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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

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

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 001-15693

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CARRIER 1 INTERNATIONAL S.A.

(Exact name of Registrant as specified in its charter)

LUXEMBOURG 98-0199626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

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ROUTE D'ARLON 3
L-8009 STRASSEN, LUXEMBOURG
(011) (41-1) 297-2600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Shares of Common Stock, $2.00 par value per share

American Depositary Shares, each ADS represents 0.2 shares of Common
Stock
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

At March 27, 2001, the aggregate market value of the shares of the
registrant held by non-affiliates was $117,588,530 (based upon the closing price
for shares as reported by the Neuer Markt segment of the Frankfurt Stock
Exchange on that date and calculated using the March 27, 2001 exchange rate of
1 Euro to 0.8910 dollar). Shares held by each executive officer, director, and
holder of 5% or more of the outstanding shares have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

At March 27, 2001, there were 42,862,853 shares of Common Stock of the
registrant outstanding.

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In this Annual Report on Form 10-K, "Carrier1 International" refers to
Carrier 1 International S.A., a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg, and "Carrier1," "we," "our" and "us" refers to
Carrier1 International and its subsidiaries and their predecessors, except where
the context otherwise requires.

In this Annual Report, references to "the euro," "euros" or "(u)" are to the
lawful currency of the European Monetary Union and all references to "U.S.
dollars," "dollars" or "$" are to the lawful currency of the United States.

The statements contained in this Annual Report that are not historical facts
are "forward-looking" statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks,
uncertainties and assumptions. We have based these forward-looking statements on
our current expectations and projections about future events and on industry
publications. We have not independently verified the data derived from industry
publications. Such forward-looking statements may be included in, but are not
limited to, the factors set forth in "Item 1. Business--Risk Factors" and "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operation."

Management of Carrier1 cautions the reader that these forward-looking
statements, such as the statements regarding Carrier1's ability to implement its
business and financial plans, its ability to develop and expand its business,
its ability to reduce and manage costs, its ability to design, configure,
develop and operate its networks successfully, its ability to continue
increasing its consumer base, its ability to take advantage of new technologies,
its markets, including the future growth of the European telecommunications
market, the effects of regulation, including tax regulations, litigation, its
anticipated future revenues, capital spending and financial resources and other
statements contained in this Annual Report regarding matters that are not
historical facts involve predictions. No assurance can be given that the future
results will be achieved; actual events or results may differ materially as a
result of risks and uncertainties facing Carrier1. Such risks and uncertainties
include, but are not limited to, the significant amount of indebtedness incurred
by Carrier1 and its obligations to service such indebtedness, contractual
restrictions on the ability of Carrier1 to receive dividends from certain
subsidiaries, the risk of termination of certain joint ventures through which
Carrier1 operates, increased competition from other voice, Internet, bandwidth
and related telecommunication service providers, expected actions of third
parties such as equipment suppliers and joint venture partners that affect our
operations, exchange rate fluctuations and changing technology, as well as
regulatory, legislative and judicial developments that could cause actual
results to vary materially from future results indicated, expressed or implied
in such forward-looking statements.

PART I

ITEM 1. BUSINESS

Carrier1 International is a holding company and renders its services
indirectly through subsidiaries primarily located in various Western European
countries. Its registered office is located at L-8009, Strassen, Route d'Arlon
3, Luxembourg. Executive offices of Carrier1 International GmbH, its principal
management services subsidiary, are located at Militarstrasse 36, CH-8004
Zurich, Switzerland. Its phone number is +41-1-297-2600.

OVERVIEW

We are a rapidly expanding European facilities-based provider of voice
services and data services such as Internet, bandwidth and related
telecommunications services. We offer these services primarily to other
telecommunications service providers. In March 1998, our experienced management
team, and Providence Equity Partners and Primus Ventures formed Carrier1 to
capitalize on the significant opportunities emerging for facilities-based
carriers in Europe's rapidly liberalizing telecommunications markets. By
September 1998, we had deployed our initial network and commenced selling
services.

We are developing an extensive city-to-city European fiber optic network
accessing and linking key population centers. In select European cities, we are
also developing intra-city networks and data centers for housing and managing
equipment. We expect these intra-city networks to give us faster, lower cost
access to customers with better quality control. We also expect to bundle and
cross-sell our intra-city network and data center capabilities with our other
services.

