT network telecommunications service
provider); ventures that incurred start-up costs associated with building out
their business infrastructure in 1994 included Sovam (a data and Internet
telecommunications service provider) and EuroHivo (a paging telecommunications
service provider). In 1995, TeleRoss (a domestic long distance
telecommunications service provider) and GTS Cellular (a basic cellular
telecommunications service provider) began operations and expanded into numerous
regions within the CIS by the end of 1996. TCM (a local access
telecommunications service provider) began operations in 1996. HER (a carriers'
carrier telecommunications service provider) began its network build-out in
1995, began limited operations at the end of 1996 and expects to continue to
develop its network during 1998 and beyond. The fact that these ventures are in
various stages of development affects the discussion of comparative results
below. See "Description of GTS" (page 119).

GTS has invested significantly in its ventures through capital
contributions and loans. In addition, GTS has made a significant commitment to
its businesses and ventures through the provision of management assistance and
training. GTS has also incurred significant expenses in identifying, negotiating
and pursuing new telecommunications opportunities. GTS and certain of its
ventures are experiencing continuing losses and negative operating cash flow
primarily because the businesses are in the developmental and start-up phases of
operations. Management recognizes that GTS must generate additional capital
resources in order to continue its operations and meet its new development
initiatives. The ultimate recoverability of GTS' investments in and advances to
ventures is dependent on many factors including, but not limited to, the ability
of GTS to obtain sufficient financing to continue to meet its capital and
operational commitments, the economies of the countries in which it does
business and the ability of GTS to maintain the necessary telecommunications
licenses.

GTS' businesses are developing rapidly. Some of the businesses operate in
countries with emerging economies which have uncertain economic, political and
regulatory environments. The general risks of operating businesses in the CIS
and other developing countries include the possibility for rapid change in
government policies including telecommunications regulations, economic
conditions, the tax regime and foreign currency regulations. See "Risk
Factors -- Risks Specific to GTS" (page 19).

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ACCOUNTING METHODOLOGY

Accounting for Business Ventures. Wholly owned subsidiaries and
majority-owned ventures where GTS has unilateral operating and financial control
are consolidated. Those ventures where GTS exercises significant influence, but
does not exercise unilateral operating and financial control, are accounted for
by the equity method. GTS has certain majority-owned ventures that are accounted
for by the equity method as a result of minority shareholder rights,
super-majority voting conditions or other governmentally imposed uncertainties
so severe that they prevent GTS from exercising unilateral control of the
venture.

Profit and Loss Accounting. GTS recognizes profits and losses in accordance
with its underlying ownership percentage or allocation percentage as specified
in the agreements with its partners; however, GTS recognizes 100% of the losses
in ventures where GTS bears all of the financial risk (which includes all of
GTS' significant ventures except for Sovintel and, historically, HER).
Accordingly, the portion of the losses that would normally be assigned to the
minority interest partner ("Excess Losses") is recognized by GTS. When such
ventures become profitable, GTS recognizes 100% of the profits until such time
as the Excess Losses previously recognized by GTS have been recovered. As of
September 30, 1998, $8.3 million and $7.6 million represent the net unrecovered
Excess Losses for GTS' consolidated and equity method investments, respectively,
that is expected to favorably benefit future period results from operations upon
GTS' existing business ventures becoming profitable. This accounting policy was
adopted prior to 1995; however, 1995 was the first year that the excess loss
amount was deemed material for recognition within GTS' accounting records. For
the period from January 1, 1997, through August 31, 1997, GTS recognized 100% of
HER's losses due to GTS being the financing partner during this period. As a
result of HER's issuance in August 1997, of $265 million aggregate principal
amount of 11.5% senior notes due 2007 (of which $56.6 million was placed in
escrow for the first two years' interest payments) GTS no longer considers
itself as the financing partner.

Inter-Affiliate Transactions. Several of GTS' ventures have entered into
business arrangements through which they provide integrated solutions for their
customers by leveraging each others' telecommunications infrastructure. These
arrangements have historically been focused primarily within a region; however,
as GTS has increased its geographic coverage and telecommunication capabilities,
these arrangements have expanded between regions. In accordance with generally
accepted accounting principles, all significant intercompany accounts and
transactions are eliminated upon consolidation.

Turnover Taxes. GTS' ventures within the CIS region incur a 4% turnover tax
that is based on the revenues earned. GTS includes these taxes as a component of
its operating expenses, since these taxes are incidental to the revenue cycle.

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The following table, as of September 30, 1998, summarizes the accounting
methodology for the principal business ventures through which GTS conducts its
business.

<TABLE>
<CAPTION>
EFFECTIVE
COUNTRY/REGION GTS ACCOUNTING
COMPANY NAME OF OPERATIONS OWNERSHIP METHODOLOGY
------------ -------------- --------- -----------
<S> <C> <C> <C> <C>
CIS
Sovintel................................ Russia 50 % Equity
TCM..................................... Russia 95 %(1) Consolidated(1)
TeleRoss Operating Company.............. Russia 100 %(2) Consolidated
TeleRoss Ventures....................... Russia 50 %(3) Equity
Sovam................................... Russia 100 %(4) Consolidated(4)
GTS Cellular............................ CIS 50%-75 %(5) Equity/Consolidated
Western Europe
HER..................................... Western Europe 89 %(6) Consolidated(6)
GTS-Monaco Access....................... Monaco 50 % Equity
Central Europe
GTS-Hungary............................. Hungary 99 % Consolidated
EuroHivo................................ Hungary 70 %(7) Equity
Czechnet................................ Czech Republic 100 % Consolidated
CzechCom................................ Czech Republic 100 % Consolidated
Asia
V-Tech.................................. China 75 % Equity
Beijing Tianmu.......................... China 47 % Equity
CDI..................................... India 100 % Consolidated
</TABLE>

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

(1) During the quarter ended September 30, 1998, GTS purchased the remaining
47.36% interest in GTS Vox Limited, the intermediate holding company of TCM.
As a result, effective July 1998, GTS has a 95% interest in TCM and accounts
for its interest in TCM using the consolidation as opposed to the equity
method of accounting.

(2) The TeleRoss Operating Company is comprised of a wholly-owned subsidiary
that operates a domestic long distance network and holds the applicable
operating license for TeleRoss and performs the customer invoicing and
collection functions for telecommunications services. TeleRoss Operating
Company is accounted for under the consolidation method of accounting
because GTS has unilateral control over the operations and management
decisions. TeleRoss Operating Company's operations are further discussed in
"-- Results of Operations -- Consolidated Ventures" (page 175) and
"Description of GTS -- Russia and the CIS -- TeleRoss" (page 153). A
significant portion of TeleRoss Operating Company's costs of revenue
consists of settlement fees paid to the TeleRoss Ventures [as defined in (3)
below], with such fees being recorded as revenue by the TeleRoss Ventures.
To date, all of the TeleRoss Ventures' revenue was derived from such fees.
Any decline in the business or operations of the TeleRoss Ventures would
have a material adverse effect on the results of TeleRoss Operating Company.

(3) TeleRoss Ventures is comprised of 14 joint ventures that are 50%
beneficially owned by GTS, which originate traffic and provide local
termination of calls through agency arrangements with TeleRoss Operating
Company. GTS does not exercise unilateral control over the TeleRoss
Ventures, and therefore they are accounted for under the equity method of
accounting. TeleRoss Ventures' operations are further discussed in
"-- Results of Operations -- Non-Consolidated Ventures (Equity Investees)"
(page 180).

(4) GTS purchased the remaining 33% interest in Sovam in February 1998 and as a
result, effective February 1998, Sovam is accounted for by the consolidation
as opposed to the equity method of accounting.

(5) GTS conducts its cellular operations through (i) Vostok Mobile, a wholly
owned GTS venture that owns between 50% and 100% of a series of thirteen
cellular joint ventures in various regions in Russia, (ii) PrimTelefone, a
50% owned venture in Vladivostok, Russia and (iii) Golden Telecom, an
approximately 57% beneficially owned venture in Kiev, Ukraine. GTS completed
a restructuring of the capital and ownership of Golden Telecom on June 30,
1998, which results in GTS beneficially owning

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approximately 57% of Golden Telecom. As a result, effective June 30, 1998,
Golden Telecom is accounted for by the consolidation as opposed to equity
method of accounting.

(6) As of July 16, 1997, HER is accounted for by the consolidation as opposed to
the equity method of accounting. In addition, in March 1998 and October
1998, GTS's ownership interest in HER increased 10% and 0.5%, respectively.

(7) GTS sold its interest in EuroHivo in August 1998. The closing of this
transaction did not have a material effect on GTS' results from operations
and financial condition.

Russian Economic Crisis. GTS recorded a $13.1 million pre-tax charge to
earnings in its third quarter 1998 financial results that resulted from the
devaluation of the ruble and the consequences of the banking and economic crisis
within Russia. See "Liquidity and Capital Resources" (page 184).

Further, as identified in the preceding table that summarizes the
accounting methodology for GTS' principal business ventures, several of GTS'
business ventures within Russia are accounted for under the equity method of
accounting. Accordingly, the $13.1 million pre-tax charge; that is mainly
comprised of foreign currency exchange losses for ruble-denominated net monetary
assets with the remainder associated with estimates for uncollectible accounts
receivable and unrecoverable cash deposits in Russian banks, is primarily
reflected in the "equity in losses/(earnings) of ventures" line item with the
remainder in the "foreign currency losses" and "selling, general and
administrative" line items within GTS' Condensed, Consolidated Statements of
Operations.

RESULTS OF OPERATIONS -- CONSOLIDATED VENTURES

Management's discussion included within "-- Results of
Operations -- Consolidated Ventures" reflects the following significant
operating ventures: TeleRoss Operating Company, Sovam, TCM, Golden Telecom, HER,
GTS-Hungary and the Czech Companies. Although GTS was not able to follow the
consolidation method of accounting for Sovam, TCM and Golden Telecom in the
three and nine months ended September 30, 1997, and TCM and Golden Telecom for
the first six months of 1998, GTS has included, for comparative purposes, a
discussion of their financial performance for the three and nine months ended
September 30, 1997, and nine months ended September 30, 1998, respectively, in
our discussion of "-- Results of Operations -- Consolidated Ventures." See
"-- Results of Operations -- Non-Consolidated Ventures (Equity Investees)" (page
180) for a discussion of the operating results of Sovintel, TeleRoss Ventures,
GTS Cellular and GTS-Monaco Access.

Revenue. GTS' consolidated revenue was $63.8 million and $117.3 million for
the third quarter and year to date ended September 30, 1998, respectively, which
was $50.9 million and $87.1 million above the same periods in 1997. The growth
in revenue was primarily attributable to the inclusion of HER, TeleRoss, Sovam,
TCM and Golden Telecom in GTS' consolidated financial results, who contributed
$42.9 million, $22.2 million, $18.8 million, $12.3, and $7.0 million,
respectively, for the nine months ended September 30, 1998. TCM and Golden
Telecom third quarter revenues are included in GTS' consolidated revenues for
the third quarter and year to date ended September 30, 1998.

The CIS region's consolidated revenue increased 345.1% and 237.1% to $31.6
million and $60.0 million for the three and nine months ended September 30,
1998, respectively, from the comparable periods in 1997. TeleRoss Operating
Company generated revenue of $6.8 million and $22.2 million, representing 21.5%
and 37.0% of the CIS region's consolidated revenue for the three and nine months
ended September 30, 1998, respectively. The growth in TeleRoss Operating Company
revenue of 35.4% for the year to date from the same periods last year was the
result of the increase in traffic volume generated by the TeleRoss Ventures due
to the increase in the number of cities and number of VSAT's installed at
customer locations outside of cities in which they have a presence.

Sovam generated revenue of $6.4 million and $18.8 million for the three and
nine months ended September 30, 1998, respectively. The 30.6% and 45.7% increase
from prior year periods in Sovam revenue is primarily attributable to the
expansion of Sovam's network throughout Russia and the CIS and the wider variety
of service offerings. (Sovam was an equity method company in 1997.)

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TCM's revenue for the three and nine months ended September 30, 1998
increased 57.7% and 63.8% to $12.3 million and $33.9 million, respectively, from
the comparable periods in 1997. This increase was primarily due to increases in
local and international/long distance traffic revenue and increases in monthly
port charges and the sale of additional local access lines. (TCM was an equity
method company prior to July 1, 1998.)

Revenue for Golden Telecom was $7.0 million and $16.9 million for the three
and nine months ended September 30, 1998, respectively, which represents a
218.2% and 322.5% increase from the comparable periods in 1997. The growth in
revenue was primarily attributable to the increase in cellular subscribers.
(Golden Telecom was an equity method company prior to July 1, 1998.)

HER generated $27.0 million and $42.9 million of revenue in the three and
nine months ended September 30, 1998, respectively, compared to $1.7 million and
$2.3 million, respectively, in the same periods in 1997 (HER was an equity
method company prior to July 1997). The growth in revenue is attributable to the
continued deployment of the HER network as well as the inclusion of Ebone, whose
revenue was $7.4 million for the three months ended September 30, 1998. HER
commenced commercial service over the Brussels-Amsterdam route in late 1996, the
London-Paris portion in November 1997, Frankfurt, Zurich, Geneva, Stuttgart,
Dusseldorf and Munich were added in the second quarter of 1998, and Milan was
added during the third quarter of 1998.

The Central Europe region's consolidated revenue increased 29.4% and 32.6%
to $4.4 million and $12.6 million for the three and nine months ended September
30, 1998, respectively, from the comparable periods in 1997. This growth is
attributable to the expansion of the customer base and product offerings of
these businesses.

Gross Margin. GTS's consolidated gross margin was $25.0 million and $35.2
million, or 39.2% and 30.0% of revenue, for the three and nine months ended
September 30, 1998, respectively, and ($2.4) million and $1.9 million, or
(18.6%) and 6.3% of revenue, for the three and nine months ended September 30,
1997, respectively.

Sovam represented 11.2% and 25.0% of the consolidated gross margin for the
three and nine months ended September 30, 1998, respectively. (Sovam was an
equity method company in 1997.) Sovam had gross margin as a percentage of
revenues of 43.8% and 46.8% for the three and nine months ended September 30,
1998, respectively. The increase of 0.9% and 8.0% in gross margin as a
percentage of revenue in comparison to the same periods in 1997 reflects the
higher margin service offerings that Sovam is currently providing and also
management's focus to improve its cost structure; i.e., the negotiation of
improved channel costs from suppliers and controlled growth in both personnel
and capital expenditures.

The TeleRoss Operating Company represented 1.2% and 6.0% of the
consolidated gross margin for the three and nine months ended September 30,
1998, respectively, and 20.8% and 52.6% for the three and nine months ended
September 30, 1997, respectively. TeleRoss had gross margin as a percentage of
revenue of 4.4% and 9.5% for the three and nine months ended September 30, 1998,
respectively. The increase of 12.1% and 3.4% in margin as a percentage of
revenue in comparison to the comparable periods in 1997 reflects the overall
increase in revenue as discussed above.

TCM represented 36.0% of the consolidated gross margin for the third
quarter 1998 (TCM was an equity method company prior to July 1, 1998). TCM had
gross margin as a percentage of revenues of 73.2% and 73.5% for the three and
nine months ended September 30, 1998, respectively. Gross margin as a percentage
of revenue decreased 1.2% and 3.8% in comparison to the same period in 1997 as a
result of higher infrastructure and settlement costs.

Golden Telecom represented 17.6% of the consolidated gross margin for the
third quarter 1998 (Golden Telecom was an equity method company prior to July 1,
1998). Golden Telecom's gross margin was 62.9% and 58.6% of revenue for the
three months ended September 30, 1998 compared to gross margin of 54.5% and
37.5% of total revenue for the comparable periods during 1997.

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HER had a favorable effect on consolidated gross margins of $7.3 million
and $6.3 million for the three months and nine months ended September 30, 1998.
For comparative purposes, HER had an unfavorable gross margin of ($1.0) million
and ($3.7) million for the three and nine months ended September 30, 1997 (HER
was an equity method company prior to July 1997). HER represented 29.2% and
17.9% of the consolidated gross margin for the three and nine months ended
September 30, 1998. The improvement in gross margins in 1998 as compared to 1997
is reflective of the increased utilization of the network as well as the
inclusion of Ebone, whose gross margin was $3.9 million for the three months
ended September 30, 1998.

The Central European region had gross margin as a percentage of revenue of
31.8% and 33.3% for the three and nine months ended September 30, 1998,
respectively. The decrease of 3.5% and 5.6% in gross margin as a percentage of
revenue in comparison to the comparable periods in 1997 primarily reflects the
startup activities of the GTS Net product offering in Hungary.

Operating Expenses. Consolidated operating costs were $42.8 million and
$94.2 million for the three and nine months ended September 30, 1998,
respectively, a 71.5% and 81.0% increase above the comparable periods in 1997.
The increase in operating costs is attributable to the inclusion of HER, Sovam,
TCM and Golden Telecom in the Company's consolidated financial results, the
growth in expenditures associated with building business infrastructure for
primarily the TeleRoss Operating Company and costs attributable to increasing
the corporate staff.

Equity in (Losses)/Earnings of Ventures. GTS recognized (losses)/earnings
of ($3.5) million and $4.1 million for its investments in non-consolidated
ventures in the three and nine months ended September 30, 1998, respectively, as
compared to recognizing losses of $8.1 million and $18.2 million in the
comparable periods, respectively, in 1997. This improvement was primarily the
result of HER and Golden Telecom no longer being equity method investees offset
by a $7.7 million charge to earnings associated with GTS' business operations in
Russia as a result of the deterioration of the economic conditions in Russia
during the quarter. The $7.7 million charge is principally comprised of foreign
exchange losses with the remainder associated with estimates for uncollectible
accounts receivable and unrecoverable cash deposits in Russian banks. In
addition, GTS' third quarter 1997 financial results were unfavorably affected by
management's decision to write-off certain investments in and advances to
ventures in Asia and Central Europe. As a result of the application of GTS'
previously discussed profit and loss accounting, additional losses of $1.6
million were recognized for the three and nine months ended September 30, 1998.
Included in the quarter and year to date results for September 30, 1997 were
$3.1 million and $10.9 million of additional losses. See "-- Results of
Operations -- Non-Consolidated Ventures (Equity Investees)" (page 180) for a
discussion of the results of operations of GTS' significant equity investees.

Interest, Net. GTS earned interest income of $13.9 million and $28.1
million for the three and nine months ended September 30, 1998, respectively, a
344.7% and 432.6% increase over the same periods in 1997, primarily as a result
of investing the proceeds from GTS' 1997 and 1998 capital raise efforts. See
"-- Liquidity and Capital Resources" (page 184).

GTS incurred interest expense of $22.0 million and $52.6 million for the
three and nine months ended September 30, 1998, respectively, which was 58.1%
and 149.5% above the comparable periods in 1997. The significant increase in
interest expense was due to the $571.9 million increase in debt raised in 1998
and the $409.8 million debt raised in 1997. See "-- Liquidity and Capital
Resources" (page 184).

Foreign Currency Losses. GTS recognized foreign currency losses of $7.3
million and $10.4 million for the three and nine months ended September 30,
1998. These losses are primarily attributable to the devaluation of the Russian
ruble and foreign currency exposure at HER. HER has recorded foreign exchange
losses due to its foreign exchange exposure associated with its issuance in
August 1997 of aggregate principal $265 million U.S. dollar denominated debt,
other U.S. dollar denominated cash and payable balances, losses on several
forward exchange contracts and the weakening of the U.S. dollar versus European
currencies in the third quarter of 1998. See "-- Liquidity and Capital
Resources -- Liquidity Analysis" (page 186) for further discussion.

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Provision for Income Taxes. GTS' consolidated tax provision was $0.8
million and $2.2 million for the three and nine months ended September 30, 1998
and $1.0 million and $1.8 million for the three and nine months ended September
30, 1997, respectively. GTS' financial statements do not reflect any provision
for benefits that might be associated with the U.S. and non-U.S. loss
carryforwards. There can be no assurance that such non-U.S. loss carryforwards
will be allowed, in part or in full, by local tax authorities against future
income.

Extraordinary Loss. GTS recognized a $12.7 million extraordinary charge to
earnings in the first quarter of 1998, as a result of GTS' early extinguishment
of certain related party debt obligations. The nature of the charge is comprised
of the write-off of $11.6 million of unamortized debt discount and $1.1 million
of unamortized debt issuance costs that were deferred as financing costs and
were being amortized over the original maturity of the debt.

Year Ended December 31, 1997 compared to Year Ended December 31, 1996 and
compared to Year Ended December 31, 1995

Management's discussion included within "-- Results of
Operations -- Consolidated Ventures" reflects the following significant
operating ventures: TeleRoss Operating Company, GTS-Hungary, the Czech Companies
and HER (for 1997). See "-- Results of Operations -- Non-Consolidated Ventures
(Equity Investees)" (page 180) for a discussion of the operating results of
Sovintel, TCM, Sovam, TeleRoss Ventures, GTS Cellular, HER (prior to 1997),
GTS-Monaco Access, EuroHivo and the Asia business ventures.

Revenue. GTS' consolidated revenue was $47.1 million, $24.1 million and
$8.4 million for the years ended December 31, 1997, 1996, and 1995,
respectively. The growth in revenue was attributable to the commencement in 1995
of commercial operations by TeleRoss Operating Company, as well as the continued
expansion of services and customer base in Central Europe, and HER's initial
Amsterdam to Brussels route and further expansion to London and Paris during
1997.

The CIS region's consolidated revenue was $27.1 million, $12.7 million, and
$3.8 million for the years ended December 31, 1997, 1996 and 1995 respectively.
TeleRoss Operating Company generated revenue of $24.7 million, $9.2 million and
$3.8 million, representing 91.1%, 72.4% and 100% of the region's consolidated
revenue for the years ended December 31, 1997, 1996 and 1995, respectively.
Service revenue represented 81.8%, 64.1% and 21.1% of TeleRoss Operating
Company's revenue for the years ended December 31, 1997, 1996 and 1995,
respectively, with the balance of its revenue in such periods principally
represented by installation and equipment sales. The growth in revenue was a
result of increased traffic volume generated by the TeleRoss Ventures as they
expanded to 13 cities for the year ended December 31, 1997, added customers in
existing cities and installed several VSATs at customer locations outside of
cities in which they have a presence.

Within the Central Europe region, GTS-Hungary and the Czech Companies
accounted for 100% of the revenue earned, of which GTS-Hungary and the Czech
Companies provided $8.5 million and $5.1 million of GTS' consolidated revenue in
1997, respectively, compared to $6.9 million and $2.3 million in 1996,
respectively, and $4.2 million and $0.3 million in 1995, respectively. The
growth in revenue of GTS-Hungary from 1995 to 1997 was due to the expansion of
its customer base and the introduction of microwave technology services. The
Hungary state lottery accounted for 50.6%, 55.3% and 65.0% of GTS-Hungary's
revenue in 1997, 1996 and 1995, respectively. The growth in revenue of the Czech
Companies was generated through increases in voice traffic carried from
twenty-five buildings at December 31, 1997, as compared to sixteen buildings at
December 31, 1996.

All of Western Europe's consolidated revenue of $5.4 million for the year
ended December 31, 1997 was derived from HER.

Gross Margin. GTS's consolidated gross margin was $4.4 million, or 9.3% of
revenue, for the year ended December 31, 1997, $5.2 million, or 21.6% of
revenue, for the year ended December 31, 1996 and $0.02 million, or 0.0% of
revenue, for the year ended December 31, 1995.

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The CIS region had a gross margin of $4.0 million, $0.8 million and $(0.9)
million for the years ended December 31, 1997, 1996 and 1995, respectively.
TeleRoss Operating Company had a gross margin of $3.5 million, or 14.2% of
revenues, for the year ended December 31, 1997 and a negative gross margin of
$(1.0) million for each of the years ended December 31, 1996 and 1995, which was
the result of the high fixed cost component of its network hub in Moscow.
GTS-Hungary and the Czech Companies comprised 100% of the Central Europe
region's gross margin. GTS-Hungary had a gross margin of $3.5 million, $3.0
million, and $1.7 million, representing 41.2%, 43.4%, and 40.5% of GTS-Hungary's
revenue for the years ended December 31, 1997, 1996 and 1995, respectively. The
favorable gross margin trend reflected the increased utilization of
GTS-Hungary's 1,000 VSAT capacity hub located in Budapest. The Czech Companies
had a gross margin of $1.5 million, $0.3 million and $(0.1) million for the
years ended December 31, 1997, 1996 and 1995, respectively. HER incurred a
negative gross margin of $(4.6) million for the year ended December 31, 1997,
which was primarily due to the initial cost structure of the new routes and
minimal revenue generated.

Operating Expenses. Consolidated operating costs were $76.7 million, $52.9
million, and $41.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase in operating costs reflected the growth in
expenditures associated with building business infrastructure for primarily the
TeleRoss Operating Company and GTS-Hungary, the inclusion of HER's operating
expenses in 1997 and increasing corporate staff.

Equity in (Losses)/Earnings of Ventures. GTS recognized losses from its
investments in non-consolidated ventures of $14.6 million, $10.2 million and
$7.9 million for the years ended December 31, 1997, 1996 and 1995, respectively.
Included in these losses were $3.6 million, $5.7 million and $5.2 million for
the years ended December 31, 1997, 1996 and 1995, respectively, that related to
GTS's ownership share of the losses. Also included in the losses for the year
ended December 31, 1997 was a write-off of approximately $5.4 million which
represented the net balance of certain investments in and advances to ventures
in Asia (primarily Beijing Tianmu and V-Tech) and Central Europe (EuroHivo) that
were stated in excess of their net realizable value. GTS followed the
authoritative guidance as prescribed by APB No. 18, "The Equity Method of
Accounting for Investments in Common Stock," for its determination of the $5.4
million charge. GTS' recoverability analysis was based on its projected
undiscounted cash flows of their equity investees, since this is the lowest
level of cash flow information available. The underlying reasons for the
write-down of GTS' investments were the result of the problems that are more
specifically addressed in "-- Results of Operations -- Non-Consolidated Ventures
(Equity Investees) -- Asia" (page 183), "Description of GTS -- Central Europe"
(page 142) and "Description of GTS -- Asia" (page 167). Additionally, included
within GTS's ownership share of the losses incurred and the Excess Losses for
the year ended December 31, 1997 is approximately $14.4 million of losses (of
the $14.4 million, approximately $13.5 million related to the write-off of
advances to several Chinese-owned operating telecommunications companies to
which GTS provides technical and financial assistance, and $0.9 million related
to the write-off of inventories, receivables, and other assets) which
represented GTS' share of asset write-offs recorded by certain of the ventures
in Asia (Beijing Tianmu and V-Tech). See "-- Results of
Operations -- Non-Consolidated Ventures (Equity Investees) -- Asia" (page 183).
GTS would have recognized earnings from its investments in non-consolidated
ventures of $5.2 million for the year ended December 31, 1997, had GTS not
recognized the write-downs of investments and assets of approximately $5.4
million and $14.4 million, respectively. The write-down of Central Europe's
investment in EuroHivo was a result of GTS' decision in the third quarter to
recognize the contingent liabilities associated with the expected liquidation
and discontinuation of EuroHivo's operations as of September 30, 1997. In
addition, GTS' results were negatively affected due to the recognition of Excess
Losses of $5.6 million, $4.5 million and $2.7 million for the years ended
December 31, 1997, 1996 and 1995, respectively. See "-- Overview" (page 172).
GTS' losses from its ventures were primarily the result of most of its ventures
being in the early stages of operations. Sovintel and TCM, however, generated
combined earnings of $15.5 million, $11.8 million and $3.8 million for the years
ended December 31, 1997, 1996 and 1995, respectively, which partially offset
losses generated by other ventures.

Other Non-Operating Income. Favorably affecting the 1995 results was the
non-recurring $10.3 million gain that GTS recognized as a result of its cash
settlement of certain claims with a third party in 1995.

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Interest, Net. GTS incurred interest expense of $39.1 million, $11.1
million and $0.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Interest expense is comprised of interest incurred from debt
maturing within one year, long-term debt obligations, capital lease obligations,
amortization of debt discount on the long-term debt obligations and various
other debt obligations. The significant increase in interest expense was due to
the $409.8 million increase in debt raised in 1997. See "-- Liquidity and
Capital Resources" (page 184).

GTS earned interest income of $11.4 million, $3.6 million and $2.2 million
for the years ended December 31, 1997, 1996 and 1995, respectively, primarily as
a result of investing the proceeds from private placements of common stock in
various highly liquid investments.

Provision for Income Taxes. GTS' consolidated tax provision was $2.5
million, $1.4 million and $2.6 million for the years ended December 31, 1997,
1996 and 1995, respectively. GTS' financial statements do not reflect any
provision for benefits that might be associated with the U.S. and non-U.S. loss
carryforwards. There can be no assurance that such non-U.S. loss carryforwards
will be allowed, in part or in full, by local tax authorities against future
income.

RESULTS OF OPERATIONS -- NON-CONSOLIDATED VENTURES (EQUITY INVESTEES)

Three and Nine Months Ended September 30, 1998 compared to Three and Nine
Months Ended September 30, 1997

RUSSIA -- CIS

Sovintel. Sovintel's revenue was $32.4 million and $99.5 million for the
third quarter and year to date ended September 30, 1998, which increased $4.5
million and $17.5 million over revenues for the comparable periods in 1997. The
growth in revenue was primarily the result of telecommunications service
revenue, which increased 8.3% and 14.3% to $21.8 million and $70.2 million for
the three and nine months ended September 30, 1998, respectively, from
comparable periods in 1997, due to the Moscow customer base growth and traffic
from other GTS ventures that generated increased volume of outgoing
international and domestic minutes carried by Sovintel. Sovintel realized a
35.4% and 28.7% increase in outgoing international and domestic revenues for the
three and nine months ended September 30, 1998, as compared with the same
periods a year ago. Revenue from incoming international minutes decreased by
55.1% and 38.5% to $1.5 million and $6.1 million for the three and nine months
ended September 30, 1998, respectively, from the same periods in 1997.

Sovintel's non-traffic-related revenue increased 36.6% and 42.4% to $10.6
million and $29.3 million for three and nine months ended September 30, 1998,
respectively, over the comparable periods in 1997, which was primarily
attributable to port sales and monthly port fees revenue.

Sovintel's gross margin as a percentage of revenues was 34.6% and 33.9%,
for the three and nine months ended September 30, 1998, and was 34.8% and 37.8%
for comparable periods in 1997. The decrease in gross margin as a percentage of
revenue for the respective periods in 1998 and 1997 was attributable to a
general price decrease in international and domestic revenue due to competitive
pressures and a higher percentage of domestic minutes, which yield a lower
margin.

Operating expenses were $7.9 million and $17.7 million, or 24.4% and 17.8%
of total revenue, for the three and nine months ended September 30, 1998. The
increase of 9.3% and 2.8% in operating expenses in comparison to the same
periods in 1997 was primarily due to charges related to the Russian financial
crisis, specifically, $1.9 million of uncollectible accounts receivable and $0.4
million in unrecoverable cash.

Sovintel recorded a foreign exchange loss of $5.2 million during the
quarter, of which $5.1 million was attributable to the devaluation of the ruble
in mid-August 1998.

TeleRoss Ventures. Revenue for the TeleRoss Ventures increased 4.3% and
45.1% to $2.4 million and $7.4 million for the three and nine months ended
September 30, 1998, respectively, from the comparable periods in 1997. Revenues
were primarily resulted from settlement fees charged to TeleRoss Operating
Company. The growth in revenue reflects the growth of the customer base.

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Gross margin as a percentage of revenue was 75.0% and 71.6% for the three
and nine months ended September 30, 1998, respectively, compared to 60.9% and
72.5% for the three and nine months ended September 30, 1997, respectively.
Operating expenses were $1.0 million and $3.2 million, or 41.7% and 43.2% of
revenue, for the three and nine months ended September 30, 1998, respectively,
compared to 30.4% and 49.0% of revenue, for the comparable periods in 1997.

GTS Cellular. GTS operates three cellular networks through differing
ownership structures: Vostok Mobile, PrimTelefone and Golden Telecom
(consolidated for the three months ended September 30, 1998).

Revenue for Vostok Mobile was $6.2 million and $20.9 million for the three
and nine months ended September 30, 1998, respectively, which represented a
47.6% and 39.3% increase from the comparable periods in 1997. The growth in
revenue was primarily attributable to subscriber growth.

Vostok Mobile's gross margin was 40.9% and 46.9% of revenue, for the three
and nine months ended September 30, 1998, respectively, compared to 45.2% and
50.7% of revenue, for the comparable periods in 1997. Operating expenses were
$5.5 million and $11.7 million, or 88.7% and 56.0% of revenue, for the three and
nine months ended September 30, 1998, respectively, compared to ($0.2) million
and $4.8 million, or (4.8%) and 32% of revenue, for the comparable periods in
1997.

Vostok Mobile recorded a foreign exchange loss of $2.4 million during the
third quarter 1998, that resulted primarily from the devaluation of the ruble in
mid-August 1998.

Revenue for PrimTelefone was $2.9 million and $10.2 million for the three
and nine months ended September 30, 1998, respectively, which represented a 9.4%
decrease and a 24.4% increase from the comparable periods in 1997. The decrease
in current period revenue is due to decreases in airtime, subscriber fees and
handset sales during the third quarter of 1998. The growth in year to date
revenue was primarily attributable to the subscriber growth in the first and
second quarters of 1998.

PrimTelefone's gross margin was 58.6% and 57.8% of total revenue, and
operating expenses were $0.9 million and $3.2 million for the three and nine
months ended September 30, 1998, respectively, compared to gross margin of 43.8%
and 57.3% of total revenue, and operating expenses of $1.2 million and $2.7
million, respectively, for the comparable periods in 1997.

WESTERN EUROPE

GTS-Monaco Access: Total revenue was $6.8 million and $18.7 million for the
three and nine months ended September 30, 1998, respectively, which represented
a 100.0% and 136.7% increase from the comparable periods in 1997. Gross margin
was ($0.3) million and $0.7 million, or (4.4%) and 3.7% of revenue, for the
three and nine months ended September 30, 1998, respectively, compared to $0.3
million and $0.4 million, or 7.7% and 5.1% of revenue, for the comparable
periods in 1997. The decrease in gross margin for the third quarter of 1998 is
primarily the result of service credit recorded in September.

Year Ended December 31, 1997 compared to Year Ended December 31, 1996 and
compared to Year Ended December 31, 1995

RUSSIA -- CIS

Sovintel. Sovintel's revenue for the years ended December 31, 1997, 1996
and 1995 was $114.0 million, $75.0 million and $44.3 million, respectively. The
increase in revenue was primarily the result of telecommunications service
revenue, which increased to $85.4 million for the year ended December 31, 1997
from $50.8 million and $26.8 million for the years ended December 31, 1996 and
1995, respectively, due to the Moscow customer base growth and traffic from
other GTS ventures that generated increased volume of outgoing international and
domestic minutes carried by Sovintel. Revenue from incoming international
minutes also increased to $13.1 million for the year ended December 31, 1997,
from $6.8 million and $2.2 million for the years ended December 31, 1996 and
1995, respectively. Included in Sovintel's traffic revenue for 1997 and 1996 was
$12.4 million and $5.0 million, respectively, that was related to customers
using phone numbers provided by TCM. This revenue was derived primarily from
international/long distance

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traffic and local traffic. Sovintel and TCM have an arrangement whereby Sovintel
reimburses TCM 50% of installation charges, monthly fees and local traffic
revenues and approximately 33% of international/long distance billings from
TCM-supplied phone numbers.

Sovintel's non-traffic-related revenue of $28.6 million, $24.2 million and
$17.5 million for the years ended December 31, 1997, 1996 and 1995,
respectively, was primarily attributable to port sales and monthly port fees
revenues.

Sovintel's gross margin was $41.3 million, $31.1 million and $18.0 million,
or 36.2%, 41.5% and 40.6% of revenue, for the years ended December 31, 1997,
1996 and 1995, respectively. The decrease in gross margin percentage was
attributable to a general price decrease in international and domestic revenues
due to competitive pressures and a higher percentage of domestic minutes, which
yield a lower margin.

Operating expenses were $17.0 million, $10.3 million and $7.1 million, or
14.9%, 13.7% and 16.0% of total revenue, for the years ended December 31, 1997,
1996 and 1995, respectively. The increase in operating expenses was related to
increases in turnover taxes associated with revenues and also increased
personnel, advertising and sales force costs required to support Sovintel's
growth.

Income tax expense was $5.7 million, $5.2 million and $2.6 million for the
years ended December 31, 1997, 1996 and 1995, respectively. The increase in
income tax expense was attributable to Sovintel's profitable operations.

TCM. TCM's revenue was $29.3 million and $16.5 million for the years ended
December 31, 1997 and 1996, respectively. TCM had minimal activities in 1995.
TCM had a gross margin of $22.1 million and $13.2 million, or 75.4% and 80.0% of
total revenue. The decrease in gross margin as a percentage of revenue was
attributable to higher infrastructure and settlement costs. TCM had operating
expenses of $3.3 million and $1.9 million, or 11.3% and 11.5% of total revenue,
for the years ended December 31, 1997 and 1996, respectively.

Sovam. Sovam's revenue was $17.8 million, $11.7 million and $4.4 million
for the years ended December 31, 1997, 1996 and 1995, respectively. The increase
in revenues is primarily attributable to the expansion of Sovam's network
throughout Russia and the CIS and the wider variety of service offerings,
including the introduction of Russia On Line services.

Gross margin was $7.1 million, $3.4 million and $1.5 million, or 39.9%,
29.1% and 34.1% of total revenue for the years ended December 31 in 1997, 1996
and 1995, respectively. Operating expenses were $5.7 million, $5.7 million and
$3.3 million, or 32.0%, 48.7% and 75.0% of total revenue, for the years ended
December 31, 1997, 1996 and 1995, respectively.

TeleRoss Ventures. Revenue for the TeleRoss Ventures for the years ended
December 31, 1997, 1996 and 1995 was $6.8 million, $2.4 million and $0.2
million, respectively. Revenues resulted from settlement fees charged to
TeleRoss Operating Company. The growth in total revenue was the result of steady
growth in sales of core switched voice services in the five cities serviced in
1995, an additional seven new cities in the network in 1996 and an additional
city in 1997.

Gross margin for the years ended December 31, 1997, 1996 and 1995 was $4.7
million, $1.6 million and $0.1 million, respectively. Operating expenses of $3.6
million, $2.3 million and $0.2 million were incurred for the years ended
December 31, 1997, 1996 and 1995, respectively.

GTS Cellular. GTS operates three cellular networks through differing
ownership structures: Vostok Mobile, PrimTelefone and Golden Telecom.

Revenue for Vostok Mobile was $25.8 million, $16.5 million and $2.0 million
for the years ended December 31, 1997, 1996 and 1995, respectively. Vostok
Mobile's gross margin was $13.6 million, $9.3 million and $1.1 million, or
52.7%, 56.4% and 55.0% of total revenue, and operating expenses were $10.1
million, $9.2 million and $4.7 million for the years ended December 31, 1997,
1996 and 1995, respectively.

Revenue for PrimTelefone was $12.1 million, $8.4 million and $2.2 million
for the years ended December 31, 1997, 1996 and 1995, respectively.
PrimTelefone's gross margin was $6.6 million, $4.7 million
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and $0.6 million, or 54.5%, 56.0% and 27.3% of total revenue, and operating
expenses were $3.6 million, $3.7 million and $0.7 million for the years ended
December 31, 1997, 1996 and 1995, respectively.

Golden Telecom did not have significant operations until 1997. Revenue for
Golden Telecom was $7.2 million and gross margin was $2.8 million, or 38.9% of
total revenue, for the year ended December 31, 1997. Operating expenses were
$4.9 million for the year ended December 31, 1997.

WESTERN EUROPE

HER. HER earned a small revenue stream in 1996 and no revenue in 1995.
Operating expenses were $10.6 million and $6.7 million for the years ended
December 31, 1996 and 1995, respectively. The increase in selling, general and
administrative expenses reflected HER's continued transition from the start-up
phase to the operational phase. In 1997, HER was included in the consolidated
results of GTS.