As of December 31, 2000, we offered voice services and data services
(Internet, bandwidth and related services) in over 25 cities and 13 countries.
In addition, as of December 31, 2000, through a combination of building, buying
and exchanging assets, we arranged an extensive fiber network of 14,000
contracted route kilometers, portions of which became operational during 2000.
When completed, this fiber optic network will consist of a fiber optic network
in Denmark, Italy, Switzerland, Germany, France, the United Kingdom, The
Netherlands, Norway and Sweden, and we will have one or more wavelengths in
Denmark, Italy, Switzerland and Belgium. The network includes a 2,400 route
kilometer network in Germany and a 2,650 route kilometer network in France and
will extend over a 1,150 route kilometer network in the United Kingdom. Our
network will also include intra-city networks in Amsterdam, Berlin, Dusseldorf,
Frankfurt, Geneva, The Hague, Hamburg, Hanover, London, Milan, Munich, Paris and
Rotterdam for a total of approximately 750 route kilometers. We have constructed
a 40 route kilometer ring in Amsterdam that has been completed at the fiber
level and activated for our own purposes. We are currently constructing another
approximately 70 route kilometer ring in Amsterdam that has been completed at
the duct level and will be completed at the fiber level and activated in 2001.
We also have substantially completed a 31.5 route kilometer ring at the duct and
fiber level in Paris, and we are currently constructing another approximately 72
route kilometer ring in Paris. As of March 20, 2001, all the other intra-city
networks and the additional rings in Amsterdam and Paris are under construction
and are expected to be completed by year end, with the exception of Dusseldorf
which we expect to complete in 2002.

We intend to continue to expand our network in a cost-effective manner by
building, buying or trading network assets. For example, the German network
became operational in the fall of 2000. The German network connects 14 principal
cities and passes a number of other major cities. We built the German network
with partners to lower our fixed cost of construction. We own our own duct,
which contains 72 fiber strands. We have swapped excess capacity on the German
network for fiber capacity on other networks in our target markets to increase
the reach of our owned and controlled network in a capital-efficient way.
Moreover, our duct has space for additional fiber strands which may be used to
meet additional demands for bandwidth or improvements in technology. A further
550 route kilometer cross-section connecting Dortmund to Berlin is under
construction and is expected to be activated by year-end 2001.

As we have expanded our own network, we have been phasing out our short-term
leased network assets.

Stig Johansson, Chief Executive Officer, and our management team have
extensive experience in European telecommunications markets and longstanding
relationships with European wholesale customers and suppliers. Mr. Johansson was
formerly the President of Unisource Carrier Services AG, a large European
wholesale carrier. Our senior management comes from Unisource Carrier Services,
AT&T-Unisource Communications Services, Telia Norge AS, British Telecom, AT&T,
KPNQwest N.V. and Global One. Mr. Johansson and others in management have also
had significant experience with start-up ventures. We believe that management's
experience and long-standing customer relationships were key to our launch of
operations approximately six months after our founding.

INDUSTRY AND MARKET OPPORTUNITY

We believe that the market for advanced, high bandwidth transmission
capacity and other telecommunications services in Europe will continue to grow
due to a number of factors, including:

- MARKET LIBERALIZATION. Entry to the telecommunications market was
liberalized in almost all European Union member states on January 1, 1998.
We expect the European telecommunications market to continue to experience
developments similar to those that have occurred in the United States and
the United Kingdom following liberalization, including an increase in both
international and national traffic volume, reduced prices, increased
service offerings and the emergence of new entrants seeking to outsource
some or all of their telecommunications infrastructure and service needs.
In addition, we expect more regional carriers in the United States to
offer international long distance service, which we believe will lead to
increased demand for alternative carriers of transatlantic and European
traffic.

- LARGE AND GROWING MARKET FOR VOICE SERVICES. Management believes that the
European international long distance and mobile market is among the
largest in the world and is continuing to grow.

- GROWING DEMAND FOR INTERNET AND BANDWIDTH SERVICES. We believe that the
penetration rate of web users in Europe will continue to grow in the next
several years. We believe that substantial additional bandwidth and faster
transmission speeds will be required to accommodate new Internet intensive
business applications, such as electronic commerce, the deployment of
corporate intranets and virtual private networks, video conferencing,
broadcast multimedia and other broadband applications, application hosting
services, third generation mobile technology, and other Internet
protocol-based value added products and services.

Furthermore, several third generation licenses were recently granted in
major European markets, and we expect these licensees to outsource part of
their needs for telecommunications services to companies like ours.

- DEMAND FOR RELATED SERVICES. Increasing demand for basic
telecommunications services presents opportunities for companies such as
ours to market other related services, such as data centers to house and
manage a customer's mission-critical telecommunications and data
equipment, which have significant space and monitoring requirements.