GTS-Monaco Access. Limited international traffic was carried from GTS
subsidiaries through GTS-Monaco Access for termination worldwide during 1995
which resulted in minimal revenues earned. Total revenue was $13.0 million and
$3.9 million and gross margin was $0.2 million and $(0.4) million for the years
ended December 31, 1997 and 1996, respectively.

CENTRAL EUROPE

EuroHivo. EuroHivo's operating results were minimal for the years ended
December 31, 1997, 1996 and 1995. In September 1997, GTS recorded a $2.4 million
charge to recognize the liabilities associated with the planned liquidation and
discontinuance of EuroHivo's operations. See Footnote 3 in GTS audited financial
statements for additional disclosures related to EuroHivo.

ASIA

Most of GTS' ventures within the Asia region were in the start-up phase and
had not commenced operations in 1996. The non-consolidated ventures in the Asia
region had revenue of $7.0 million for the year ended December 31, 1996, and had
minimal revenues in 1997 and 1995. The revenue in 1996 consisted principally of
equipment sales. GTS believes that future revenue will be derived primarily from
providing telecommunications engineering and consulting services.

During the year ended December 31, 1997, the V-Tech and Beijing Tianmu
business ventures (the "Asia Ventures") determined that a charge of $14.4
million (GTS's portion) was appropriate as a result of the write-off of $13.5
million of advances to several Chinese-owned operating telecommunications
companies to which the Asia Ventures provide technical and financial assistance
and $0.9 million related to the write-off of inventories, receivables and other
assets. The Asia Ventures followed the authoritative guidance as prescribed by
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," for their determination of the $13.5
million charge as they believed that the advances, as evidenced by legal
agreements between the Asia Ventures and the underlying operating
telecommunications companies, represents long-lived assets. (The Asia Ventures
would have reflected the same charge had they followed the authoritative
accounting guidance as prescribed by APB No. 18 or SFAS No. 5, "Accounting for
Contingencies.") The Asia Ventures recoverability analysis was based on their
projected undiscounted cash flows of their respective operations since this is
the lowest level of cash flow information available. The underlying reasons for
the write-offs were the result of problems dealing with one of the Asian
partners, the inability of the Chinese operating telecommunications companies to
develop markets for their services, and technical problems, all of which
surfaced during the third quarter of 1997. See Footnote 3 in GTS' audited
financial statements for additional disclosures related to GTS' Asia operations
and "Description of GTS -- Asia" (page 167).

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LIQUIDITY AND CAPITAL RESOURCES

CORPORATE

The telecommunications business is capital intensive. GTS generally is the
primary source of funding for its ventures, both for working capital and capital
expenditures. Under a typical arrangement, GTS's venture partner contributes the
necessary licenses or permits under which the venture will conduct its business,
office space and other equipment. GTS's contribution is generally cash and
equipment, but may consist of other specific assets as required by the joint
venture agreement.

GTS has raised capital through the issuance of equity securities and
through various debt agreements. The issuance of equity securities has raised
$358.6 million, $36.4 million, $107.7 million, $42.1 million and $62.1 million
in the first nine months of 1998, and in the full years of 1997, 1996, 1995 and
1994, respectively, net of placement fees, for a total of $606.9 million. In
addition, GTS and HER received $571.9 million, $409.8 million, $60.0 million and
$23.3 million in gross proceeds in the first nine months of 1998, and in the
full years of 1997, 1996 and 1995, respectively, for a total of $1,065.0 million
under various debt agreements. Included within the debt proceeds identified
above, GTS received $3.5 million, $60.0 million and $10.0 million in 1997, 1996
and 1995, respectively, from lenders who are affiliated with, and are considered
related parties to, GTS as a result of their (or their affiliates) ownership of
GTS' Common Stock, of which $70.0 million was repaid in 1998.

GTS had working capital of $907.6 million and $353.4 million as of
September 30, 1998 and 1997, respectively. GTS had an accumulated deficit of
$343.7 million as of September 30, 1998, including net losses of approximately
$37.5 million and $100.8 million for the three and nine months ended September
30, 1998 and $48.2 million and $87.9 million for the three and nine months ended
September 30, 1997, respectively. During 1998, GTS has incurred and expects to
continue to incur substantial expenditures to fund the working capital
requirements of its ventures, to provide capital equipment for certain of its
ventures, and to engage in new development and acquisitions.

GTS will require substantial capital investment to execute its business
plans and to fund expected operating losses. Management expects that GTS and its
ventures will spend over $1.2 billion in cash related to capital expenditures
and investments in ventures during the next three years. GTS obtained funds in
1998 through a variety of financing arrangements, including (i) approximately
$255.3 million in gross proceeds from the IPO, (ii) $105.0 million in gross
proceeds from the sale of 9.875% senior notes due February 15, 2005, of which
$19.6 million was placed in escrow to fund the first two years' interest
payments. The initial public stocking offering constituted a "complying public
equity offering" under GTS' 8.75% Senior Subordinated Convertible Bonds due 2000
(the "Bonds"), and as a result, the conversion price of the Bonds is $20 per
share, (iii) approximately $127.4 million in gross proceeds from a secondary
public stock offering of 2.8 million shares of common stock at $45.50 per common
share, and (iv) approximately $466.9 million in gross proceeds from the sale of
the Debentures. The Debentures are redeemable from July 1, 2001 at the option of
GTS, at redemption prices set forth in the agreement relating to the Debentures
and are convertible into shares of common stock at any time prior to maturity or
redemption at a conversion price of $55.05 per common share. The Debentures are
subordinated to all existing and future indebtedness of GTS, except for the
Bonds, with which they rank pari passu in right of payment.

GTS believes that its existing cash balances, after giving effect to the
New HER Notes Offering which notes are on substantially similar terms as HER's
existing senior notes, and cash flow from operations will be sufficient to fund
its expected capital needs under its current business plan, excluding any funds
expended in connection with the implementation of GTS' European Services
Strategy. See "Liquidity and Capital Resources -- European Services Strategy"
(page 186). GTS contemplates that it will raise additional debt financing
through a newly formed subsidiary of GTS, the proceeds of which will be applied
toward the implementation of GTS' European Services Strategy. GTS has not yet
determined the actual amount and timing of such financing.

The actual amount and timing of GTS' future capital requirements may differ
materially from management's estimates. In particular, the accuracy of
management's estimates is subject to changes and

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fluctuations in GTS' revenues, operating costs and development expenses, which
can be affected by GTS' ability to (i) effectively and efficiently manage the
expansion of the HER network and operations, (ii) obtain infrastructure
contracts, rights-of-way, licenses and other regulatory approvals necessary to
complete and operate the HER network, (iii) negotiate favorable contracts with
suppliers, including large volume discounts on purchases of capital equipment
and (iv) access markets, attract sufficient numbers of customers and provide and
develop services for which customers will subscribe. GTS' revenues and costs are
also dependent upon factors that are not within GTS' control such as political,
economic and regulatory changes, changes in technology, increased competition
and various factors such as strikes, weather, and performance by third parties
in connection with GTS' operations. Due to the uncertainty of these factors,
actual revenues and costs may vary from expected amounts, possibly to a material
degree, and such variations are likely to affect GTS' future capital
requirements. Historically, GTS has experienced liquidity problems resulting in
part from GTS' need to meet the capital requirements of certain of its ventures
in excess of forecast amounts. In addition, certain of GTS' ventures have not
met management's financial performance expectations or have not been able to
secure local country financing and thus have not been able to generate the
expected cash inflows. In addition, if GTS expands its operations at an
accelerated rate or consummates acquisitions, GTS' funding needs will increase,
possibly to a significant degree, and it will expend its capital resources
sooner than currently expected. GTS may also be required to repay the Bonds upon
maturity on June 30, 2000 to the extent the Bonds are not converted into Common
Stock. As a result of the foregoing, or if GTS' capital resources otherwise
prove to be insufficient, GTS will need to raise additional capital to execute
its current business plan and to fund expected operating losses, as well as to
consummate future acquisitions and exploit opportunities to expand and develop
its businesses.

There can be no assurances that GTS will be able to consummate additional
financing on favorable terms. As a result, GTS may be subject to additional or
more restrictive financial covenants, its interest obligations may increase
significantly and its existing shareholders may be adversely diluted. Failure to
generate sufficient funds in the future, whether from operations or by raising
additional debt or equity capital, may require GTS to delay or abandon some or
all of its anticipated expenditures, to sell assets, or both, either of which
could have a material adverse effect on the operations of GTS.

HER

Construction of the HER fiber optic network is one of GTS' most significant
business activities. HER has spent approximately $136 million in cash on network
capital expenditures through September 30, 1998 and expects to incur an
additional $654 million in cash through 2000 in order to complete the buildout
of the network. The total capital expenditures required for the buildout of the
network has increased as a result of additional routes being planned, including
transatlantic capacity, and for enhancing the speed and capacity of the network.
Additionally, as of September 30, 1998, GTS has capitalized $242.2 million in
connection with long-term fiber lease arrangements and expects to capitalize an
additional $181 million through 2000 in order to complete the buildout of the
network. Moreover, subsequent to September 30, 1998, HER entered into an
additional contractual commitment for $36.8 million, payable within twelve
months, to lease an indefeasible right of use to transatlantic capacity for a
term of twenty-five years. In August 1997, HER completed the issuance of $265.0
million in gross proceeds of 11.5% Senior Notes (the "Senior Notes") due in
August 2007. The Senior Notes are general unsecured obligations of HER. GTS
believes that the net proceeds from the Senior Notes and the offering of New HER
Notes, combined with HER's projected internally generated funds, should be
sufficient to fund HER's expected capital expenditures as well as payments on
the long-term fiber lease arrangements and other cash needs. However the actual
amount and timing of HER's future capital requirements may differ materially
from management's estimates. If the actual amount and timing of HER's future
capital requirements differ materially from management's estimates, any failure
to obtain necessary financing may require HER to delay or abandon its plans for
deploying the remainder of the network and would jeopardize the viability of
HER, or may require GTS to make additional capital contributions to HER at the
expense of GTS' other operations, either of which could have a material adverse
effect on the operations of GTS. There can be no assurance that GTS or its
partners in HER would have sufficient capital to make contributions to HER, or
that they would be willing to do so.

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EUROPEAN SERVICES STRATEGY

Due to the early stage of implementation of GTS' European Services
Strategy, GTS cannot estimate with any degree of certainty the amount and timing
of GTS' future capital requirements for its implementation, which will be
dependent on many factors, including the success of GTS' European end-user
services business, the rate at which GTS expands its networks and develops new
networks, the types of services GTS offers, staffing levels, acquisitions and
customer growth, as well as other factors that are not within GTS' control,
including competitive conditions, regulatory developments and capital costs.
Management believes that it is likely that GTS will need to raise additional
capital above that raised through July 31, 1998. GTS expects that it will have
significant operating and net losses and will record significant net cash
outflow, before financing, in coming years in connection with its European
end-user services business. There can be no assurance that GTS' operations,
including the Company's European end-user services business, will achieve or
sustain profitability or positive cash flow in the future.

LIQUIDITY ANALYSIS

GTS had cash and cash equivalents of $993.9 million and $366.8 million as
of September 30, 1998 and 1997, respectively. GTS had restricted cash of $66.9
million and $59.8 million as of September 30, 1998 and 1997, respectively. The
restricted cash at September 30, 1998 primarily represents amounts held in
escrow to pay the first two years interest payments on the $105 million of the
9.875% Senior Notes due 2005 of GTS and $265 million of the Senior Notes of HER.

During the three and nine months ended September 30, 1998, GTS' operations
provided cash of $29.2 million and used $5.4 million, respectively, compared to
a cash use of $15.7 million and $38.9 million, respectively, in the comparable
periods of 1997. Cash used for investing activities was $89.7 million and $142.9
million for the three months and nine months ended September 30, 1998 and $55.9
million and $73.0 million for the three and nine months ended September 30,
1997, respectively. The use of cash in operations and for investing activities
reflected primarily the development and buildout of existing telecommunications
networks and the funding of fully operational ventures. There can be no
assurance that GTS' operations will achieve or sustain profitability or positive
cash flow in the future. If GTS cannot achieve and sustain operating
profitability or positive cash flow from operations, it may not be able to meet
its debt service obligations or working capital requirements.

In February 1998, GTS used approximately $85.2 million of the net proceeds
from the initial public offering and the $105.0 million Senior Notes to repay
$70.0 million plus accrued interest of debt from lenders who are affiliated
with, and are considered related parties to, GTS as a result of their (or their
affiliates) ownership of GTS' Common Stock.

Substantially all of GTS' operations are in foreign countries and therefore
GTS' consolidated financial results are subject to fluctuations in currency
exchange rates. The Company's consolidated operations transact their business in
the following significant currencies: Russian Ruble, Hungarian Florint, Belgium
Franc and the European Currency Equivalent. For those operating companies that
transact their business in currencies that are not readily convertible, GTS
attempts to minimize its exposure by indexing its invoices and collections to
the applicable dollar/foreign currency exchange rate to the extent its costs
(including interest expense, capital expenditures and equity) are incurred in
U.S. dollars. Although GTS is attempting to match revenues, costs, borrowing and
repayments in terms of their respective currencies, GTS has experienced, and may
continue to experience, losses and a resulting negative impact on earnings with
respect to holdings solely as a result of foreign currency exchange rate
fluctuations, which include foreign currency devaluations against the U.S.
dollar. Furthermore, certain of GTS' operations have notes payable and notes
receivable which are denominated in a currency other than their own functional
currency or loans linked to the U.S. dollar. GTS may also experience economic
loss and a negative impact on earnings related to these monetary assets and
liabilities.

GTS has developed risk management policies that establish guidelines for
managing foreign exchange risk. GTS is currently evaluating the materiality of
foreign exchange exposures in different countries and the financial instruments
available to mitigate this exposure. GTS' ability to hedge its exposure is
limited since
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certain of its operations are located in countries whose currencies are not
easily convertible. Financial hedge instruments for these countries are
nonexistent or limited and also pricing of these instruments is often volatile
and not always efficient. GTS is designing reporting processes to monitor the
potential exposure on an ongoing basis and expects to implement this process
before the end of 1998. GTS will use the output of this process to execute
financial hedges to cover foreign exchange exposure when practical and
economically justified.

In April 1998, GTS consummated an economic transaction to hedge the foreign
exchange exposure resulting from the issuance of $265 million Senior Notes by
HER.

In the August 17 Decision the Russian government and the Russia Central
Bank announced the following measures: a) The repayment of GKO treasury bills
and OFZ federal bonds was suspended; subsequently, secondary trading therein was
halted. Since many Russian banks had substantial investments in these
securities, severe liquidity problems resulted for the banks. b) The value of
the ruble was allowed to fluctuate below the ruble/US dollar exchange rate
corridor that the government had committed to support; this represented an
effective devaluation of the ruble. c) A 90-day moratorium on offshore credit
repayments was issued. The 90-day moratorium was not extended when it expired on
November 16, 1998 and it is anticipated that the ruble will continue to be
devalued. Due to the devaluation and the end of the 90-day moratorium, there is
an ongoing risk that many Russian banks may be declared bankrupt. Deposits held
at Russian banks, other than Sberbank, are not insured. The official exchange
rate as of September 30, 1998 and December 18, 1998 was 16.0645 and 20.7 rubles
per US dollar, respectively. The last official exchange rate prior to the
suspension of trading on August 17, 1998 was 6.2725 rubles per US dollar.

As a result of the devaluation of the ruble and the consequences of the
banking and economic crisis within Russia, GTS recorded a $13.1 million pre-tax
charge within its financial statements for the third quarter 1998, that is
mainly comprised of foreign currency exchange losses for ruble-denominated net
monetary assets with the remainder associated with estimates for uncollectible
accounts receivable and unrecoverable cash deposits in Russian banks. See
"-- Results of Operations -- Consolidated Ventures" (page 175) and "-- Results
of Operations -- Non-Consolidated Ventures (Equity Investees)" (page 180).

Moreover, the Russian government has defaulted on payments, and proposed a
restructuring, of GKO treasury bills and OFZ federal bonds which has been
criticized by Western holders of such obligations. As a result, it is likely
that the Russian government and Russian businesses will have difficulty
accessing Western financial markets for the foreseeable future. The consequences
of the August 17 Decision and its aftermath remain unclear, but no assurance can
be given that these emergency measures, coupled with the policies of Russia's
new government, will be sufficient to stabilize the currency, enhance liquidity
or prevent further economic dislocation. In particular, there can be no
assurance that there will not be a further significant and sudden decline in the
value of the ruble and consequent increased GTS exchange-related losses and
increased loss of investor confidence in the Russian economy. Such consequences
coupled with an overall downturn in the Russian economy and resulting reduced
demand for telecommunication services could have a material adverse effect on
GTS and its financial condition and results of operations.

YEAR 2000 COMPLIANCE

The "Year 2000" issue is the result of computer programs using two digits
rather than four to define the applicable year (the "Year 2000 Issue"). Because
of this programming convention, software, hardware or firmware may recognize a
date using "00" as the year 1900 rather than the year 2000. Use of non-Year 2000
compliant programs could result in system failures, miscalculations or errors
causing disruptions of operations or other business problems, including, among
others, a temporary inability to process transactions and invoices or engage in
similar normal business activities.

Issues Posed by the Year 2000 Issue. GTS is exposed to the Year 2000 Issue
in a number of ways. Among other things, the Year 2000 Issue might affect GTS':
(i) computer hardware and software; (ii) telecommunications equipment and other
systems with embedded logic (among other things, this includes GTS' fire
detection, access control systems, heating, ventilation and air conditioning,
and uninterruptible power supply); (iii) operating partners and organizations
upon which GTS is dependent; (iv) local access connections, upon which GTS is
dependent; and (v) supply chain.
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<PAGE> 195

Global TeleSystems Group Inc.'s Year 2000 Compliance Program. GTS has
initiated a Year 2000 compliance program to address the aforementioned risks
which the Year 2000 Issue poses and to avoid any material loss or impact to GTS
or its customers due to these risks (the "Year 2000 Compliance Program"). The
object of the Year 2000 Compliance Program is to ensure that neither the
performance nor functionality of GTS' operations are affected by dates, prior
to, during and after 2000. The scope of the Year 2000 Compliance Program
includes all of the business functions, locations and resources which are
essential to GTS. The resources which are within the scope of the Year 2000
Compliance Program are, among other things, GTS' computer systems, software,
vendor supplied software, telecommunications equipment, third party
telecommunications partners and other Network service suppliers, environmental
and building control systems, internal communication systems and other
interfaces with third party services. As explained below, GTS' efforts to assess
its systems as well as non-system areas related to Year 2000 compliance involve
(i) a wide-ranging assessment of the Year 2000 problems that may affect GTS,
(ii) the development of remedies to address the problems discovered in the
assessment phase and (iii) testing of the remedies.

Assessment Phase. The assessment phase includes internal and third party
review of potential risks associated with the availability, integrity and
reliability of operational systems necessary to conduct business. During the
assessment phase GTS has identified substantially all of its major hardware and
software platforms, applications, telecommunications equipment and other non-IT
resources that support the business functions. The assessment phase of the Year
2000 Compliance Program further identified the internal and external technical
interfaces, third party business relationships and internally developed systems
which might be materially impacted by Year 2000 issues. GTS' observations from
the assessment phase during the third and fourth quarters of 1998 is that most
of GTS' telecommunications equipment and software has been purchased within the
past three years and the majority is already compliant or can be made compliant
with minor upgrades. GTS completed the assessment phase of its Year 2000
readiness in the fourth quarter of 1998.

Remediation, Prevention and Testing Phases. Based on those resources
identified in the assessment phase, GTS developed a detailed plan in the fourth
quarter of 1998, that will then be followed by an upgrade, a remediation, a
prevention and a testing phase in early 1999. These phases are expected to be
completed during the second quarter of 1999.

Assessment of Third Party Compliance. As noted above, GTS has also
undertaken under its Year 2000 Compliance Program to assess and monitor the
progress of third party vendors in resolving Year 2000 issues. To ensure the
compliance of vendors of hardware and software applications used by GTS, GTS is
obtaining confirmations from GTS' primary telecommunication vendors, business
partners and hardware and software vendors as to what plans, if any, are being
developed or are already in place to address their ability to process
transactions in the Year 2000. GTS intends to continue follow up with any
vendors who indicate any material problems in their replies. GTS expects to
receive statements of intended compliance by mid-1999.

Worst Case Scenario for GTS. The worst case scenario for GTS would be the
failing of its telecommunications equipment, power providers and/or interfaces
with other telecommunication vendors. These cases would create business
interruption at some of GTS' operations and would adversely affect GTS'
revenues. For example, the Moscow power authorities have publicly stated that
they do not intend to address Year 2000 issues until problems arise. However,
GTS has operations that are geographically diversified; therefore, it is not
anticipated that the worst case scenario would affect all operations at the same
time. Additionally, if power failures occur, GTS currently has diesel generators
at certain of its major sites. Based on its assessment during the third and
fourth quarters of 1998, GTS does not foresee a material loss due to these
conditions and management is hopeful that its remediation and testing efforts
will ensure that it has addressed its Year 2000 readiness. However, there can be
no assurance that Year 2000 non-compliance by GTS' systems or the systems of
vendors, customers, partners or others will not result in a material adverse
effect.

Contingency Plans. GTS is considering a contingency plan to address its
worst case scenario; however, certain of the initiatives are subject to
execution risk. This risk would include the ability to have access to diesel
fuel or large generators should power failures occur, the ability to quickly
replace telecommunications equipment and the ability to contract with
alternative telecommunication and maintenance providers at

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reasonable terms. Moreover, GTS is further limited in resources in certain
geographical regions due to the market volatility and weak economies in which
GTS has business operations. See "Risk Factors -- Risks Specific to GTS -- Risks
Relating to Operation in Russia and the CIS" (page 27).

Costs Related to the Year 2000 Issue. GTS expects that it will incur
between $2.0 million to $3.5 million in expenses to complete the assessment,
detailed planning, remediation, prevention and testing phases, exclusive of
replacement costs for telecommunications equipment and software, of which
approximately $0.6 million had been incurred for the nine months ended September
30, 1998. It is estimated that between $1.0 million to $2.0 million of the total
expenditure will be required to complete the remediation and testing phase,
excluding the replacement of telecommunications equipment and software. GTS is
currently unable to quantify the costs that it may incur during the remediation
and testing phase associated with the replacement of any telecommunications
equipment and software due to the early stage of the Year 2000 readiness review.
These costs will be funded from operating cash flows and expensed as incurred.
In addition, the preceding cost estimate does not include amounts associated
with the accelerated acquisition of replacement systems as none are included in
the initial assessment during the third and fourth quarters of 1998. GTS does
not expect that the costs of addressing its Year 2000 readiness will have a
material effect on GTS' financial condition or results of operations. However,
there can be no assurance that Year 2000 non-compliance by GTS' systems or the
systems of vendors, customers, partners or others will not result in a material
adverse effect on GTS.

Risks Related to the Year 2000 Issue. Although GTS' efforts to be Year 2000
compliant are intended to minimize the adverse effects of the Year 2000 issue on
GTS' business and operations, the actual effects of the issue will not be known
until 2000. Difficulties in implementing the remediation or prevention phases or
failure by GTS to fully implement the planning or remediation phases or the
failure of its major vendors, third party network service providers, and other
material service providers and customers to adequately address their respective
Year 2000 issues in a timely manner would have a material adverse effect on GTS'
business, results of operations, and financial condition. See "Risk
Factors -- Risks Specific to GTS -- Risks Associated with Potential Failure of
GTS' Systems to Recognize Year 2000" (page 37).

INTRODUCTION OF THE EURO

On January 1, 1999, certain countries of the European Union established
fixed conversion rates between their existing sovereign currencies and a new
currency to be called the "Euro." The Euro is now trading on currency exchanges
and is available for non-cash transactions. Until January 1, 2002, the existing
sovereign currencies will remain legal tender in these countries. On January 1,
2002, the Euro is scheduled to replace the sovereign legal currencies of these
countries. Through certain of its subsidiaries, GTS has significant operations
within the European Union, including many of the countries that are scheduled to
adopt the Euro. GTS is currently evaluating the systems and business issues
raised by the adoption of the Euro, including the need to adapt information
systems and the competitive impact of cross-border pricing transparency. GTS has
not yet completed its evaluation of the potential impact likely to be caused by
the Euro adoption.

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DIRECTORS AND EXECUTIVE OFFICERS OF GTS

Directors and Executive Officers of Purchaser. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of GTS. Unless otherwise indicated, the current
business address of each person is 1751 Pinnacle Drive, North Tower -- 12th
floor, McLean, VA 22102. Unless otherwise indicated, each such person is a
citizen of the US.

DIRECTORS

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<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS AGE FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- --- -------------------------------------------
<S> <C> <C>
Michael A. Greeley................... 35 Mr. Greeley has served as a director of GTS since
September 1996. Mr. Greeley is the Senior Vice President
of GCC Investments, Inc., the investment group of GC
Companies, Inc. From June 1989 to July 1994, Mr. Greeley
was a Vice President at Wasserstein Perella & Co., Inc.,
an international investment bank, specializing in
mergers and acquisitions and corporate finance
transactions. Mr. Greeley is also a director of American
Capital Access Holdings, LLC, Crescent Communications,
Fuelman, Inc. and Teletrac, Inc. By contractual
arrangement, GCC Investments, Inc. has the right to
designate one person for nomination to the Board of
Directors as long as it holds not less than two and
one-half percent of the issued and outstanding shares of
the Common Stock on a fully diluted basis. Mr. Greeley
is the designee of GCC Investments, Inc. to the Board of
Directors. Mr. Greeley is a member of the Audit and
Budget and Compensation Committees of the Board of
Directors.
Roger W. Hale........................ 54 Mr. Hale was elected to GTS's Board of Directors in May
1998. Mr. Hale is Chairman, President and Chief
Executive Officer of LG&E Energy Corp., a diversified
energy services company with businesses in retail gas
and electric utility services, energy marketing and
power generation and project development. Mr. Hale has
served in that capacity since August 1990. Previously,
Mr. Hale served as Executive Vice President of Bell
South Corp. and Bell South Enterprises, Inc. from 1986
to 1989 and with AT&T Corporation from 1966 to 1986,
serving in various management positions including Vice
President of Marketing, Southern Region. Mr. Hale is a
Director of H&R Block, Inc. Mr. Hale is a member of the
Executive and Governance Committees of the Board of
Directors.
Bernard McFadden..................... 64 Mr. McFadden has served as a director of GTS since
February 1994. Mr. McFadden currently serves as an
independent consultant for GTS and is a GTS
representative on the supervisory board of HER. Mr.
McFadden's career in international telecommunications
includes 32 years with ITT Corporation, where he served
as President and Chief Executive Officer of ITT's
Telecom International Group, and a four and one-half
year assignment as President and Chief Operating Officer
of Alcatel Trade International, S.A. Mr. McFadden is a
member of the Executive, Compensation, and Governance
Committees of the Board of Directors.
</TABLE>

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<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS AGE FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- --- -------------------------------------------
<S> <C> <C>
Stewart J. Paperin................... 50 Mr. Paperin has served as a director of GTS since March
1997. Mr. Paperin serves as Chief Financial Officer of
the Soros Foundations. In addition, he has served as the
President of Capital Resource East since October 1993.
Prior to that, Mr. Paperin was President of Brooke Group
International from 1990 to 1993 where he was responsible
for investments in the former Soviet Union. Mr. Paperin
also served as Chief Financial Officer of Western Union
Corporation from 1989 to 1990. Mr. Paperin serves as a
director of the Board of Penn Octane Corporation. Mr.
Paperin is a member of the Audit and Budget,
Compensation, and Governance Committees of the Board of
Directors.
W. James Peet........................ 43 Mr. Peet has served as a director of GTS since January
1996. Mr. Peet has been affiliated with The Chatterjee
Group, an investment firm, since 1991. Mr. Peet is a
director of Hainan Airlines. Mr. Peet served as director
of Viatel, Inc. from November 1995 until June 1998; he
was also previously a director of Phoenix Information
Systems Corporation. Immediately prior to joining The
Chatterjee Group, Mr. Peet spent six years with McKinsey
& Company. By contractual arrangement, The Chatterjee
Group has the right to designate one person for
nomination to the Board of Directors to serve a term of
five years. Mr. Peet is the designee of The Chatterjee
Group to the Board of Directors. Mr. Peet is a member of
the Executive Committee of the Board of Directors.
Jean Salmona......................... 62 Mr. Salmona has served as a director of GTS since March
1996. Between December 1989 and November 1998, Mr.
Salmona was Chairman and C.E.O. of CESIA Consulting
Group ("CESIA"), of which he is now Honorary Chairman
and member of the Board. He is President and C.E.O. of
J&P Partners, a consulting concern for high-tech
companies which invest in Europe, India and China. Mr.
Salmona is also Chairman and Director General, Data for
Development International Association, a nongovernmental
organization with consultative status to the United
Nations Economic and Social Council. Mr. Salmona is a
graduate of Ecole Polytechnique, Paris, Institut
d'Etudes Politiques, Paris, and Ecole Nationale de la
Statistique et de l'Administration Economique, Paris.
Mr. Salmona is a member of the Audit and Budget
Committee of the Board of Directors. Mr. Salmona is a
citizen of France.
Joel Schatz.......................... 61 Mr. Schatz has served as a director of GTS since the
inception of the Company. Mr. Schatz was a founder of
the Company and served as its President from 1985 to
1991. Mr. Schatz is presently the Chairman and Chief
Executive Officer of Datafusion, Inc., a company
developing software to accelerate knowledge synthesis.
Mr. Schatz is a member of the Audit and Budget Committee
of the Board of Directors.
</TABLE>

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<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS AGE FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- --- -------------------------------------------
<S> <C> <C>
Alan B. Slifka....................... 68 Mr. Slifka has served as a director of GTS since 1990.
Mr. Slifka is a New York investment banker and the
Managing Principal of Halcyon/Alan B. Slifka Management
Company LLC, an equity asset management firm
specializing in nontraditional investments, specifically
corporate event investing. Previously, Mr. Slifka was a
partner of L.F. Rothschild, Unterberg, Towbin from 1961
to 1982. He is a director of Pall Corporation and is
active in other business, civic and philanthropic
affairs as founder, director or officer of numerous
for-profit and not-for-profit corporations and
foundations. Mr. Slifka served as acting Chief Executive
Officer of GTS during most of 1993. Mr. Slifka is a
member of the Executive and Governance Committees of the
Board of Directors.
Adam Solomon......................... 45 Mr. Solomon has served as a director of the Company
since June 1995. Mr. Solomon is also Chairman of Shaker
Investments, Inc., a growth equity investment firm and
Chairman of Signature Properties International, L.P., a
venture/development firm whose initial focus is
redeveloping existing residential/golf communities, and
a member of the board of directors of MetaSolv Software,
Inc. Prior to that, Mr. Solomon spent eleven years with
E.M. Warburg, Pincus & Co., Inc., where he was Managing
Director from 1988 to 1992. While at E.M. Warburg,
Pincus & Co., Inc., Mr. Solomon served as a member of
the board of directors of LCI International, Inc., a
regional long-distance carrier. Mr. Solomon is a member
of the Executive and Compensation Committees of the
Board of Directors.
Gerald W. Thames..................... 51 Mr. Thames joined GTS as Chief Executive Officer in
February 1994, and has served as a director of GTS since
February 1994. He was elected Vice Chairman of the Board
of Directors in 1998. From 1990 to 1994, Mr. Thames was
President and Chief Executive Officer for British
Telecom North America and Syncordia, a joint venture
company focused on the international outsourcing market.
Mr. Thames has spent over 18 years in senior positions
with telecommunications companies, where he was
responsible for developing start-up telecommunications
companies, including 15 years with AT&T, where he rose
to the position of General Manager of Network Services
for the Northeast Region of AT&T Communications. Mr.
Thames is a member of the Executive Committee of the
Board of Directors.
</TABLE>

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EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS AGE FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- --- -------------------------------------------
<S> <C> <C>
Bruno d'Avanzo....................... 56 Mr. d'Avanzo joined GTS as Executive Vice President and
Chief Operating Officer in August 1996. From 1994 to
1996, Mr. d'Avanzo was Executive Vice President and
Chief Operating Officer of Intelsat, the largest
telecommunications satellite operator in the world. From
1992 to 1994, Mr. d'Avanzo was a senior executive with
Olivetti Corporation, serving as Vice President and
General Manager -- Europe and as Vice President -- U.S.,
Canada and South America. Mr. d'Avanzo also spent 15
years with Digital Equipment Corporation, a diversified
computer manufacturer where his last position was Vice
President -- European Sales and Marketing. Mr. d'Avanzo
is a citizen of Italy.
Gerard Essing........................ 35 Mr. Essing is the Chief Executive Officer -- GTS Mobile
Services (CIS). Mr. Essing has been general director of
Vostok Mobile, a GTS subsidiary, since 1994. Prior to
that, Mr. Essing held a variety of management positions
with what is now Lucent Technologies from 1989 to 1994.
Mr. Essing holds a Master's Degree in International
Management from American Graduate School of
International Management in the United States. He has
also received post-graduate telecommunications training
at Technical University Delft in the Netherlands.
Leslie M. Harris..................... 49 Mr. Harris joined GTS in October 1998 as President of
GTS Access Services, which is based in London. Since
1995, he was President and Chief Executive Officer of
New T&T (Hong Kong) Ltd., the leading competitive local
exchange carrier in Hong Kong. From September 1992 to
December 1994, Mr. Harris was Joint Managing Director of
BT. Australasia Ltd. Prior to that, Mr. Harris held a
variety of senior executive positions with British
Telecom in the United Kingdom and Australia.
Jan Loeber........................... 54 Mr. Loeber is President, GTS Carrier Services, and
Managing Director of HER. Mr. Loeber joined GTS in
January 1995. From October 1992 to December 1994, Mr.
Loeber was a Managing Director of BT Securities
Corporation. From April 1990 to September 1992, Mr.
Loeber held positions as Managing Director of Unitel
Ltd. (now One 2 One) in the United Kingdom, Group
President of Nokia North America Inc., Vice President of
ITT Corporation, and Marketing and Product Management
Director of ITT Europe. Mr. Loeber also spent almost 10
years with AT&T, where his last position was Executive
Director, Bell Laboratories. Mr. Loeber has over 22
years of experience in the telecommunications industry
and an additional 9 years of experience in information
technology with the Pentagon, IBM and Chemical Bank of
New York.
</TABLE>

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<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS AGE FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---------------------------- --- -------------------------------------------
<S> <C> <C>
Raymond I. Marks..................... 51 Mr. Marks joined GTS as Senior Vice President -- Asia in
July 1994. From October 1986 to June 1994, Mr. Marks
served as Vice President and General Manager of GTE
Spacenet Corporation, where he had overall
responsibility for strategic planning, domestic and
international business development, creation of joint
ventures and international alliances, as well as the
worldwide management of the marketing, sales and
technical support organizations. Mr. Marks has also
served as Vice President for the Digital Information
Group for MCI Communications Corporation. Mr. Marks has
28 years of experience in the telecommunications and
computer industries.
Kevin Power.......................... 44 Mr. Power is currently serving as Interim Head of GTS
Business Services (Western Europe). Prior to joining GTS
Monaco Access in October 1995, Mr. Power was Vice
President, Carrier Relations for GTS beginning in
November 1994, where he was responsible for assisting
and coordinating the carrier activities of the GTS group
of companies. In 1988, Mr. Power was one of a group of
five people who started the commercial operations of
Orion Network Systems and he stayed with the company
until the launch of its first satellite in 1994. His
last position there was Vice President of Carrier
Services. Prior to that, he held positions with
Intelsat, National Economic Research Associates (NERA)
and the U.S. Department of Commerce.
Grier C. Raclin...................... 46 Mr. Raclin joined GTS as its Senior Vice President and
General Counsel in September, 1997, and was elected
Corporate Secretary of the Company in December 1997.
Prior to joining GTS, Mr. Raclin served as Vice-Chairman
and a Managing Partner of the Washington, D.C. office of
Gardner, Carton & Douglas, a 250-attorney, corporate law
firm based in Chicago, Illinois, where his practice was
concentrated in the area of international
telecommunications. Mr. Raclin received his
undergraduate and law degrees from Northwestern
University and attended the University of Chicago School
of Business Executive Program.
Stewart P. Reich..................... 53 Mr. Reich joined GTS as President -- GTS Russia in
September 1997. From September 1992 to August 1997, Mr.
Reich was President of UTEL, a joint venture of AT&T,
Deutsche Telekom, PTT Telecom (Netherlands), and
Ukrtelecom (a Ukrainian telecommunications company)
which provides international and interregional
telecommunications services in Ukraine. From 1982 to
1992, Mr. Reich held various positions at AT&T where his
last position was Financial Manager, AT&T International
Communications Switched Services. Mr. Reich was also
employed for 20 years with Western Electric Company from
1961 to 1981.
</TABLE>

195
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EXECUTIVE COMPENSATION AND OTHER INFORMATION

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Each Director of GTS, except Mr. Thames, receives an annual directors' fee
of $15,000. In addition, the fee paid to each Director, except for Mr. Thames,
for attending any meeting of the Board of Directors is $1,500 per meeting,
except for telephonic Board of Directors meetings of two hours or less, where
the fee is $750 for each such meeting. Each Director, except Mr. Thames, who
attends a committee meeting is entitled to a directors' fee of $1,000 per
meeting, except for telephonic committee meetings of a duration of two hours or
less, for which a fee of $500 is paid.

For the year ended December 31, 1997, the aggregate compensation paid by
the Company to its directors and executive officers for services in all
capacities was approximately $4.7 million.

GTS maintains the Global TeleSystems Group, Inc. Non-Employee Directors'
Stock Option Plan that permits directors to share in the growth of the value of
GTS through the grant and exercise of nonqualified stock options. See "-- Global
TeleSystems Group, Inc. Non-Employee Directors' Stock Option Plan." In addition,
on February 27, 1998 the Board of Directors granted to each of certain of its
then incumbent members options to purchase 15,000 shares of GTS Stock at an
exercise price of $20 per share.

GLOBAL TELESYSTEMS GROUP, INC. NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

The purpose of the Global TeleSystems Group, Inc. Non-Employee Directors'
Stock Option Plan (the "Directors' Plan") is to permit eligible non-employee
directors of GTS (each a "Non-Employee Director") to share in the growth of the
value of GTS through the grant and exercise of nonqualified stock options.

The total number of shares of Common Stock presently reserved and available
for delivery under the Directors' Plan is 1,275,000. The Directors' Plan is
administered by the compensation committee of the Board of Directors (the
"Committee"). Only directors of GTS who are not employees of GTS or any
subsidiary of GTS on the date on which an option is to be granted are eligible
to participate in the Directors' Plan on such date.

An option (a "Directors' Option") to purchase shares of Common Stock was
granted to each Non-Employee Director on the effective date of the Directors'
Plan and a Director's Option is granted to each new Non-Employee Director when
he or she is first elected or appointed to serve as a director of GTS. One-half
of the Directors' Options vests six months after the date of grant. An
additional one quarter become exercisable on the date six months following the
first annual meeting of GTS's shareholders to occur after such date of grant,
and the remaining one quarter shares become exercisable on the date six months
following the second annual meeting of GTS's shareholders to occur after such
date of grant. An initial Directors' Option represents 22,500 shares of Common
Stock. On the date of each annual meeting of GTS's shareholders, an additional
Directors' Option to purchase 9,000 shares will be granted each year on the date
of the Company's annual meeting to the individuals who will serve as elected
Non-Employee Directors of the Company during the next year.