BUSINESS STRATEGY

Our objective is to become a leading European facilities-based provider of
high quality voice services and Internet, bandwidth and related services. Our
target customers are telecommunications

service providers and other large telecommunications users with similar needs.
The key elements of our strategy are:

- TARGET TELECOMMUNICATIONS SERVICE PROVIDERS AND OTHER LARGE
TELECOMMUNICATIONS USERS WITH SIMILAR NEEDS. By focusing on
telecommunications service providers and other large telecommunications
users with similar needs, we expect to exploit our management's strong
market-oriented skills, first-hand understanding of the European
telecommunications markets and long-standing customer relationships, while
maintaining a lower cost base than carriers with mass retail operations
and without competing with our customers.

In particular, we focus our marketing efforts on fixed-line and mobile
competitive retail operators that lack international infrastructure. We
also focus our marketing efforts on established non-European operators
that lack infrastructure in Europe or are seeking lower-cost alternatives
and wish to outsource their European infrastructure needs. Based on our
management's experience in European telecommunications markets, we believe
these new entrants and non-European operators prefer an independent
supplier to an incumbent telephone operator or other supplier with which
they compete directly. In addition, we believe that these customers are
increasingly seeking flexible, lower cost alternatives to the high tariffs
that incumbents have traditionally charged.

- FOCUS ON CUSTOMER NEEDS. We will continue to build relationships with a
large number of telecommunications service users and providers by
providing quality, customized service and a superior level of customer
support.

- ENSURE QUALITY SERVICE. We believe that quality of service is critical to
obtaining and retaining customers. Our technologically advanced network
and network management and information systems allow us to offer our
services at guaranteed minimum levels of order implementation, response
and repair time and availability. Based on our management's experience in
telecommunications markets, we believe that we offer among the highest
minimum service levels for voice services and Internet and bandwidth
services in Europe. Having fiber optic networks, switches, multiplexers
and routers helps us to control the quality and breadth of our service
offerings.

- PROVIDE SUPERIOR CUSTOMER SUPPORT. Although our network has one of the
highest quality service levels, occasionally customers experience
connection or other problems. To better assist our customers if they have
difficulties, we have devised our system with the goal of providing a
level of customer support significantly higher than what we believe is
generally available in the voice market in Europe, particularly from
incumbent telephone operators. Key features of these systems include:
(1) decentralized and locally based sales, installation and basic support,
facilitating quick response to customer needs, (2) a help desk operating
24 hours a day, 365 days a year, (3) on-line order management and
provisioning, traffic reports, fault reports and repair information and
(4) on-line customized billing. We believe that these features allow us to
offer our customers the ability to monitor and control services we provide
them.

- EXPAND OUR NETWORK RAPIDLY AND IN A CAPITAL-EFFICIENT MANNER. We seek to
invest in key strategic assets, such as our German network and various
intra-city networks whereby we can build additional excess capacity at a
low cost, which we can use as an attractive currency for swaps to extend
our European coverage as rapidly as possible. Through this strategy we are
developing a cross-border network linking principal cities of Western
Europe and expect to continue to increase the number of countries covered
by the network and broaden our network presence within particular
countries. We decided to build our network in Germany because:

- Germany is the largest telecommunications market in Europe and a major
center for voice and Internet traffic within Europe;

- there is limited availability of cost-effective transmission capacity in
Germany;

- leased transmission costs are currently high in Germany and we desired
to lower our cost base in such a large market;

- installing multiple points of presence in Germany reduces our voice
termination and access costs and improved our position within the German
regulatory framework; and

- Germany's central location within Europe provides a good base from which
to connect the German network to other parts of Europe.

We have reduced the capital necessary to assemble this existing and
contracted network by:

- sharing the cost of building the German network with partners;

- selling or pre-selling conduit rights or capacity to defray costs; and

- trading capacity or services.

We plan to continue to take this capital-efficient approach in
implementing our strategy to secure intra-city networks in up to 13 cities
throughout Europe. Similarly, we are taking a capital-efficient approach
to developing some of our data center capabilities by building them
through a joint venture. We expect that having intra-city networks and
data center capabilities will enhance the value of our network by bringing
us closer to major telecommunication centers and therefore to our
customers.

- EXPLOIT LOW COST PROVIDER POSITION. Having a high capacity, cross-border
network in Europe at the duct or duct fiber level gives us a significant
cost advantage over incumbent providers with extensive legacy networks and
newer competitors that lease the majority of their networks or build
networks without the use of capital-efficient swapping or pre-selling
strategies. We believe that we will further reduce the overall cost of
deploying our network by continuing to engage in swaps and sales of dark
fiber. We believe that the intra-city extension of our network in up to 13
major cities will enhance our low-cost position by reducing the need for
alternative city carriers and leased lines, which can be expensive and
have long lead times for delivery. We expect that acquiring some of our
data center capabilities through a joint venture will also enhance our
low-cost position.

- PURSUE GROWING DEMAND FOR BANDWIDTH. We believe that demand from European
telecommunications carriers, Internet service providers and other
businesses for high bandwidth and Internet transmission capacity will
continue to increase over the next several years primarily due to
technological and regulatory developments. We also believe that additional
network transmission capacity and faster transmission speeds will be
required to accommodate high bandwidth business applications such as
electronic commerce, the deployment of corporate intranets and virtual
private networks, facsimile transmission over the Internet, video
conferencing, access via cellular networks, and other Internet
protocol-based services. We believe that pursuing this demand in the
Internet sector will be key to our continued success.

- BUNDLE AND CROSS-SELL A COMPREHENSIVE RANGE OF NETWORK SOLUTIONS. We can
customize our voice services and Internet, bandwidth and other
capabilities in combinations, or as comprehensive European end-to-end
network solutions. For example, we have customers that use our
city-to-city capabilities and locate their equipment in our data centers,
as they become available. After a customer places equipment in a data
center, we have an enhanced opportunity to manage that equipment or to
provide additional city-to-city or intra-city transport. Similarly, a
customer who may use our intra-city and data center capabilities may also
find it convenient to use our city-to-city and other capabilities. We can
also offer customers the entire range of our capabilities to create a
virtual carrier network in which we provide all of the European
telecommunications network infrastructure and services they require,
except for branding, sales and features customized for end users, which
our customers prefer to provide themselves. These virtual carrier network
solutions allow a customer to select from a menu of our capabilities to

create its own branded pan-European service, with the ability to monitor
and control the services we provide, without investing in the
infrastructure and support that we offer.

In furtherance of our core business strategy, we regularly explore possible
strategic alliances, acquisitions, business combinations and other similar
transactions, with a view to expanding our European and international presence,
securing cost-effective access to transmission capacity or other products and
services, or otherwise enhancing our business, operations and competitive
position. Our industry is characterized by high levels of this type of activity.
We expect to continue to regularly explore opportunities with other
telecommunications companies. We believe that the flexibility to utilize either
cash or our publicly traded shares as a currency for possible transactions may
enhance our ability to pursue acquisitions or other business combinations. Any
future transaction may be significant to us, although no assurance can be given
that any transaction will occur.

SERVICES

We are focusing on providing voice services and Internet, bandwidth and
related services, primarily to other telecommunications service providers, at
the high level of quality expected by European customers. For the year ended
December 31, 2000, we had $220.2 million of revenues from voice services and
$41.3 million of revenues from data services. For more information about our
revenues and other financial information, see "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained
elsewhere in this document and note 15 to our consolidated financial statements.

VOICE SERVICES

Our voice services generally consist of providing transport from our network
points of presence located in strategic European cities and New York for
termination anywhere in the world. Our customers generally will arrange for
transmission of their traffic to one of our points of presence at their own
cost, although we may provide service from the customer's site if traffic volume
is sufficient. Our customers may also access our network indirectly through our
indirect access services. The majority of our voice traffic originates or
terminates in mobile networks. We plan to enter into national long distance
markets in Germany, Italy and the United Kingdom during 2001.

Our current offering of voice services allows a customer to access our
network both by direct connection and indirect access. Indirect access and other
capabilities have allowed us to provide value-added services to customers with
no telecommunications infrastructure, such as post-paid and pre-paid switchless
resellers, to distributors of pre-paid phone cards and toll-free services, and
to other customers with needs for particular value-added capabilities, such as
ISDN.

DATA SERVICES (INTERNET, BANDWIDTH AND RELATED SERVICES)

INTERNET SERVICES

Our objective is to be a major European Internet backbone and value-added
services provider.

INTERNET TRANSPORT SERVICES. We currently offer three types of Internet
transport services, "Global Transit Service," "Euro Transit Service" and
"Internet Exchange Connect Service." We offer these services at customized
service levels and with billing options.

Our Global and Euro Transit Services provide customers with high-speed,
high-quality connectivity to Internet networks and content providers worldwide.
This backbone service interconnects our customers with selected Internet
exchanges and other international Internet backbone providers. Customers
connected to the Global or Euro Transit Service backbone have connectivity
geared to providing optimal Internet reach and connectivity.