Directors' Options are nonqualified stock options which are subject to
certain terms and conditions including those summarized below. The exercise
price per share of GTS Stock purchasable under a Directors' Option will be equal
to 100% of the fair market value of GTS Stock on the date of grant. Each
Directors' Option will expire upon the earliest of (a) the tenth anniversary of
the date of grant, (b) one year after the Non-Employee Director ceases to serve
as a director of GTS due to death or disability (except that, in the case of
disability, if the Non-Employee Director dies within that one-year period, the
Directors' Option is exercisable for a period of one year from the date of
death), (c) three months after the Non-Employee Director ceases to serve as a
director of GTS for any reason other than death or disability (except that, if
the Non-Employee Director dies within that three-month period, his or her
Directors' Options are exercisable for a period of one year from the date of
such death), and (d) three months after the Non-Employee Director ceases to be
employed by GTS if such Non-Employee Director had become an employee of GTS
(except that, if the Non-Employee Director dies within that three-month period,
his or her Directors' Options are

197
<PAGE> 205

exercisable for a period of one year from the date of such death). Each
Directors' Option may be exercised in whole or in part by giving written notice
of exercise to GTS specifying the Directors' Option to be exercised and the
number of shares to be purchased. Such notice must be accompanied by payment in
full of the exercise price in cash or by surrender of shares of GTS Stock or a
combination thereof. Directors' Options granted under the Directors' Plan may
not be sold, pledged, assigned or otherwise disposed of in any manner other than
by will or by the laws of descent and distribution.

At the time of grant, the Board of Directors may provide in connection with
any grant made under the Directors' Plan that the shares of GTS Stock received
as a result of such grant are subject to a right of first refusal by GTS.

The Board of Directors may amend, alter, suspend, discontinue or terminate
the Directors' Plan at any time, except that any such action will be subject to
the approval of GTS shareholders at the next annual meeting following such Board
of Directors' action if such shareholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system on which GTS Stock may then be listed or quoted, or if the
Board of Directors determines in its discretion to seek such shareholder
approval.

The following table sets forth each component of compensation paid or
awarded to, or earned by, the Chief Executive Officer and the four other most
highly compensated executive officers serving as of December 31, 1998
(collectively, the "Named Executive Officers") for the years indicated.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS
ANNUAL COMPENSATION --------------------------
----------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS(1) COMPENSATION AWARD(S) OPTIONS/SAR COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)(11)
--------------------------- ---- -------- -------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald W. Thames,............... 1998 $395,000 $330,000 (2) -0- 350,000(6) $ 19,065
Vice Chairman, President and 1997 375,417 140,000 (2) -0- 141,195(6) 19,850
Chief Executive Officer 1996 325,000 113,750 (2) -0- 112,500(6) 9,954
Bruno d'Avanzo,................. 1998 $340,000 $173,333(3) -0- -0- 175,000(6) $ 18,105
Executive Vice President and 1997 340,000 83,313(3) -0- -0- 104,475(6) 21,675
Chief Operating Officer 1996 141,667 33,333(3) -0- -0- 83,025(6) 5,650
Jan Loeber,..................... 1998 $310,000 $119,400 $101,840(4) -0- 150,000(6) $178,565
Senior Vice President -- HER; 1997 235,000 177,308 46,598(4) -0- 4,812(7) 179,450
President - GTS Carrier
Services 1996 235,000 -0- 42,806(4) 30,000(5) 3.5(8) 12,986
William H. Seippel(12).......... 1998 $245,833 $120,000 (2) -0- 150,000(6) $ 9,650
Executive Vice President -- 1997 200,000 11,469 $ 25,225(9) -0- 97,500(6) 52,215
Chief Financial Officer 1996 43,205 -0- (2) -0- 285,000(6) 943
Stewart P. Reich(13)............ 1998 $243,750 $ 98,300 $187,008(10) -0- 150,000(6) $ 5,197
President -- GTS Business 1997 78,333 75,000 59,772(10) -0- 112,500(6) 384
Services -- CIS
</TABLE>

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

(1) Represents cash bonus paid in the year indicated for services rendered in
the immediately preceding year, except in the case of Mr. Loeber, whose
bonus paid in 1997 was for services rendered in 1996 and 1995.

(2) Perquisites and other personal benefits paid to the Named Executive Officer
were less than the lesser of $50,000 and 10 percent of the total of salary
and bonus report for the Named Executive Officer.

(3) Mr. D'Avanzo's bonuses in 1998, 1997 and 1996 include the three equal
installments of a $100,000 sign-on bonus that GTS agreed to pay in three
equal annual installments when he was hired in 1996.

(4) For 1998, the amount disclosed includes an overseas living allowance of
$21,700 and a tax equalization payment of $58,613 that compensated Mr.
Loeber for the higher taxes he pays because he resides in Belgium instead of
the United States. For 1997, the amount disclosed includes an overseas
living allowance of $16,450, a tax equalization payment of $13,953 and a
gross-up payment of $11,648 for certain tax liabilities. For 1996, the
amount disclosed includes an overseas living allowance of $16,450 and a
gross-up payment of $12,778 for certain tax liabilities.

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<PAGE> 206

(5) Shares of restricted stock that vest in an amount of one-third each year on
the three anniversary dates of grant, beginning on January 2, 1997.

(6) Shares of common stock underlying stock options awarded under the Stock
Option Plan.

(7) Stock options awarded under The Key Employee Stock Option Plan of Hermes
Europe Railtel B.V.(the "HER Stock Option Plan").

(8) Stock options awarded under the GTS-Hermes, Inc. Stock Option Plan, which
will be terminated. The stock options granted to Mr. Loeber in 1997 and
described in footnote (6) are in substitution for the 3.5 stock options
granted to Mr. Loeber in 1996, which have been cancelled.

(9) Amount disclosed represents a gross-up payment of $25,225 associated with
certain tax liabilities.

(10) For 1998, the amount disclosed includes an overseas living allowance of
$72,000, rent on a residence in Moscow of $90,000, and a tax equalization
payment of $19,844 that compensated Mr. Reich for the higher taxes he pays
because he resides in Russia instead of United States. For 1997, the amount
disclosed includes an overseas living allowance of $24,000 and rent on a
residence in Moscow of $30,300.

(11) Amounts disclosed hereunder represent the sum of premiums paid by GTS for
$1 million in term life insurance for each Named Executive Officer and
contributions by GTS under the 401(k) Plan, as defined below, to each Named
Executive Officer's account, except Mr. D'Avanzo who does not participate
in the 401(k) Plan because of his foreign citizenship and Mr. Seippel in
1996 and Mr. Reich in 1997 because their tenure with GTS did not qualify
them for participation in the 401(k) Plan in those years. In each case in
which GTS paid 401(k) Plan contributions, $4,000 was paid in each of 1997
and 1996 and $3,750 was paid in 1996 to the Named Executive Officers. In
addition, for 1998 and 1997, the amounts disclosed for Mr. Loeber include
$156,700 in each year, which represents the value as of December 31, 1997
and December 31, 1998 of 10,000 shares of restricted stock which vested in
each of 1997 and 1998.

(12) Mr. Seippel commenced his employment with GTS in October 1996.

(13) Mr. Reich commenced his employment with GTS in September 1997.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table provides information on stock option grants to the
Named Executive Officers in 1998 under the Stock Option Plan

<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR GRANT DATE
OPTIONS IN BASE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR PRICE($/SH.) DATE VALUE($)(2)
---- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Gerald W. Thames..................... 350,000(1) 9.4 $25.75 10-14-08 $6,016,500
Bruno d'Avanzo....................... 175,000(1) 4.7 25.75 10-14-08 3,008,250
Jan Loeber........................... 150,000(1) 4.0 25.75 10-14-08 2,578,500
William H. Seippel................... 150,000(1) 4.0 25.75 10-14-08 2,578,500
Stewart P. Reich..................... 150,000(1) 4.0 25.75 10-14-08 2,578,500
</TABLE>

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

(1) The options vest one-sixth on each of the first six anniversaries of the
date of grant. However, the options may vest on an accelerated basis if GTS
and the individual grantees meet certain performance targets. Under that
accelerated vesting, all the options could vest by the third anniversary of
the date of grant.

(2) The present value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield 0%, expected volatility of 0.75, risk-free
interest rate of 4.23% and expected life of five years.

199
<PAGE> 207

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

The following table provides information on the number and value of GTS
stock options exercised by the Named Executive Officers during 1998, the number
of options under the Stock Option Plan held by such persons at December 31,
1998, and the value of all unexercised options held by such persons as of that
date.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT FY-END (#) OPTIONS AT FY-END($)(1)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gerald W. Thames.......... 487,500 $20,048,438 354,048/512,147 $16,296,754/$17,458,263
Bruno d'Avanzo............ 50,000 2,085,000 31,468/281,032 1,312,935/9,682,065
Jan Loeber................ -0- -0- 0/150,000 -0-/4,500,000
William H. Seippel........ 50,000 2,064,750 169,375/313,125 7,162,950/11,353,950
Stewart P. Reich.......... -0- -0- 28,125/234,375 1,127,250/7,881,750
</TABLE>

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

(1) Based on the closing price of $55.75 on the Nasdaq Stock Market of the
Common Stock on December 31, 1998.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES-HER STOCK OPTION PLAN

The following table provides information on the number and value of options
exercised by one of the Named Executive Officers, Jan Loeber, during 1998 under
the HER Stock Option Plan, and the number and value of unexercised options held
by Mr. Loeber as of December 31, 1998 under such Plan. Mr. Loeber was not
granted any options in the HER Stock Option Plan in 1998.

<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON EXERCISE VALUE OPTIONS AT FY-END (#) FY-END ($)(2)
NAME (1)(#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jan Loeber................ 3,209 $2,129,793 0/1,603 $0/$1,292,803
</TABLE>

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

(1) The shares are beneficially owned by Mr. Loeber and are held in trust by
Stichting Administratiekantoor HER Foundation, which in turn has issued
depositary receipts to him representing beneficial ownership in the shares.

(2) Based on a valuation price of $889.61 per share of HER common stock at
December 31, 1998. This valuation was determined by the valuation per common
share that a wholly owned subsidiary of GTS paid to AB Swed Carrier for
acquiring all of its minority interest in HER on October 31, 1998.

200
<PAGE> 208

CERTAIN RELATED PARTY TRANSACTIONS

Alan B. Slifka, the Chairman of the Board of Directors, owns an interest in
an office building in New York in which GTS leased office space until the
corporate headquarters were moved to McLean, Virginia on March 1, 1995. Until
April 1, 1998, GTS retained a small office space in New York City that it leased
from Mr. Slifka on a monthly basis, and the annual expense for 1997 was $30,690.
Mr. Slifka also has a consulting agreement with GTS pursuant to which he is paid
consulting fees of $100,000 per year.

Halcyon/Alan B. Slifka Management Company LLC (formerly Alan B. Slifka and
Company), a company principally owned by Mr. Slifka, holds 225,000 stock options
to purchase GTS Stock that were granted in 1991 pursuant to a stock option
agreement that is not subject to any stock option plan. The options have an
exercise price of $0.533 per share and are fully vested. Any of the stock
options that remain unexercised after November 30, 2001 shall lapse and become
void. Generally, in the event that Mr. Slifka ceases to be an employee or
nonemployee director of GTS, any of such unexercised stock options shall lapse
thirty days after such termination. The shares of GTS Stock underlying such
options have been registered under a registration statement that has been
declared effective by the SEC.

In addition, Joel Schatz, a director of GTS, was granted in 1991 stock
options to purchase GTS Stock pursuant to stock option agreements that are not
subject to any stock option plan. Mr. Schatz holds 50,250 of such stock options
to purchase GTS Stock with an exercise price of $0.533 per share. Mr. Schatz's
options are fully vested and any unexercised options he holds after November 4,
2001 shall lapse and become void. Generally, in the event that Mr. Schatz ceases
to be an employee or nonemployee director of GTS any of his unexercised stock
options shall lapse thirty days after such termination. The shares of GTS Stock
underlying such options have been registered under a registration statement that
has been declared effective by the SEC.

Bernard McFadden, Director, has a consulting agreement with GTS pursuant to
which he is paid $100,000 in consulting fees each year.

In August and September 1997, the Soros Associates and Mr. Slifka purchased
319,149 and 57,015 shares of GTS Stock, respectively, at a price of $15.67 per
share in GTS private stock offering. In addition, affiliates of Mr. Slifka
purchased $2.9 million of Convertible Bonds in September 1997. Pursuant to the
terms of the indenture related to the Convertible Bonds, the Convertible Bonds
will be convertible into such shares of GTS Stock as is equal to the principal
amount of such Convertible Bonds divided by the applicable conversion price,
which conversion price shall be equal to the public offering price of the GTS
Stock in the July 1998 Offerings. See "-- Principal GTS Stockholders."

The Soros Associates purchased $40 million of notes from GTS in 1996, which
notes bore interest at 10% per annum, in partial consideration of which (i) W.
James Peet was appointed to the Board of Directors and (ii) the affiliates
received warrants to purchase 4,444,443 shares of GTS Stock. Together with their
prior equity interests in GTS, these affiliates currently hold, on a fully
diluted basis (excluding shares underlying stock options), approximately 14% of
GTS Stock. In accordance with the terms of the warrant agreement, the exercise
price of the warrants was reduced from $10.27 per share to $9.33 per share as
the outstanding debt had not been repaid prior to December 31, 1996. In February
1998, GTS repaid the $40 million of notes, plus accrued interest, using part of
the proceeds of an offering of senior notes and the IPO completed at that time.
In addition, these affiliates collect a monitoring fee of $40,000 per month.
Under certain agreements, these affiliates have the right to co-invest with GTS
in all of its new ventures throughout Asia, excluding countries in the former
Soviet Union, and pursuant to this right, one of these affiliates holds a 25%
interest in GTS China Investments LLC. See "Certain Information Concerning
GTS -- Description of GTS -- Asia."

On January 20, 1999 GTS has filed a shelf registration statement covering
all of the affiliate shares owned by the affiliates of Mr. Slifka and the Soros
Associates that were not sold in the July 1998 Stock Offerings in consideration
of such shareholders' undertaking to be bound by certain restrictions. It is
GTS' belief, after consultation with its financial advisors, that this agreement
relating to the affiliate shares will contribute toward assuring the market of
an orderly manner for such affiliate shares to be sold over a period of time.
Under the restrictions, holders of affiliate shares will be prevented from
selling any such shares during the first six months after the closing date of
the July 1998 Offerings and will be able to sell (i) 50% of such shares after

201
<PAGE> 209

the six month anniversary of the closing date of the July 1998 Offerings, (ii)
75% of such shares after the nine month anniversary of the closing date of the
July 1998 Offerings and (iii) 100% of such shares after the twelve month
anniversary of the closing date of the July 1998 Offerings. In connection with
this agreement, GTS also has agreed to permit certain of the Soros Associates to
resell, immediately after the closing date of the July 1998 Stock Offerings, up
to 100,000 of any shares that they are unable to resell in the July 1998 Stock
Offerings as a result of any cut-back that may be imposed by the underwriters
(subject to a waiver by the underwriters in GTS' IPO of the lockup agreement
entered into by such affiliates to the extent of such 100,000 shares). Certain
limited partners of partnerships affiliated with Alan B. Slifka and currently in
dissolution may, upon advance notice to GTS, withdraw some or all of their
shares of GTS Stock from registration under the shelf registration statement and
from the restrictions. The number of shares of GTS Stock subject to this
withdrawal may not exceed the total of 726,953 shares of GTS Stock minus the
number of shares sold by such limited partners in the July 1998 Stock Offerings.
See "Risk Factors -- Risks Specific to GTS -- Shares Eligible for Future Sale;
Registration Rights; Potential Adverse Impact on Market Price from Sales of GTS
Stock."

Jean Salmona, a director of GTS, is the former Chairman and Chief Executive
Officer of CESIA. CESIA also provides consultancy services for CDI and for HER.
GTS paid $37,500 in 1997 to CESIA for consulting services related to CDI. In
addition, HER paid $405,893 in 1997 to CESIA for consulting services. Further,
GTS paid $5,843 to CESIA in 1997, pursuant to the purchase agreement with CESIA
related to the CDI business.

Pursuant to a 1995 purchase agreement, GTS received its interest in GTS-Vox
Limited, the intermediate holding company of TCM, in exchange for a note in the
principal amount of $693,380 issued to the sellers and certain additional
consideration to its partners payable in the form of either cash or GTS Stock
based upon its financial performance. GTS paid the note in 1996. On January 17,
1997, the agreement was amended such that the consideration would only be in the
form of the issuance of GTS Stock and as such, GTS is obligated under these
arrangements to issue up to a maximum of 1,121,640 shares of GTS Stock. In the
first quarter of 1997, pursuant to this agreement GTS issued 504,600 GTS Stock,
which was valued at GTS's current fair market value of $13.33 per share. In
addition, GTS was credited 37,480 shares of GTS Stock under the amended
agreement, for purposes of applying against the 1,121,640 maximum number of
shares of GTS Stock, for GTS' payment of its note to the sellers in 1996. In
April 1998, pursuant to this agreement, GTS issued 336,630 shares of GTS Stock,
which was valued at GTS's current fair market value of $40.25 per share. GTS
Stock issued pursuant to the agreement must be held for a minimum holding
period. In certain circumstances, if GTS's partners are unable to sell their
shares of GTS Stock, GTS is obligated to assist in locating a purchaser for the
GTS Stock, and, if unable to do so, to repurchase these shares. GTS's repurchase
obligations are at the following prices: (i) if shares of GTS Stock are then
being publicly traded, at the average trading price of such shares for the 10
trading days preceding such repurchase or (ii) if shares of GTS Stock are not
then publicly traded, at the price shares of GTS Stock were most recently
offered to individual investors in a private placement, or, if no such private
placement has occurred within the three months preceding the repurchase of such
shares, at a price determined by an independent financial institution to be
agreed upon by GTS and the seller. As a result of their receipt of shares of GTS
Stock in 1997, the sellers became shareholders of GTS. Subsequent to June 30,
1998, GTS purchased the remaining 47.36% interest in GTS-Vox Limited for $40.0
million, which will be paid in installments. In connection with this buyout, GTS
accelerated the issuance of 126,859 shares of GTS Stock under the 1995 purchase
agreement to the former GTS-Vox Limited partners.

Affiliates of Baring International Investment Management Limited
("Barings"), which affiliates consist primarily of investment funds and trusts,
are shareholders of GTS. In April 1996, GTS entered into an agreement with First
NIS Regional Fund SICAF, an affiliate of Barings, to organize GTS Ukrainian
TeleSystems, L.L.C. (the "LLC"), a Delaware limited liability company 60% owned
by GTS, which in turn entered into a stock purchase agreement to acquire 49% of
all the ownership interests in Golden Telecom, a Ukrainian limited liability
company. See "Certain Information Concerning GTS -- Description of GTS -- Russia
and the CIS." Such acquisition closed in May 1996. By contractual arrangement,
Barings designates one member of the board of directors of Golden Telecom.
Barings funded $4.5 million to be applied towards

202
<PAGE> 210

the LLC's purchase of the interest in Golden Telecom and for the LLC's $1.5
million contribution to the registered capital of Golden Telecom. Prior to March
1, 1999, Barings may exercise an option (the "Initial Option") to convert its
initial investment into 438,311 shares of GTS Stock at an exercise price of
$10.27. In June 1997 the agreement was amended, such that Barings funded an
additional $4.1 million to be applied toward Golden Telecom's capital
expenditure and operating capital requirements. On September 30, 2000, Barings
may exercise an option (the "2000 Option") to convert such additional investment
into 275,000 shares of GTS Stock at an exercise price of $15.00. In connection
with the restructuring of Golden Telecom, which has been completed, the
agreement was further amended in June 1998 to restructure the capital and
ownership of the LLC. See "Certain Information Concerning GTS -- Description of
GTS -- Russia and the CIS -- GTS Cellular -- Golden Telecom." Pursuant to such
amendment Barings exercised the Initial Option and the 2000 Option (the
exercisability of which was accelerated by GTS) and received 713,311 shares of
GTS Stock and made an additional investment of $5.75 million to be applied
toward Golden Telecom's capital expenditure and operating capital requirements.
Barings has no put right in connection with such additional investment. As a
result of the June 1998 amendment, GTS increased its ownership interest in the
LLC to 75% and in Golden Telecom to approximately 57%.

On March 26, 1998, Gerald W. Thames, GTS' Vice Chairman, President and
Chief Executive Officer, exercised non-qualified options to purchase 487,500
shares of GTS Stock at an exercise price of $2.75 per share. Mr. Thames borrowed
funds from a brokerage firm in order to pay the exercise price and the tax
liabilities resulting from such exercise (the "Margin Loan"). The shares of GTS
Stock resulting from such exercise served as collateral for the Margin Loan.
Subsequently, the market price of the GTS Stock declined and consequently the
brokerage firm required Mr. Thames to reduce the size of the Margin Loan or
increase the collateral securing the Margin Loan. Mr. Thames was unable to sell
any of the shares of GTS Stock collateralizing the Margin Loan (and thereby
reduce the Margin Loan) because of lock-up arrangements with the underwriters of
the July 1998 Stock Offerings. As a result, GTS loaned Mr. Thames $3.5 million
in September and October 1998, so he could use the proceeds of such loans to
repay a corresponding portion of the Margin Loan. These loans from GTS bear
interest at a rate of 7% per annum. Mr. Thames repaid the GTS loan in January
1999. GTS has agreed to lend Mr. Thames up to an aggregate of $4 million to meet
additional margin calls on his Margin Loan. Mr. Thames contemplates that he will
enter into a separate loan agreement with a commercial bank to meet any
subsequent margin calls in connection with the Margin Loan. GTS has agreed to
guarantee Mr. Thames' obligations under such bank loan.

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<PAGE> 211

PRINCIPAL GTS STOCKHOLDERS

The following table sets forth certain information regarding ownership of
the GTS Stock and rights to acquire GTS Stock by (i) GTS stockholders that
manage or own, either beneficially or of record, five percent or more of the GTS
Stock, (ii) each of the directors and executive officers of GTS and (iii) the
directors and officers of GTS as a group as of December 31, 1998. For the
purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares which such person or group has the right to
acquire within 60 days after such date, but such shares are not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person.

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED TO BE BENEFICIALLY OWNED
PRIOR TO THE OFFER AFTER THE OFFER(3)
---------------------------- ---------------------------
NUMBER OF NUMBER OF
SHARES PERCENTAGE SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)(2) OWNED(1) OWNED OWNED
------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
George Soros Associates...................... 8,099,047(4) 12.51 8,099,047 9.84
c/o Soros Fund Management
888 Seventh Avenue, 31(st) Floor
New York, NY 10106
Mutuelles AXA/AXA-UAP/....................... 7,989,930(5) 12.34 7,989,930 9.71
The Equitable Companies Incorporated
9 Place Vendome
75001 Paris France
Fidelity Management and Research 7,145,670(6) 11.04 7,381,885 8.97
Corporation................................
82 Devonshire Street
Boston, MA 02109
Fidelity International Limited............... 23,640(7) * 1,165,259 1.42
P.O. Box H.M. 670
Hamilton, Bermuda
Alan B. Slifka and affiliates................ 3,752,112(8) 5.80 3,752,112 4.56
c/o Halcyon/Alan B. Slifka Management
Company, LLC
477 Madison Avenue, 8(th) Floor
New York, NY 10022
Apax Funds Nominees Limited.................. -- * 4,265,171(9) 5.18
62 Green Street
London W1Y 4BA
Gold & Appel Transfer S.A.................... -- * 4,148,277(9) 5.04
Omar Hodge Building
Wickams's Cay
Road Town
Tortola
British Virgin Islands
Winston Partners II LDC...................... 766,098(10) 1.18 766,098 *
c/o Curacao Corporation Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
Winston Partners II LLC...................... 373,548(11) * 373,548 *
c/o Chatterjee Advisers L.L.C.
c/o The Chatterjee Group
888 Seventh Avenue, 30th Floor
New York, New York 10106
</TABLE>

204
<PAGE> 212

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED TO BE BENEFICIALLY OWNED
PRIOR TO THE OFFER AFTER THE OFFER(3)
---------------------------- ---------------------------
NUMBER OF NUMBER OF
SHARES PERCENTAGE SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)(2) OWNED(1) OWNED OWNED
------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Chatterjee Fund Management................... 555,555(12) * 555,555 *
888 Seventh Avenue, 30th Floor
New York, New York 10106
Robert Amman................................. 10,500 * 10,500 *
David Dey.................................... 7,900 * 7,900 *
Michael A. Greeley........................... 26,000 * 26,000 *
Roger Hale................................... 7,109 * 7,109 *
Bernard McFadden............................. 50,000 * 50,000 *
Stewart J. Paperin........................... 26,000 * 26,000 *
W. James Peet................................ 8,000 * 8,000 *
Jean Salmona................................. 26,000 * 26,000 *
Joel Schatz.................................. 512,750 * 512,750 *
Adam Solomon................................. 65,414 * 65,414 *
Gerald W. Thames............................. 863,722 1.33 863,722 1.07
Bruno d'Avanzo............................... 48,212 * 48,212 *
Jan Loeber................................... 20,000 * 20,000 *
Raymond I. Marks............................. 211,625 * 211,625 *
Louis T. Toth................................ 204,275 * 204,275 *
Other officers............................... 329,687 * 329,687 *
All Directors and Executive Officers as a 6,169,306 9.53 6,169,306 7.64
group (23 persons)......................
Total of above............................... 31,122,794 40,914,076
</TABLE>

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

* Less than 1%

(1) The percentage of ownership is based upon 64,744,221 shares of Common Stock
issued and outstanding at December 31, 1998. Excluded from the calculation
are: 4,444,443 shares of Common Stock that is subject to the exercise of
warrants in Common Stock; and 5,195,063 shares of Common Stock issued under
GTS' option plans. Subject to NetSource meeting certain performance targets
during the first two quarters of 1999, an additional 1.4 million shares of
common stock may be issued.

(2) Includes shares of Common Stock issuable upon the exercise of stock options
and stock warrants within 60 days of December 31, 1998.

(3) Reflects the additional 17,566,938 shares of Common Stock to be issued in
connection with the Offer of which 15,973,158 shares will be issued in
exchange for outstanding Esprit Telecom ordinary shares and ADS's and up to
1,593,780 shares that could be issued in connection with the exercise of
Esprit Telecom options.

(4) Comprised of 3,074,199 shares of Common Stock held by the Soros
Foundation-Hungary; 656,849 shares of Common Stock held by the Soros
Charitable Foundation; 37,718 shares of Common Stock held by Soros
Humanitarian Foundation and 996,948 shares and warrants to purchase
3,333,333 shares of Common Stock held by The Open Society Institute. The
inclusion of such shares shall not be deemed an admission that Mr. George
Soros is the beneficial owner of such shares. Information in the above
entry excludes 20,000 and 26,000 shares of, and options for the purchase
of, Common Stock held by Stewart J. Paperin and W. James Peet,
respectively, over which the George Soros associates disclaim ownership.

(5) Ownership information, that represents holdings of several separately
managed funds, is based on a Schedule 13G dated December 10, 1998, a copy
of which was furnished to GTS. Number of shares as to which such holder
has: sole voting power -- 2,329,558 shares; shared voting
power -- 5,651,676 shares; sole dispositive power -- 7,981,705 shares; and
shared dispositive power -- 8,225 shares. The shareholding disclosed
includes 1,774,405 shares receivable upon conversion of convertible bonds.

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<PAGE> 213

(6) Ownership information, that represents holdings of several separately
managed funds, is based on a Schedule 13F-E dated as of September 30, 1998
that was filed with the SEC on November 6, 1998.

(7) Ownership information is based on a Schedule 13F-E dated as of September
30, 1998 that was filed with the SEC on November 3, 1998.

(8) Includes 2,530,562 shares of Common Stock owned by Mr. Slifka, 644,072
shares of Common Stock held in various trusts, options to purchase 8,000
shares of Common Stock owned by Mr. Slifka, 214,478 shares of Common Stock
held by various Halcyon partnerships which are managed by Halcyon/Alan B.
Slifka Management Company (over which Mr. Slifka disclaims beneficial
ownership), 130,000 shares of Common Stock issuable upon the conversion of
Convertible Bonds held by various Halcyon partnerships which are managed by
Halcyon/Alan B. Slifka Management Company (over which Mr. Slifka disclaims
beneficial ownership), and options to purchase 225,000 shares of Common
Stock held by Halcyon/Alan B. Slifka Management Company (over which Mr.
Slifka disclaims beneficial ownership). GTS has undertaken to file a shelf
registration statement covering such shares not previously registered by
GTS. See "Risk Factors -- Risk Specific to GTS -- Shares Eligible for
Future Sale; Registration Rights; Potential Adverse Impact on Market Price
from Sale of GTS Stock."

(9) Information was obtained from Esprit Telecom's Form 20-F filed with the SEC
on December 23, 1998.

(10) Comprised of 395,727 shares of Common Stock and warrants to purchase
370,371 shares of Common Stock. Information in the above entry excludes
20,000 and 26,000 shares of, and options for the purchase of, Common Stock
held by Stewart J. Paperin and W. James Peet, respectively, over which
Winston Partners II LDC disclaims ownership. On January 20, 1999 GTS filed
a shelf registration statement covering such shares. See "Risk
Factors -- Risk Specific to GTS -- Share Eligible for Future Sale;
Registration Rights; Potential Adverse Impact on Market Price from Sale of
GTS Stock."

(11) Comprised of 188,364 shares of Common Stock and warrants to purchase
185,184 shares of Common Stock. Information in the above entry excludes
20,000 and 26,000 shares of, and options for the purchase of, Common Stock
held by Stewart J. Paperin and W. James Peet, respectively, over which
Winston Partners II LLC disclaims ownership. On January 20, 1999 GTS filed
a shelf registration statement covering such shares. See "Risk
Factors -- Risk Specific to GTS -- Share; Eligible for Future Sale;
Registration Rights; Potential Adverse Impact on Market Price from Sale of
GTS Stock."

(12) Comprised of warrants to purchase 555,555 shares of Common Stock.
Information in the above entry excludes 20,000 and 26,000 shares of, and
options for the purchase of, Common Stock held by Stewart J. Paperin and W.
James Peet, respectively, over which Chatterjee Fund Management disclaims
ownership. On January 20, 1999 GTS filed a shelf registration statement
covering such shares. See "Risk Factors -- Risk Specific to GTS -- Shares
Eligible for Future Sale; Registration Rights; Potential Adverse Impact on
Market Price from Sale of GTS Stock."

206
<PAGE> 214

CERTAIN INFORMATION CONCERNING ESPRIT TELECOM

DESCRIPTION OF ESPRIT TELECOM

The following is a brief description of Esprit Telecom's business.
Additional information regarding Esprit Telecom is contained in its filings with
the SEC pursuant to the Exchange Act. See "Where You Can Find More Information"
(page 210).

Esprit Telecom is a rapidly growing European telecommunications company,
providing high quality, competitively priced, international and national long
distance telecommunications services. Esprit Telecom commenced operations in
June 1992 with the objective of competing in the liberalizing European
telecommunications market and established an early presence in several key
European markets. Today, Esprit Telecom provides telecommunications services in
the United Kingdom, Germany, The Netherlands, Spain, France, Belgium, Italy and
Ireland and has commenced construction of a broadband SDH fiber optic network
linking the key cities in which it operates. Esprit Telecom intends to continue
to focus on providing telecommunications services both within and across
national borders to a pan-European market.

Esprit Telecom's objective is to expand its service coverage throughout
Europe and to become one of the largest independent pan-European
telecommunications service providers by capitalizing on its established market
position, experience and strategic acquisitions. In July 1998, Esprit Telecom
acquired the switch-based telecommunications services business of Plusnet, which
at that date offered national and international long distance voice telephony
and enhanced services, such as toll free services, calling cards and switched
data services to approximately 700 business customers. Esprit Telecom's customer
base has grown from 625 customers at December 31, 1996 to 7,657 at September 30,
1998. On a pro forma basis after giving effect to the acquisition of the Plusnet
Business, Esprit Telecom would have had revenue of L95.3 million for the year
ended September 30, 1998.

Esprit Telecom currently offers a range of telecommunications services and
products to three targeted customer segments: (i) retail long distance voice and
fax services for corporate customers to all global destinations either directly,
via dedicated leased lines linked to its network or indirectly on a switched
basis using the PTO network by means of an access code; (ii) wholesale long
distance traffic termination services for other telecommunications carriers,
including PTOs, major telecommunications alliances and regional telephone
companies; and (iii) network management, access and termination services to
telecommunications service providers, such as calling card companies, and to
resellers. Esprit Telecom has recently introduced two new categories of service
to complement its established long distance telecommunications services and
products: (i) bandwidth services, consisting of providing telecommunications
transmission capacity to its customers from May 1998, as well as other
telecommunications companies and (ii) enhanced services, such as toll free
services, calling cards and switched data services.

Esprit Telecom provides both national and international long distance
telecommunication services to its customers. Esprit Telecom believes that
traffic volumes in Europe will increase and prices and costs will fall due to,
among other factors: (i) rapidly increasing demand for bandwidth-intensive
services across Europe, including Internet services and data transmission
services; (ii) continued growth in demand for existing long distance services;
(iii) increased competition from new market entrants; (iv) continuing
liberalization of the European telecommunications market; (v) emergence of new
service offerings; and (vi) continued increase in trade among European
countries.

Esprit Telecom has developed the Esprit Network linking 31 switches or
points of presence in eight European countries, as well as Washington D.C. and
New York through arrangements with US carriers. Esprit Telecom has initiated a
program to own and control the key elements of the Esprit Network
infrastructure, including building five resilient SDH broadband fiber rings in
Europe using advanced SDH technology and Esprit Telecom controlled dark fiber.
Esprit Telecom believes that the expansion of the Esprit Network is a key
component of its strategic objective and should enable Esprit Telecom to control
costs better, ensure access to bandwidth, offer a broader portfolio of services
and improve margins.

207
<PAGE> 215

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ESPRIT TELECOM

SELECTED HISTORICAL FINANCIAL DATA OF ESPRIT TELECOM

The table below sets forth selected historical consolidated financial data
for Esprit Telecom for each of the years in the five-year period ended September
30, 1998. The selected consolidated financial data set forth below for the years
ended September 30, 1994, 1995, 1996 and 1997 have been excerpted or derived
from, and are qualified by reference to, Esprit Telecom's historical
consolidated financial statements, which have been audited by Price Waterhouse,
independent public accountants. The selected consolidated financial data set
forth below for the year ended September 30, 1998 have been excerpted or derived
from, and are qualified by reference to, Esprit Telecom's historical
consolidated financial statements, which have been audited by
PricewaterhouseCoopers, independent public accountants. The historical
consolidated financial statements have been prepared in accordance with UK GAAP,
which differs in certain respects from US GAAP. The principal differences
between UK GAAP and US GAAP are summarized in Note 30 to Esprit Telecom's
audited historical consolidated financial statements included elsewhere in this
Offering Circular/Proxy Statement/Prospectus. The following information should
be read in conjunction with (i) "Management's Discussion and Analysis of
Financial Condition and Results of Operations", (ii) the historical consolidated
financial statements of Esprit Telecom and (iii) "Unaudited Pro Forma
Consolidated Financial Information" included elsewhere in this Registration
Statement.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1994 1995 1996 1997 1998 1998(1)
------ ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
[POUND [POUND [POUND POUND POUND
STERLING] STERLING] STERLING] STERLING] STERLING] $
<CAPTION>
(IN THOUSANDS, EXCEPT PER ORDINARY SHARE AND PER ADS
AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED PROFIT AND LOSS ACCOUNT
DATA(2)
UK GAAP
Revenue.................................. 3,820 13,950 24,880 45,466 82,588 140,350
Cost of revenue.......................... (3,924) (10,640) (18,756) (37,949) (65,829) (111,870)
Gross margin........................... (104) 3,310 6,124 7,517 16,759 28,480
Other operating expenses:
Selling, general and administrative.... (2,833) (4,112) (7,509) (15,505) (35,178) (59,781)
Stock compensation costs(2)............ (187) (588) (2,035) (417) (112) (190)
Restructuring costs.................... -- -- -- (312) -- --
Depreciation and amortization.......... (447) (790) (1,471) (2,836) (10,382) (17,643)
European network amortization.......... -- -- -- -- (1,519) (2,581)
Operating loss before interest........... (3,571) (2,180) (4,891) (11,553) (30,432) (51,716)
Profits on sale of investments........... -- -- -- -- 200 340
Net interest (expense)/income............ (305) (222) (203) 695 (12,213) (20,755)
Loss on ordinary activities before
taxation............................... (3,876) (2,402) (5,094) (10,858) (42,445) (72,131)
Taxation on loss on ordinary
activities............................. -- -- -- (2) (2) (3)
Loss for the financial year.............. (3,876) (2,402) (5,094) (10,860) (42,447) (72,134)
Loss per Ordinary Share.................. (0.09) (0.05) (0.07) (0.10) (0.34) (0.58)
Loss per ADS(4).......................... (0.63) (0.35) (0.49) (0.70) (2.38) (4.04)
US GAAP
Net loss................................. -- (2,423) (5,325) (10,852) (42,447) (72,134)
Net loss per Ordinary Share(3)........... -- (0.05) (0.08) (0.10) (0.34) (0.58)
Net loss per ADS(4)...................... -- (0.35) (0.56) (0.70) (2.38) (4.04)
</TABLE>

208
<PAGE> 216
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1994 1995 1996 1997 1998 1998
------ ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
[POUND [POUND [POUND [POUND [POUND
STERLING] STERLING] STERLING] STERLING] STERLING] $
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
UK GAAP
Bank balances, cash, restricted
securities and short term deposits and
investments............................ 180 5,615 6,430 24,525 184,749 313,962
Net current (liabilities)/assets......... (1,677) 2,619 3,974 16,521 167,507 284,661
Fixed assets, net........................ 2,400 3,514 8,005 17,727 154,100 261,878
Total assets............................. 4,266 13,178 24,101 59,543 394,537 670,476
Creditors: amounts falling due within one
year................................... (3,543) (7,045) (12,122) (25,295) (72,930) 123,937
Creditors: amounts falling due in more
than one year.......................... (633) (631) (1,968) (2,874) (328,806) (558,773)
Total shareholders' funds................ 90 5,502 10,011 31,374 (7,199) (12,234)
US GAAP
Total assets............................. 13,178 24,101 59,543 394,537 670,476
Long term debt........................... (631) (1,968) (2,874) (328,806) (558,773)
Redeemable preference shares............. (673) (673) -- -- --
Shareholders equity...................... 4,829 9,338 31,374 (7,199) (12,234)
</TABLE>

FOOTNOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- ESPRIT TELECOM
- ---------------

(1) Solely for the convenience of the reader, pounds sterling amounts have been
translated into US dollars at the Noon Buying Rate on September 30, 1998 of
$1.6994 per Pound Sterling 1.00.

(2) Esprit Telecom's financial information has been restated from that published
prior to December 1997 in order to give effect to a change in UK GAAP
relating to the granting of employee stock options at a discount to the
market price. The financial value of such discounts are now reorganized as
employee compensation and charged against net income. As required by UK
GAAP, this accounting change has been effected by restating the results of
previous periods. This change in accounting has no impact on the US GAAP
financials.

(3) Previously reported loss per Ordinary Share and net loss per Ordinary Share
in accordance with US GAAP has been restated to reflect the adoption of
Financial Accounting Standard No. 128, "Earnings Per Share," for all periods
presented and as further adjusted to reflect the redesignation of the 'A'
ordinary shares as Ordinary Shares and the fifty for one share split that
occurred in March 1997.

(4) Loss per ADS and net loss per ADS are calculated by adjusting loss per
Ordinary Share and net loss per Ordinary Share, respectively for the ratio
of seven Ordinary Shares per ADS.