Our Internet Exchange Connect Services, or IX Connect, are a point-to-point
option for customers who want to transit solely to a specific Internet exchange
or to a specific partner. It offers one-to-one connectivity to a select number
of destinations through main Internet exchanges in Europe and the United States.
We currently offer IX Connect connectivity to the following internet exchanges:
LINX in London, BNIX in Brussels, AMS-IX in Amsterdam, D-GIX in Stockholm,
DE-CIX in Frankfurt, VIX in Vienna, MIX in Milan, CIPX in Geneva, SFINX and
PARIX in Paris, MAE East in Washington and MAE West in San Jose. We expect to
extend connectivity to NIX in Oslo, DIX in Copenhagen, ESPANIX in Madrid and
AADS in Chicago and selected neutral exchange points such as PAIX and EQUINIX in
multiple U.S. cities by the end of 2001. The principal guaranteed parameters of
IX Connect are dedicated reserved capacity, access speed ranging from 2 Mb to
155 Mb and the announcement of the customer's Internet domain at the remote
location. We will also guarantee certain minimum connection speeds and maximum
response and repair times.

VALUE-ADDED INTERNET SERVICES. We are currently offering select
Internet-based value added services. These include streaming media distribution,
which consists of the transmission of audio and video media, and Virtual ISP
service, which consists of providing a menu of our capabilities from which an
ISP can create its own branded Internet service without investing in the
Internet infrastructure we plan to provide. For example, we have entered
agreements with Yahoo! Broadcast Services and Servecast.com Limited to
facilitate the distribution of their streaming media. To optimize the
distribution process, we have enabled our network for multicasting, which is an
efficient mechanism for delivering broadcasts from one source to many receivers.
In addition to our commercial agreement with Servecast.com, we made an equity
investment in Servecast.com of (u)3.5 million ($3.3 million).

During fiscal 2000, we launched our Pan European Virtual ISP service. The
Virtual ISP platform provides Internet service providers, Internet portals and
e-commerce sites with a turn-key solution connecting and enabling the respective
end-user of that ISP, portal or e-commerce site. The service includes a variety
of access services including various forms of dial-up as well as direct
connectivity, Internet transport services, and multiple functionalities that
were released in various stages. The platform allows an ISP, portal or
e-commerce provider to roll out its services across Europe with minimal
infrastructure investment and maximum speed. It allows facilities-based regional
providers to expand their customer reach into other parts of Europe relying on
Carrier1's significant infrastructure and operational presence throughout
Europe. The Pan-European Virtual ISP functionalities include or will include:
domain registration, e-mail management, end-user web space, a browser platform
and a dedicated search engine, various enabling technologies such as multicast
and caching services, content feeds, customer care functions and various
outsourcing partners for web design and fulfillment functions.

During fiscal 2000, we also entered into a partnership with Zero-Knowledge
Systems-Registered Trademark-, a leading developer of infrastructure privacy
solutions for consumers and companies. The partnership enables private Internet
use for customers by deploying Freedom Network-TM- which serves the major
routing points across Europe. ISPs who use our services will have privacy
protection for their customers while reducing bandwidth costs. In an initial
phase we deployed Freedom Network servers in London, Paris, Frankfurt,
Amsterdam, Brussels and Stockholm.

We are currently testing other Internet-based value-added services and
evaluating their introduction, which will depend on commercial feasibility and
demand. These services include virtual private networks using security
management, electronic-commerce related services, application hosting, wireless
access to the Internet, voice transmission over Internet protocol and unified
messaging services and enhanced billing and customer reporting products.
Currently we expect the commercial launch of our virtual private network
services towards mid-2001.

BANDWIDTH SERVICES. As we migrate our services to our own transmission
network, we have increasingly targeted the demand for high quality bandwidth
services, including:

- MANAGED BANDWIDTH. Our managed bandwidth service provides capacity of 2
Mbps through to STM-64. We are currently able to offer Synchronous Digital
Hierachy, or SDH, services in 35 cities in Europe on our fiber network and
have in place the organizational logistics within each city enabling us to
deliver services. These services are designed for customers who require
small and large data transport capacity between cities.

- WAVELENGTH SERVICES. The dense wave division multiplexing, or DWDM,
technology used in our network allows us to offer optical wave or
"wavelength" services to our customers, which provides 2.5 Gbps to 10 Gbps
of capacity. The capacity that we use to provide these wavelengths is in
addition to the capacity we use to provide our other services. We can
derive on average eight 10 Gbps wavelengths, and up to 32 bi-directional
10 Gbps wavelengths, from a single strand of fiber with equipment that we
currently have in operation. We expect this capability to increase with
advances in technology. This service is designed for customers who require
very large transport capacities between cities, but who do not wish to
purchase dark fiber and invest in the transmission electronics to enable
the fiber to carry traffic. We believe, based on our market experience,
that many potential customers will be interested in wavelength services
because they allow purchases of bandwidth in smaller increments than
purchases of dark fiber while retaining the control advantages of dark
fiber.

- DARK FIBER. We also offer rights for dark fiber and related services.
Because dark fiber consists of fiber strands contained within a fiber
optic cable which has been laid but has not yet been "lit", or activated,
with transmission electronics, purchasers of dark fiber typically install
their own electrical and optical transmission equipment. For example,
under the terms of an agreement with 360networks inc., we acquired a
20-year Indefeasible Right of Use, for 12 strands of dark fiber on its
directly routed approximately 1,400 route kilometer U.K. network between
Liverpool and London, connecting Birmingham, Bristol, Cambridge, Leeds,
Leicester, Manchester, Nottingham and Sheffield. In exchange, we will
deliver dark fibers on our German, Paris and Amsterdam networks and
broadband capacity on our other European networks. Indefeasible Right of
Use, or IRU, means a contractual right for a defined duration of years, in
which the purchaser is authorized to utilize capacity, is not subject to
defeasance, denial or withdrawal except on terms stated in the particular
agreement.

DATA CENTER CAPABILITIES

Telecommunications and Internet technologies that are emerging in Europe, as
well as existing technologies, have significant space and monitoring
requirements. The liberalization of the telecommunications industry and
resulting increase in new entrants and demand for Internet services have created
a growing demand for data center services in Europe. We plan to offer to
customers state-of-the-art data centers to house mission-critical voice, video,
caching, data networking and transmission equipment in a highly reliable,
redundant and secure environment. We will also offer technical support to
monitor, manage and troubleshoot the equipment.

We believe the ability to offer managed data center capabilities will help
us to cross-sell multiple services to customers and to further secure our
relationships with those customers. In addition, as we develop additional
Internet services, we expect that these facilities will enhance our ability to
offer Virtual ISP and similar services.

We have data centers across Europe in Berlin, Frankfurt, Geneva, Hanover,
Lille, London, Milan, Munich, Oslo, Paris and Zurich, seven of which were
developed individually or with other partners and four which were developed by
DigiPlex S.A., in which we hold an equity interest of approximately 15%. The
data centers with DigiPlex in Frankfurt, Geneva, Oslo and Milan are leased on a
ten year term.

Each of our other data centers are leased on a long-term basis of 10 to
15 years. We expect to compete with DigiPlex and another shareholder of DigiPlex
in providing data center capabilities.

We also plan to make space available for customers in 24 of our
telecommunications points of presence throughout Europe. We will continue to
deploy a capital-efficient build-out philosophy for co-location and space to
meet customer demand. The facilities are being marketed under the brand
ClearSpace and will extend to a total of approximately 11,000 square meters of
co-location space. These facilities are available stand alone or bundled with
our Internet services and managed bandwidth offerings.

NETWORK

We believe it is critical to have a network at duct or fiber level in order
to become a high-quality, low-cost provider. We commenced operations primarily
on a leased fiber optic transmission platform to enable our early entry into the
market. Over time, we have expanded our network in a phased approach, adding
capacity to meet expected increases in demand. To reduce our cost base, however,
we have sought to obtain additional transmission capacity at dark fiber cost
levels, through building new capacity and acquiring capacity through purchases
or exchanges of excess capacity.

For example, by investing in the German network with partners, and by
pre-selling rights to conduit space on the Amsterdam network, we first reduced
our own cost of construction. We then swapped fiber on the German network for
transmission capacity in other regions. Similarly, we have swapped fiber to
extend the reach of the Amsterdam network.

In addition, by extending our network intra-city in up to 13 European
cities, we intend to acquire transmission capacity in areas that have
traditionally been served by very few carriers or by only one carrier. We expect
that these intra-city networks will lower the cost of our services by providing
us with a dark fiber alternative to expensive leased lines. We also expect that
these intra-city networks will serve as valuable currency to trade for capacity
on other networks.

Our early and continued use of SDH multiplexers to establish points of
presence rapidly and cost effectively illustrates our capital-efficient approach
to network expansion. Multiplexers are less costly and easier to install than
switches, enhance our flexibility and service quality and help to reduce our
termination costs. We have the flexibility to continue using multiplexers and
defer purchasing additional switches until improved technologies become
commercially available.

As of December 31, 2000, we offer voice services and Internet and bandwidth
services in the following cities: Amsterdam, Barcelona, Berlin, Birmingham,
Bordeaux, Brussels, Chicago, Copenhagen, Dallas, Dusseldorf, Frankfurt, Geneva,
Gothenburg, Hamburg, Hanover, Helsinki, Cologne, London, Luxembourg, Lyon,
Madrid, Malmo, Manchester, Marseille, Miami, Milan, Monaco, Munich, New York,
Oslo, Paris, Prague, Rennes, Rome, Rotterdam, San Francisco, San Jose,
Stockholm, Strasbourg, Stuttgart, Toulouse, Vienna, Washington and Zurich. In
these cities we either have direct connection to our own service equipment or we
have a connection via our SDH multiplexers to a major service node. In many of
the cities discussed above we have multiple multiplexers, routers and switches
installed in various locations. We use Nortel switches and high capacity Cisco
routers.