209
<PAGE> 217

WHERE YOU CAN FIND MORE INFORMATION

GTS and Esprit Telecom submit to or file reports, proxy statements and
other information with the SEC. You may read and copy these reports, proxy
statements and other information at the public reference facilities maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's Regional Offices located at 7 World Trade Center, 13th floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You may also obtain copies of such material at prescribed rates from the
Public Reference Section of the SEC at 450 Fifth Street, Washington, D.C. 20549.
You may obtain copies from the Public Reference Room by calling the SEC at (800)
732-0330. In addition, GTS is required to file electronic versions of such
material with the SEC through the SEC's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The SEC maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
GTS Stock and Esprit Telecom ADS are listed on Nasdaq and EASDAQ and reports and
other information concerning GTS and Esprit Telecom can also be inspected at the
offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20001-1500 U.S.A. and the EASDAQ Market
Authority, Rue des Colonies 56, Brussels 1000, Belgium.

GTS has filed with the SEC a Registration Statement on Form S-4 under the
Exchange Act with respect to the New GTS Stock to be issued pursuant to the
Offer and will be filing a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1"). This Offering Circular/Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement or the
Schedule 14D-1. For further information with respect to GTS, Esprit Telecom and
the New GTS Stock, reference is hereby made to the Registration Statement
(including the exhibits and schedules thereto).

The SEC allows GTS to "incorporate by reference" information regarding
Esprit Telecom into this Offering Circular/Proxy Statement/Prospectus, which
means that GTS can disclose important information to you by referring you to
another document filed separately with the SEC. GTS is not permitted to
incorporate by reference information regarding GTS into this Offering
Circular/Proxy Statement/Prospectus. Accordingly, GTS has incorporated by
reference information regarding Esprit Telecom, but not information regarding
GTS. The information regarding Esprit Telecom incorporated by reference is
deemed to be part of this Offering Circular/Proxy Statement/Prospectus. This
Offering Circular/Proxy Statement/Prospectus incorporates by reference Esprit
Telecom's Annual Report on Form 20-F for the year ended September 30, 1998,
filed with the SEC on December 24, 1998 and its Report on Form 6-K filed with
the SEC on December 24, 1998. These documents contain important information
about Esprit Telecom and its finances.

All documents and reports filed by Esprit Telecom after the date of this
Offering Circular/Proxy Statement/Prospectus and prior to the termination of the
Offer (but excluding Esprit Telecom's Solicitation/ Recommendation Statement on
Schedule 14D-9 to be filed pursuant to Rules 14d-9 and 14e-2 under the Exchange
Act) shall be deemed to be incorporated by reference in this Offering
Circular/Proxy Statement/ Prospectus and to be a part hereof from the dates of
filing of such documentation reports.

Statements contained in this Offering Circular/Proxy Statement/Prospectus
or in any document incorporated by reference in this Offering Circular/Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document (if any) filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.

In addition to the foregoing, copies of the following documents will be
available for inspection, during normal business hours on any weekday
(Saturdays, Sundays and public holidays excepted) at the offices of Simmons &
Simmons, 21 Wilson Street, London, EC2M 2TX while the Offer remains open for
acceptance:

(i) the GTS Certificate of Incorporation and By-laws;

(ii) the Memorandum and Articles of Association of Esprit Telecom;

210
<PAGE> 218

(iii) the audited consolidated accounts of GTS for the financial years
ended December 31, 1996 and December 31, 1997;

(iv) the audited consolidated accounts of Esprit Telecom for the
financial years ended September 30, 1997 and September 30, 1998;

(v) the Securityholder Irrevocables and the Director Irrevocables
referred to in "Agreements with Certain Securityholders and Directors";

(vi) the material contracts referred to in "Additional Information
Required Under UK Law";

(vii) the service contracts of the Directors of Esprit Telecom
referred to in "Additional Information Required Under UK Law";

(viii) the termination agreement with Mr. Potter referred to in
"Additional Information Required under UK Law";

(ix) the letters of consent referred to in "Additional Information
Required Under UK Law";

(x) this Offering Circular/Proxy Statement/Prospectus and the
Acceptance Forms;

(xi) the rules of the Esprit Telecom Share Option Schemes;

(xii) the letters from Ernst & Young and PricewaterhouseCoopers
regarding the financial statements;

(xiii) the opinion letters of Lehman Brothers referred to in "Opinion
of Lehman Brothers"; and

(xiv) the opinion letter of Bear Stearns referred to in "Opinion of
Bear Stearns".

211
<PAGE> 219

ADDITIONAL INFORMATION REQUIRED UNDER UK LAW

RESPONSIBILITY

The Directors of Esprit Telecom, whose names are set out below, accept
responsibility for the information contained in this document relating solely to
the Esprit Telecom Group, the Directors of Esprit Telecom and members of their
immediate families in the following documents or sections hereof:

- Esprit Telecom's Annual Report on Form 20-F for the year ended September
30, 1998 and Report on Form 6-K filed with the SEC on December 24, 1998
which are incorporated by reference in this Offering Circular/Proxy
Statement/Prospectus;

- Information provided by and/or relating to the Esprit Telecom Group
included in the following sections of this document:

- At page A-ii, the paragraph relating to Lehman Brothers International
(Europe);

- "Summary" insofar as it summarizes information specified below;

- "Selected Historical Financial Information on Esprit Telecom";

- "Comparative Market Price and Dividend Information";

- "Cautionary Statement Concerning Forward-Looking Statements";

- Information under the sub-heading "Risks Specific to Esprit Telecom" in
the section headed "Risk Factors";

- Information under the following sub-headings in the section headed
"Background of and Reasons For the Offer": "Background of the Offer";
"The Esprit Telecom Board's Reasons for Recommending the Offer,
Recommendation of Esprit Telecom Board"; and "Opinion of Lehman
Brothers";

- Information under the following sub-headings in the section headed "The
Offer": "Interests of Certain Persons in the Offer"; "Irrevocable
Undertakings" solely in relation to the "Director Irrevocables";
"Affiliate Transfer Restrictions"; the first paragraph of the
sub-section headed "Indemnification and Insurance"; the third and fourth
sentences in the sub-section headed "Esprit Telecom Share Option
Schemes"; "Certain Regulatory Approvals and Legal Matters"; and sub-
paragraph (ii) of the second paragraph of the sub-section headed
"Accounting Treatment";

- "The Offer Agreement" insofar as it relates to matters agreed to or
undertaken by Esprit Telecom;

- Information under the sub-heading "Directors" in the section headed
"Agreement with Certain Securityholders and Directors";

- "Comparative Rights of Shareholders" insofar as it relates to factual
matters set out or derived from the Esprit Telecom Certificate of
Incorporation, the Esprit Telecom Articles and the Esprit Telecom
Memorandum;

- "Experts" insofar as it relates to Price Waterhouse and
PricewaterhouseCoopers;

- "Certain Information Concerning Esprit Telecom";

- "Selected Historical Financial Data of Esprit Telecom";

- "Where You Can Find More Information";

- Information under the following headings in the section headed
"Additional Information Required Under UK Law": "Responsibility";
"Directors of Esprit Telecom"; "Service Contracts"; "Interests and
dealings in Securities in GTS"; "Interests and dealings in Securities in
Esprit Telecom"; "Material Contracts of Esprit Telecom"; and "Other
Information";

- "The Definitions";
212
<PAGE> 220

- "Financial Statements concerning Esprit Telecom" except for pages F-95
to F-107 (inclusive).

To the best of the knowledge and belief of the Directors of Esprit Telecom
(who have taken all reasonable care to ensure that such is the case), the
information contained in this document for which they are responsible (as
detailed above) is in accordance with the facts and does not omit anything
likely to affect the import of such information.

The Directors of GTS, whose names are set out below, accept responsibility
for the information contained in this document other than information for which
the Directors of Esprit Telecom accept responsibility for as set out above.

The Directors of GTS accept responsibility for the correct and fair
reproduction of the published audited historical financial statements of the
PLUSNET business as set out pages F-95 to F-107 (inclusive) of this document.

To the best of the knowledge and belief of the Directors of GTS (who have
taken all reasonable care to ensure that such is the case), the information
contained in this document for which they are responsible is in accordance with
the facts and does not omit anything likely to affect the import of such
information.

The statements set out above are included solely to comply with the
requirements of Rule 19.2 of the City Code, Article 29, 1/2 1 of the Belgian
Royal Decree No. 185 of July 9, 1935 and point 1.b of the Annex to the Belgian
Royal Decree of November 8, 1989 on Public Takeover Bids and on Changes in
Control of Companies and do not impose responsibilities on, or impair the
responsibilities of, the Directors of Esprit Telecom or the Directors of GTS
under the laws of the US or any state thereof.

DIRECTORS OF ESPRIT TELECOM

The Directors of Esprit Telecom as at the date of this document are:

Sir Robin Biggam
David L Oertle
Michael Potter
Roy Merritt
John McMonigall
Dominic Shorthouse

SERVICE CONTRACTS

Messrs Potter and Merritt entered into service agreements on January 31,
1997 and Mr. Oertle entered into a service agreement in April 1997 with Esprit
Telecom each of which are terminable upon six months written notice by either
party, save for Mr. Oertle who is entitled to terminate his service agreement
upon 90 days' prior notice. Pursuant to those service agreements the relevant
Directors are entitled to receive the following remuneration:

<TABLE>
<CAPTION>
ANNUAL PERFORMANCE BONUS(2)
NAME OF DIRECTOR SALARY [POUND STERLING]
- ---------------- -------- -------------------------
<S> <C> <C>
Roy Merritt.............................. [Pound Sterling] 125,000(3) Up to 40% of basic salary
David Oertle............................. [Pound Sterling] 200,000(1) Up to 40% of basic salary
Michael Potter........................... [Pound Sterling] 145,000 Up to 40% of basic salary
</TABLE>

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

1. As amended on May 1, 1998
2. Based on certain performance related criteria set by Esprit Telecom
3. As amended on January 1, 1999.

213
<PAGE> 221

The above-named Directors' service agreements entitle the Directors to
pension benefits as follows:

Esprit Telecom has agreed to pay 7% of Mr. Merritt's salary into a
personal pension scheme approved by the UK Inland Revenue. Mr. Potter is
entitled to a payment of 7% of salary into a personal pension scheme or a
cash equivalent payment.

Messrs. Merritt and Oertle would be entitled to contractual payments
outstanding should their contracts be terminated. In addition, Mr. Oertle
is entitled to the payment of a sum equal to 24 months' salary should he
leave the Company or should his contract be terminated in either case
following a change of control of the Company.

In addition, pursuant to a Board resolution passed on January 29,
1998, Mr. Oertle is entitled to exercise all share options granted pursuant
to his contract of employment should Esprit Telecom become subject to a
change of control. Pursuant to his Director Irrevocable, Mr. Oertle
confirmed that subject to the receipt of satisfactory tax advice, it was
his current intention to accept the Rollover Offer.

Except as disclosed in this document, there are no service agreements with
Esprit Telecom Directors which have been entered into or amended within six
months of this document.

Except as disclosed in this document, there are no service agreements with
Esprit Telecom Directors which have more than 12 months to run or which are
terminable on 12 or more months' notice.

On January 23, 1999, Esprit Telecom entered into a termination agreement
("Termination Agreement") with Mr. Potter which sets out the agreed terms of the
termination of Mr. Potter's employment with Esprit Telecom. The Termination
Agreement provides that Mr. Potter's employment with Esprit Telecom will end on
28 February 1999 and that Esprit Telecom will make a payment of L40,438 to Mr.
Potter as compensation for the early termination of his employment. In addition
the Termination Agreement entitles Mr. Potter to relocation costs up to a
maximum of L15,000. Following the termination of his employment 160,526 of the
share options currently held by him will lapse due to the fact that the relevant
vesting date of such options post-dates such termination. In terms of the
Termination Agreement Mr. Potter has agreed to remain as a director of Esprit
Telecom until the earlier of the next annual general meeting or the date the
Offer is declared unconditional as to acceptances.

Except as disclosed in this document it is not proposed to amend any of the
service agreements of Esprit Telecom Directors.

Interests and dealings in Securities in GTS.

Except for the exercise of options as set forth in the tables below, the
interests of the directors of GTS, their immediate (as defined under The
Companies Act) families and persons connected with them (all of which are
beneficial, unless otherwise stated on page 205) as of the close of business on
the Disclosure Date are as set out on page 205.

The following table sets forth the details, as of the close of business on
the Disclosure Date, of the options over GTS Stock which have been granted to
Directors of GTS and which remain outstanding.

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
DATE OF GTS STOCK OPTION EXERCISE
NAME GRANT UNDER OPTION PRICE PERIOD
---- ------- ------------ ------ --------
<S> <C> <C> <C> <C>
Robert J. Amman.............. 5/20/98 11,250 $37.94 11/20/98 - 5/20/08
5/20/98 5,625 $37.94 1999* - 5/20/08
5/20/98 5,625 $37.94 2000* - 5/20/08
David Dey.................... 5/20/98 11,250 $37.94 11/20/98 - 5/20/08
5/20/98 5,625 $37.94 1999* - 5/20/08
5/20/98 5,625 $37.94 2000* - 5/20/08
Michael A. Greeley........... 9/16/96 9,000 $13.33 3/16/97 - 9/16/06
9/16/96 4,500 $13.33 7/16/97 - 9/16/06
9/16/96 4,500 $13.33 11/20/98 - 9/16/06
</TABLE>

214
<PAGE> 222

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
DATE OF GTS STOCK OPTION EXERCISE
NAME GRANT UNDER OPTION PRICE PERIOD
---- ------- ------------ ------ --------
<S> <C> <C> <C> <C>
2/27/98 5,000 $20.00 8/27/98 - 2/28/08
2/27/98 5,000 $20.00 8/27/99 - 2/28/08
2/27/98 5,000 $20.00 8/27/00 - 2/28/08
5/20/98 3,000 $37.94 11/20/98 - 5/20/08
5/20/98 3,000 $37.94 1999* - 5/20/08
5/20/98 3,000 $37.94 2000* - 5/20/08
Roger W. Hale................ 5/20/98 10,559 $37.94 11/20/98 - 5/20/08
5/20/98 5,625 $37.94 1999* - 5/20/08
5/20/98 5,625 $37.94 2000* - 5/20/08
Bernard J. McFadden.......... 11/14/94 9,000 $ 6.67 5/14/95 - 11/14/04
11/14/94 4,500 $ 6.67 5/15/95 - 11/14/04
11/14/94 4,500 $ 6.67 6/12/96 - 11/14/04
1/16/97 4,500 $13.33 7/16/97 - 1/16/07
1/16/97 4,500 $13.33 11/20/98 - 1/16/07
1/16/97 4,500 $13.33 1999* - 1/16/07
2/27/98 5,000 $20.00 8/27/98 - 2/28/08
2/27/98 5,000 $20.00 8/27/99 - 2/28/08
2/27/98 5,000 $20.00 8/27/00 - 2/28/08
5/20/98 3,000 $37.94 11/20/98 - 5/20/08
5/20/98 3,000 $37.94 1999* - 5/20/08
5/20/98 3,000 $37.94 2000* - 5/20/08
Stewart J. Paperin........... 3/20/97 9,000 $13.33 9/20/97 - 3/20/07
3/20/97 4,500 $13.33 11/20/98 - 3/20/07
3/20/97 4,500 $13.33 1999* - 3/20/07
2/27/98 5,000 $20.00 8/27/98 - 2/28/08
2/27/98 5,000 $20.00 8/27/99 - 2/28/08
2/27/98 5,000 $20.00 8/27/00 - 2/28/08
5/20/98 3,000 $37.94 11/20/98 - 5/20/08
5/20/98 3,000 $37.94 1999* - 5/20/08
5/20/98 3,000 $37.94 2000* - 5/20/08
W. James Peet................ 2/27/98 5,000 $20.00 8/27/98 - 2/28/08
2/27/98 5,000 $20.00 8/27/99 - 2/28/08
2/27/98 5,000 $20.00 8/27/00 - 2/28/08
5/20/98 3,000 $37.94 11/20/98 - 5/20/08
5/20/98 3,000 $37.94 1999* - 5/20/08
5/20/98 3,000 $37.94 2000* - 5/20/08
Jean Salmona................. 3/1/96 9,000 $13.33 9/1/96 - 3/1/06
3/1/96 4,500 $13.33 7/16/97 - 3/1/06
3/1/96 4,500 $13.33 11/20/98 - 3/1/06
2/27/98 5,000 $20.00 8/27/98 - 2/28/08
2/27/98 5,000 $20.00 8/27/99 - 2/28/08
2/27/98 5,000 $20.00 8/27/00 - 2/28/08
5/20/98 3,000 $37.94 11/20/98 - 5/20/08
5/20/98 3,000 $37.94 1999* - 5/20/08
5/20/98 3,000 $37.94 2000* - 5/20/08
Joel Schatz.................. 12/31/91 16,750 $ 0.53 12/31/91 - 12/30/01**
12/31/91 16,750 $ 0.53 12/31/92 - 12/30/01**
12/31/91 16,750 $ 0.53 12/31/93 - 12/30/01**
11/14/94 9,000 $ 6.67 5/14/95 - 11/14/04
11/14/94 4,500 $ 6.67 5/15/95 - 11/14/04
11/14/94 4,500 $ 6.67 6/12/96 - 11/14/04
1/16/97 4,500 $13.33 7/16/97 - 1/16/07
</TABLE>

215
<PAGE> 223

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
DATE OF GTS STOCK OPTION EXERCISE
NAME GRANT UNDER OPTION PRICE PERIOD
---- ------- ------------ ------ --------
<S> <C> <C> <C> <C>
1/16/97 4,500 $13.33 11/20/98 - 1/16/07
1/16/97 4,500 $13.33 1999* - 1/16/07
2/27/98 5,000 $20.00 8/27/98 - 2/28/08
2/27/98 5,000 $20.00 8/27/99 - 2/28/08
2/27/98 5,000 $20.00 8/27/00 - 2/28/08
5/20/98 3,000 $37.94 11/20/98 - 5/20/08
5/20/98 3,000 $37.94 1999* - 5/20/08
5/20/98 3,000 $37.94 2000* - 5/20/08
Alan B. Slifka............... 2/27/98 5,000 $20.00 8/27/98 - 2/28/08
2/27/98 5,000 $20.00 8/27/99 - 2/28/00
2/27/98 5,000 $20.00 8/27/00 - 2/28/08
5/20/98 3,000 $37.94 11/20/98 - 5/20/08
5/20/98 3,000 $37.94 1999* - 5/20/08
5/20/98 3,000 $37.94 2000* - 5/20/08
Adam Solomon................. 6/13/95 9,000 $ 9.00 12/13/95 - 6/13/05
6/13/95 4,500 $ 9.00 6/12/96 - 6/13/05
6/13/95 4,500 $ 9.00 7/16/97 - 6/13/05
2/27/98 5,000 $20.00 8/27/98 - 2/28/08
2/27/98 5,000 $20.00 8/27/99 - 2/28/08
2/27/98 5,000 $20.00 8/27/00 - 2/28/08
5/20/98 3,000 $37.94 11/20/98 - 5/20/08
5/20/98 3,000 $37.94 1999* - 5/20/08
5/20/98 3,000 $37.94 2000* - 5/20/08
Gerald W. Thames***.......... 6/13/95 87,500 $ 9.00 6/13/96 - 6/14/05
6/13/95 87,500 $ 9.00 6/13/97 - 6/14/05
6/13/95 87,500 $ 9.00 6/13/98 - 6/14/05
4/1/96 14,062.50 $10.27 4/1/97 - 4/2/06
4/1/96 14,062.50 $10.27 4/1/98 - 4/2/06
4/1/96 14,062.50 $10.27 4/1/99 - 4/2/06
4/1/96 14,062.50 $10.27 4/1/00 - 4/2/06
4/1/96 21,093.75 $10.27 3/13/98 - 4/2/06
4/1/96 7,031.25 $10.27 3/25/98 - 4/2/06
4/1/96 28,125 $10.27 **** - 4/2/06
2/3/97 22,173.75 $13.33 2/3/98 - 2/4/07
2/3/97 22,173.75 $13.33 2/3/99 - 2/4/07
2/3/97 22,173.75 $13.33 2/3/00 - 2/4/07
2/3/97 22,173.75 $13.33 2/3/01 - 2/4/07
10/10/97 13,125 $15.67 10/10/98 - 10/11/07
10/10/97 13,125 $15.67 10/10/99 - 10/11/07
10/10/97 13,125 $15.67 10/10/00 - 10/11/07
10/10/97 13,125 $15.67 10/10/01 - 10/11/07
10/13/98 350,000 $25.75 *****
</TABLE>

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

* Vesting occurs 6 months after annual shareholder meeting in such year.