In anticipation of technological advances in voice transmission and
switches, we are deferring the installation of more traditional switches. We
plan to install Internet routers in Atlanta, Miami, Moscow, Munich and Rome
during 2001. The timing, location and number of switches, multiplexers and
routers may change depending on advances in technology, customer demand or
regulatory conditions.

EXISTING NETWORK

Our management believes that entering the liberalizing European
telecommunications markets early and establishing our position quickly with a
technologically advanced network with a wide geographical reach has given us a
competitive advantage in such markets.

THE GERMAN NETWORK. The German network was completed in 2000 and we own our
own cable duct and access points. The German network is an advanced,
high-capacity, bi-directional self-healing 2,400 kilometer fiber optic ring
utilizing advanced SDH and DWDM technologies. It connects Berlin, Bremen,
Cologne, Dortmund, Dresden, Dusseldorf, Essen, Frankfurt, Hamburg, Leipzig,
Mannheim, Munich, Nuremberg, and Stuttgart. Our cable duct currently contains 72
strands of fiber and has space for additional strands, permitting for upgrades
in quality or capacity in the future. Excess fiber and transmission capacity on
the German network has been useful to us as a valuable currency to swap for
fiber and transmission capacity on other networks, as described below. We
believe excess fiber and transmission capacity will continue to be a useful
asset with which to acquire additional capacity on other networks.

We entered into a development agreement to build the German network with
affiliates of Viatel and Metromedia. Our share of the development costs was
approximately $125 million, including the fiber initially deployed and the
installation of 14 points of presence. Pursuant to the development agreement,
Carrier1 and Metromedia each have a 24.995% interest and Viatel has a 50.01%
interest in the development company. Viatel, as a result of its majority
interest, controls all but certain major decisions relating to the development
of the German network which require unanimous consent. Costs of construction are
borne pro rata by Viatel, Carrier1 and Metromedia. The development company is
indemnified for certain liabilities, costs and expenses by each of the parties.
In addition, Viatel is entitled to a developer's fee of 3% of certain
construction costs, 25% of which is borne by us.

THE WESTERN RING. We acquired under an IRU agreement with an initial term
of 15 years, a 2,200 route kilometer dark fiber ring consisting of two strands
with an option on a further two strands. The ring connects Paris, Strasbourg,
Frankfurt, Amsterdam and London. This is an important part of our network
linking four of Europe's largest economies.

THE FRENCH NETWORK. We are party to an agreement that calls for us to
provide two strands of fiber on our German network in exchange for two strands
of fiber on a 2,650 route kilometer French network that connects 14 cities,
representing some of the largest population centers within France. The portion
connecting Paris, Lyon and Marseilles has been activated.

THE SCANDINAVIAN NETWORK. Under the terms of an IRU agreement with an
initial term of 15 years, we received two wavelength rings connecting Hamburg to
Copenhagen and Malmo, in exchange for two wavelength rings connecting the German
cities of Hamburg, Berlin and Frankfurt. The initial capacity of the wavelengths
is 2.5 Gbps, but we have secured options to upgrade to 10 Gbps. The agreement
includes the operations and maintenance on each of the wavelengths.

In addition, under the terms of an IRU agreement with an initial term of
18 years, we obtained dark fiber and one wavelength ring along a 2,000 kilometer
route linking four major population centers of the Nordic region: Stockholm,
Oslo, Gothenburg and Malmo. The initial capacity of the wavelength is 2.5 Gbps
with an option to upgrade to 10 Gbps. In exchange, we will provide Internet
transit services. The agreement includes the ancillary services required for use
of the transmission capacity. These services consist primarily of operations and
maintenance, rack space in repeater and regeneration sites, power facilities,
and security, but do not include the transmission equipment required to light
the fiber. We began to deliver the Internet transit services in November 1999
and received the transmission capacity in the first quarter of 2001.

THE AMSTERDAM NETWORK. For the Amsterdam intra-city network, we built a 40
route kilometer ring of 12 ducts, one of which is filled with a cable of 144
strands of fiber. Some of the fiber has been activated for our own purposes. A
number of our strands have been pre-sold in order to reduce our unit costs. In
addition, we have arranged to extend this network by an additional ring of
approximately 70 route kilometers to cover the greater Amsterdam metropolitan
area, including Schiphol Airport and

the major business parks. This second ring has been completed at duct level and
will be completed at fiber level and activated in 2001.