** Joel Schatz received these options as an employee of the company.

*** Gerald W. Thames received options under the Fourth Amended and Restated
1992 Stock Option Plan for employees, and not under the GTS Amended and
Restated Non-Employee Directors Stock Option Plan.

**** Vesting is tied to revenue performance, with cliff vesting in 5 years.

***** Cliff vesting after 6 years, with possibility of acceleration to 3 years
if performance targets met.

216
<PAGE> 224

The following dealings for value in shares in GTS by Directors of GTS and
their immediate families have taken place during the Disclosure Period:

<TABLE>
<CAPTION>
PRICE
NUMBER OF PER SHARE
SHARES OF OF
NAME OF NATURE OF GTS GTS STOCK
DIRECTOR TRANSACTION DATE STOCK (US$)
-------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C>
Robert J. Amman..................... Purchase 5/5/98 3,000 $ 46.50
David Dey........................... Purchase 4/16/98 400 $ 40.625
Roger W. Hale....................... Purchase 5/4/98 300 $ 47.25
Exercise Option 1/7/99 691 $ 37.94
Sale 1/7/99 441 $ 59.625
Exercise
W. James Peet....................... Option......... 1/8/99 18,000 $ 10.27
Sale 1/8/99 18,000 $ 61.875
Joel Schatz......................... Sale 1/7/99 87,500 $59.5829
Gerald W. Thames.................... Exercise Option 3/26/98 487,500 $ 2.75
Sale 1/4/99 45,000 $56.6667
</TABLE>

Interests and dealings in Securities in Esprit Telecom. The following table
sets forth the details, as of the close of business on the Disclosure Date, of
the interests of the Directors of Esprit Telecom and their immediate families in
shares in Esprit Telecom as well as the details of the options over such Esprit
Telecom shares granted to Directors of Esprit Telecom. Such information has been
reported to Esprit Telecom pursuant to section 324 and section 328 of the
Companies Act of 1985 and is shown in the register required to be kept under the
provisions of that Act.

<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF ESPRIT TELECOM
ESPRIT TELECOM NUMBER OF ORDINARY
NAME OF ORDINARY ESPRIT TELECOM SHARES
DIRECTOR SHARES ADSs UNDER OPTION
- -------- -------------- --------------- --------------
<S> <C> <C> <C>
Sir Robin Biggam............................................ None None None
David Oertle................................................ None 100 3,172,762
Roy Merritt................................................. None None 1,459,758
Michael Potter.............................................. None None 656,645
John McMonigall............................................. None None None
Dominic Shorthouse.......................................... None None None
</TABLE>

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

1. Although Michael Potter has 656,645 Esprit Telecom Ordinary Shares under
option as at January 29, 1999 on termination of his employment on February
28, 1999 only 496,119 of those options will have vested. The options over the
balance of 160,526 Esprit Telecom Ordinary Shares will lapse on termination
of his employment.

2. As part of the general incentive plans for the directors of Apax Partners &
Co. Ventures Limited, and Warburg, Pincus Ventures, L.P. John McMonigall and
Dominic Shorthouse have an indirect interest in the profits of the funds
administered by Apax Partners and Ventures Limited and Warburg, Pincus
Ventures L.P. respectively.

3. 3,985,000 ordinary shares in Esprit Telecom are owned by Abacus (C.I.)
Limited ("Abacus") following a sale by Michael Potter in 1996. Pursuant to
the agreement effecting this sale Michael Potter is entitled to require
Abacus to retransfer the shares to him should it fail to make scheduled
payments.

217
<PAGE> 225

The following table sets forth the details, as of the close of business on
the Disclosure Date, of the options over Esprit Telecom Ordinary Shares which
have been granted to Directors of Esprit Telecom and which remain outstanding.

<TABLE>
<CAPTION>
NUMBER OF
ESPRIT TELECOM
NAME OF DATE OF ORDINARY SHARES OPTION EXERCISE
DIRECTOR GRANT UNDER OPTION PRICE ($/[POUND PERIOD
STERLING]
-------- ------- --------------- ----------- --------
<S> <C> <C> <C> <C>
Sir Robin Biggam...................... N/A None N/A N/A
David Oertle.......................... 04/10/97 78,750 L0.01 6/1/97 - 6/1/02
04/10/97 78,750 L0.01 12/1/97 - 12/1/02
04/10/97 78,750 L0.01 6/1/98 - 6/1/03
04/10/97 78,750 L0.01 12/1/98 - 12/1/03
04/10/97 78,750 L0.01 6/1/99 - 6/1/04
04/10/97 78,750 L0.01 12/1/99 - 12/1/04
04/10/97 78,750 L0.01 6/1/00 - 6/1/05
04/10/97 78,750 L0.01 12/1/00 - 12/1/05
04/10/97 227,500 $1.089 6/1/97 - 6/1/02
04/10/97 227,500 $0.893 12/1/97 - 12/1/02
04/10/97 227,500 $1.714 6/1/98 - 6/1/03
04/10/97 227,500 $1.714 12/1/98 - 12/1/03
04/10/97 227,500 $1.714 6/1/99 - 6/1/04
04/10/97 227,500 $1.714 12/1/99 - 12/1/04
04/10/97 227,500 $1.714 6/1/00 - 6/1/05
04/10/97 227,500 $1.714 12/1/00 - 12/1/05
07/07/98 700,000 $2.25 5/1/98 - 5/1/03
06/26/97 665 $0.68 6/26/98 - 6/26/03
02/09/98 6,160 $1.839 2/9/99 - 2/9/04
07/23/98 3,850 $4.00 7/23/99 - 7/23/04
02/09/98 12,087 $1.554 2/9/01 - 2/9/06
Michael Potter........................ Various (from
02/13/95-07/23/98) 486,650 $0.01 2/26/97 - 3/31/00
04/27/98 140,000 $2.304 2/26/01 - 2/26/06
06/26/97 4,284 $0.68 6/26/98 - 7/26/03
02/09/98 5,285 $1.839 2/9/99 - 3/10/04
07/23/98 3,388 $4.00 7/23/99 - 9/11/04
01/07/97 17,138 $0.669 7/1/00 - 7/1/05
Roy Merritt........................... Various (from
02/13/95-07/23/98) 1,189,150 L0.01 2/26/97 - 3/31/00
04/27/98 140,000 $2.304 2/26/01 - 2/26/06
06/26/97 2,702 $0.68 6/26/98 - 7/26/03
02/09/98 3,514 $1.839 2/9/99 - 3/10/04
07/23/98 2,254 $4.00 7/23/99 - 9/11/04
01/07/97 17,138 $0.669 7/1/00 - 7/1/05
10/02/98 105,000 $0.892 1/29/98 - 2/29/04
John McMonigall....................... N/A None None None
Dominic Shorthouse.................... N/A None None None
</TABLE>

The following dealings for value in Esprit Telecom Ordinary Shares and
Esprit Telecom ADSs by Directors of Esprit Telecom and their immediate families
have taken place during the Disclosure Period:

<TABLE>
<CAPTION>
NUMBER OF ESPRIT PRICE PER ESPRIT NUMBER OF PRICE PER
NAME OF NATURE OF TELECOM TELECOM ESPRIT TELECOM ESPRIT TELECOM
DIRECTOR TRANSACTION DATE ORDINARY SHARES SHARE($) ADSs ADSs($)
- -------- ----------- ---- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sir Robin Biggam..... None N/A N/A N/A N/A N/A
David Oertle......... Sale 02/26/98 None N/A 2,500 $16.875
Purchase 09/02/98 None N/A 500 $ 18.50
Sale 09/02/98 None N/A 500 $21.625
Roy Merritt.......... None N/A N/A N/A N/A N/A
Michael Potter....... None N/A N/A N/A N/A N/A
John McMonigall...... None N/A N/A N/A N/A N/A
Dominic Shorthouse... None N/A N/A N/A N/A N/A
</TABLE>

218
<PAGE> 226

Except as disclosed in this document, neither:

(a) GTS nor any of its Directors nor any member of their immediate
families;

(b) any subsidiary of GTS, any bank, stockbroker, financial or other
professional adviser (other than an exempt market-maker) to GTS or any
subsidiary or any associated company of GTS, nor any person controlling or
controlled by, or under the same control as such bank, stockbroker,
financial or other professional adviser, nor any pension fund of GTS or any
of its subsidiaries; nor

(d) any person whose investments are managed on a discretionary basis
by fund managers (other than exempt fund managers) connected with GTS;

owns or controls or is interested, directly or indirectly, in any relevant
securities nor has any such person dealt for value therein during the Disclosure
Period.

Except as disclosed in this document, neither:

(a) any of the Directors of Esprit Telecom nor any member of their
immediate families; nor

(b) any subsidiary of Esprit Telecom, any bank, stockbroker, financial
or other professional adviser (other than an exempt market-maker) to Esprit
Telecom or any subsidiary or any associated company of Esprit Telecom, nor
any person controlling, controlled by, or under the same control as such
bank, stockbroker, financial or other professional adviser, nor any pension
fund of Esprit Telecom or any of its subsidiaries;

(d) any person whose investments are managed on a discretionary basis
by fund managers (other than exempt fund managers) connected with Esprit
Telecom;

owns, controls or is interested, directly or indirectly, in any relevant
securities nor has any such person dealt for value therein during the
Disclosure Period.

References in this section to:

(i) "associate" of a company mean:

(a) the company's parent, its subsidiaries and fellow subsidiaries
and the company's parent, its associated companies and companies of
which such companies are associated companies ("relevant companies");

(b) banks, financial and other professional advisers (including
stockbrokers) to the company or any relevant company, including persons
controlling, controlled by or under the same control as such banks,
financial or other professional advisers;

(c) the directors (together in each case with their close relatives
and related trusts) of the company and of any relevant company; and

(d) the pension funds of the company or any relevant company.

(ii) "bank" does not apply to a bank whose sole relationship with
Esprit Telecom, or a company which is an associate, is the provision of
normal commercial banking services or such activities in connection with
the Offer as handling acceptances and other registration work;

(iii) "Disclosure Date" means January 29, 1999, being the latest
practicable date prior to the mailing of this document;

(iv) "Disclosure Period" means the period commencing on December 8,
1997 (being the date 12 months prior to the commencement of the Offer
Period) and ending on the Disclosure Date;

219
<PAGE> 227

(v) ownership or control of 20% or more of the equity share capital of
a company is regarded as the test of associated company status and
"control" means a holding, or aggregate holdings of shares carrying 30% or
more of the voting rights attributable to the share capital of GTS which
are currently exercisable at a general meeting, irrespective of whether the
holding or holdings gives de facto control; and

(vi) "relevant securities" means relevant securities defined in the
City Code which includes Esprit Telecom Ordinary Shares, Esprit Telecom
ADSs, the equity share capital of GTS or any securities convertible into,
rights to subscribe for or options (including traded options) in respect
of, or derivatives referenced, to any of the foregoing.

Other information. Except as disclosed in this document, neither GTS nor
any person acting in concert with GTS, nor Esprit Telecom nor any associate of
Esprit Telecom has any arrangement in relation to relevant securities. For this
purpose, an "arrangement" includes any indemnity or option arrangements, and any
agreement or understanding, formal or informal, of whatever nature, relating to
relevant securities which may be an inducement to deal or refrain from dealing.

Except as referred to in this document, there is no agreement, arrangement
or understanding (including any compensation arrangement) between GTS or any
person acting in concert with it for the purposes of the Offer and any of the
Directors, recent Directors, shareholders or recent shareholders of Esprit
Telecom having any connection with, or dependence upon, or which is conditional
on, the outcome of the Offer.

There is no agreement, arrangement or understanding whereby the beneficial
ownership of any of the Esprit Telecom Securities to be acquired pursuant to the
Offer will be transferred to any other person, except that GTS reserves the
right to transfer such shares to any other member of the GTS Group.

MANAGEMENT AND EMPLOYEES

Existing employment rights, including pension rights, of the management and
employees of the members of the Esprit Telecom Group will be fully safeguarded.

David Oertle, CEO of Esprit Telecom, will remain with Esprit Telecom
through the transition. He will continue to work with Esprit Telecom towards its
successful integration within the GTS Group. At the same time, Mr. Oertle will
assume a senior advisory role working directly with Gerald W. Thames, GTS's
President and CEO, as a key contributor to the development of the corporation's
strategic vision and goals. Roy Merritt, CFO of Esprit Telecom, Hans-Peter
Kohlhammer, Group Managing Director -- Sales and Marketing, Jim Reynolds, Chief
Operations Officer, David Reibel, General Counsel and Director of Corporate
Affairs, Nicholas Pellew, Chief Marketing Officer, and Carlos Riera, Group
Financial Controller, will continue in their current roles within Esprit
Telecom. Walter Anderson, the former Chairman of Esprit Telecom, has agreed to
serve as a special consultant to the GTS board of directors. Michael Potter's
employment and service agreement with Esprit Telecom is to be terminated
effective as of February 28, 1999. See "-- Service Contracts" page (213).

The following is the biographical information of each director and
executive officer of Esprit Telecom who will continue with Esprit Telecom after
consummation of the Offer.

Dr. Hans-Peter Kohlhammer joined Esprit Telecom as Group Managing
Director -- Sales & Marketing on October 1, 1998. Dr. Kohlhammer is the
President of Germany's leading telecommunications industry body, (VATM The
Association of Providers of Telecom and Value Added Services). Dr. Kohlhammer
joined Esprit Telecom from Thyssen Telecom AG, where he was Chairman of the
Board. Prior to his role with Thyssen, Dr. Kohlhammer held a board level
position with Loewe Opta and Industry positions with companies such as Digital
Equipment and Nixdorf Computer. Dr. Kohlhammer holds a degree in mathematics and
physics and a doctorate in mathematics from the University of Bonn.

Roy Merritt has served as Group Finance Director and Chief Financial
Officer of Esprit Telecom since April 1995 and has been a Director of Esprit
Telecom since February 1997. Prior to joining the Company, he was an Investment
Executive with Apax Partners from 1992 to 1995. He also serves as an Associate
within the Acquisition Finance Group of Security Pacific Hoare Govett between
1989 and 1991. From 1987 to 1989,
220
<PAGE> 228

Mr. Merritt worked for the strategy consultancy firm McKinsey & Company, Inc. in
London. He received his MBA from INSEAD in France. He graduated with B.A. and
M.A. degrees in Chemical Engineering from Cambridge University.

David Oertle joined Esprit Telecom as Chief Executive Officer in May 1997
and became a Director of Esprit Telecom in August 1997. Mr. Oertle has over 30
years of experience in the telecommunications industry. His telecommunications
experience began in 1967 with Wisconsin Telephone. Between 1973 and 1976 and
between 1980 and 1987, Mr. Oertle served in various capacities at AT&T,
including Divisions Manager, Director Corporate Staff and Director Data Systems
Operator. From 1988 to 1990, Mr. Oertle served as Executive Vice President at
Sprint responsible for the residential, small business and federal systems
segments. He joined Telstra (Australia) in 1990 as Executive General Manager and
Chief Information Officer. From 1993 thorough 1994, Mr. Oertle was Chief
Operating Officer at Telstra, responsible for the Commercial and Consumer
divisions. He most recently was Managing Director and Chief Executive Officer of
Tech Comm Group Limited, an Australian systems integrator in the IT,
telecommunications and power industries, serving in this capacity from 1994
until April 1997. Mr. Oertle received his B.S. degree in Economics and Political
Science from the University of Wisconsin.

Nicholas Pellew joined Esprit Telecom as Chief Marketing Officer in
September 1997 with responsibility for further developing telecoms solutions and
value added products. Prior to joining the Company he served as Marketing
Director -- Telecoms for Videotron Holdings Plc from 1991 to 1997. Mr. Pellew
also was Sales and Marketing Manager of Cable Telecom, a division of the Cable
Corporation, from 1988 to 1991. Prior to this he was Product Marketing Manager
for Northern Telecom ("Nortel") between 1986-88, with responsibility for
Customer Premises Equipment. Mr. Pellew was also an Applications Engineer with
Watkins Johnson from 1984 to 1986, prior to which he was an electrical engineer
with English Electric Valve. Mr. Pellew has a management degree from Cambridge
University and a BSC Honours in Engineering Science from Exeter University.

David Reibel has been General Counsel of Esprit Telecom since February
1994. Mr. Reibel was an Associate at the law firms of Skadden, Arps, Slate,
Meagher & Flom in Washington, D.C. from 1992 to 1994 and McKenna & Cuneo in
Washington, D.C. from 1991 to 1992. Mr. Reibel also worked as Legislative
Assistant to a member of the U.S. House of Representatives where he was
responsible for the Committees on Ways and Means, Judiciary, and Education and
Labor. Mr. Reibel received his J.D. degree from Stanford Law School and his B.A.
in Social Sciences from the University of Michigan. Mr. Reibel also completed
the Erasmus program in international and European Community law at Leiden
University, the Netherlands.

Jim Reynolds, Chief Operations Officer, joined Esprit Telecom in February
1998. His experience and track record extends over 27 years in the information
technology and telecommunications field. Previously director of products and
services at Mercury Communications, Mr. Reynolds was responsible for the
rationalization and development of the Mercury service portfolio during the
period when Mercury was focusing on making major improvements to service
delivery and profit. As part of this role he managed the Mercury Enterprise
businesses disposing of a number of these and integrating others into the main
company. Before joining Mercury in 1992 he led the first Digital Equipment
product group outside the US and spent 15 years with ITT Corporation.

Carlos Riera joined the Company in November 1995 as controller of Esprit
Telecom's Spanish operations. He was subsequently promoted to Group Financial
Controller in October 1997. Prior to joining Esprit Telecom, Mr. Riera worked
with Ernst & Young in the United Kingdom and Barcelona. Mr. Riera holds a degree
in economics from the University of Barcelona and a post-graduate degree from
Copenhagen Business School.

It is contemplated, that following the consummation of the Offer, the
entire Esprit Telecom Board will be replaced by GTS management. Currently, it is
anticipated that the following members of GTS management will be nominated to
serve on the Esprit Telecom Board: Gerald W. Thames, Bruno D'Avanzo, William
Seippel and Grier Raclin. See "Directors and Executive Officers of GTS" (page
190) for biographical information regarding these individuals.

221
<PAGE> 229

MATERIAL CONTRACTS OF GTS

The following contracts, not being contracts entered into in the ordinary
course of business, have been entered into by members of the GTS Group since
December 8, 1996 (the date two years prior to the announcement of the proposed
offer) and are, or may be, material:

- Two indentures among HER and The Bank of New York as trustee, both dated
January 4, 1999, pursuant to which HER issued the New HER Notes, a
summary of which is set out in "Description of Certain GTS
Indebtedness -- New HER Notes" at page 104.

- The Offer Agreement, a summary of which is set out in "The Offer
Agreement" at page 84.

- The Registration Rights Agreement, a summary of which is set out in "The
Offer -- Interests of Certain Persons in the Offer -- Registration Rights
Agreement" at page 70.

- The NetSource Acquisition agreement, a summary of which is set out in
"Certain Information Concerning GTS -- Description of GTS -- Recent
Developments" at page 120.

- A share purchase agreement, between SFMT-CIS, Inc. ("SFMT") and Swinton
Limited, dated July 16, 1998, whereby SFMT acquired 47.36% of the
ordinary shares of GTS-Vox Limited from Swinton Limited. SFMT is a wholly
owned subsidiary of GTS. The total consideration payable by SFMT under
this agreement was $37 million and an additional $3 million distributed
by a dividend.

- An indenture between GTS and The Bank of New York, as trustee, dated July
8, 1998, whereby GTS issued the Debentures a summary of which is set out
in "Description of Certain GTS Indebtedness -- Debentures due 2010" at
page 103.

- A master agreement, among Ebone Holdings Association ("EHA"), Ebone, HER
and Hermes Europe Railtel (Ireland) Limited, dated June 24, 1998, whereby
the parties described the following agreements, which would be executed,
and transactions, which would take place: (i) a share subscription
agreement, describing the issuan