THE PARIS NETWORK. For the Paris intra-city network we have substantially
completed a 31.5 route kilometer network ring at the duct and fiber level,
consisting of 288 strands of fiber. A number of our strands have been pre-sold
in order to reduce our future unit costs. The network connects major
telecommunications access points in Paris.

THE LONDON NETWORK. We acquired three dark fiber pairs under an IRU
agreement which we activated at the end of 2000. The network connects major
telecommunications facilities in London.

OTHER CAPACITIES: As of March 31, 2001 in addition to the networks
described above, our traffic is also transmitted over:

(1) for the purpose of diversity, one 2.5 Gbps wavelength configured in a ring
linking London, Brussels, Amsterdam, Frankfurt and Paris;

(2) one 2.5 Gbps wavelength, configured in a ring linking Paris, Zurich, Milan
and Geneva; and

(3) eight STM-1 (155 Mbps) transatlantic circuits, starting in either Amsterdam,
Frankfurt or London and all terminating in New York.

In addition to the network components described above, we have leased
capacity to various European cities, such as Madrid, Manchester, Oslo, Prague,
Rome, Stockholm and Vienna and to various U.S. cities, such as Chicago, San Jose
and Washington, DC.

NETWORK MANAGEMENT CAPABILITIES. We have installed SDH equipment at each
network point of presence that provides us with information relating to the
status and performance of all elements of our network, including the
transmission capacity provided to us by various third parties. This SDH layer
also provides us with flexibility to connect new providers of transmission
capacity and to configure this capacity in a flexible manner.

PLANNED NETWORK DEPLOYMENT

We are continuing to extend the scope of our network, thereby rapidly
expanding our presence in our target markets. We are installing a cross-border
network linking the principal cities of several European countries and will
continue to increase the number of countries covered by the network and broaden
our presence within particular countries and cities.

GERMAN NETWORK. The German network is being expanded to other major cities,
by building out from Berlin to cities such as Bielefeld, Hanover and Magdenburg,
with planned completion in 2001.

THE U.K. NETWORK. Under the terms of an agreement with 360networks inc., we
acquired a 20-year IRU for 12 strands of dark fiber on its diversely routed
approximately 1,400 route kilometer U.K. network between Liverpool and London,
connecting Birmingham, Bristol, Cambridge, Leeds, Leicester, Manchester,
Nottingham and Sheffield. In exchange we will deliver dark fibers on our German,
Paris and Amsterdam networks and broadband capacity on our other European
networks. We intend to activate this network in 2001.

SOUTHERN EUROPEAN NETWORK. The network will form a ring that originates in
Frankfurt and links the French cities of Paris, Strasbourg, Lyon, Grenoble and
Marseilles, the Swiss cities of Geneva, Basel and Zurich and the Italian cities
of Genoa and Milan. We will receive some sections of the ring at duct level and
others at fiber level. The activation of the 2,500 km Southern European Ring is
scheduled for completion in second-half of 2001.

OTHER INTRA-CITY NETWORKS. We are also building intra-city networks in
Berlin, Dusseldorf, Frankfurt, Geneva, The Hague, Hamburg, Hanover, London,
Milan, Munich and Rotterdam and second network rings in each of Paris and
Amsterdam.

TRANSATLANTIC CAPACITY. We have arranged to purchase minimum investment
units in TAT-14, a transatlantic cable ring connecting the United Kingdom,
France, the Netherlands, Germany, Denmark and the United States. We have also
agreed to purchase either additional transatlantic capacity or North American
capacity at our option. We expect TAT-14 to become operational during May 2001.

FURTHER NETWORK EXTENSIONS AND DEVELOPMENTS

We have already begun to extend our planned network beyond our original
deployment plans. We will consider further extending our network within Europe
beyond our current planned deployment in light of evolving market conditions and
our financial position and financing options. Due to the evolving dynamics of
the European telecommunications market, we will continually reassess the most
cost-effective means of network expansion. Future increases in the supply of
dark fiber may make building new capacity a less favorable option, in economic
terms, than variable or fixed-rate lease arrangements, the purchase of
transmission rights or the trading of transmission capacity or services.

EXISTING AND PLANNED TRAFFIC TERMINATION ARRANGEMENTS

We establish interconnection arrangements with incumbent telephone operators
in liberalized markets and direct operating agreements with incumbent telephone
operators in emerging markets. This enables us to keep our costs of terminating
voice traffic lower and exercise greater control over quality and transmission
capacity than we can using refile or resale agreements. Similarly, entering into
additional peering agreements will minimize the cost of terminating our Internet
traffic.

VOICE TERMINATION. We carry voice traffic to any destination in the world
either directly, through interconnection or direct operating agreements, or
indirectly, through "refile" or "resale" agreements with other carriers who have
a local point of presence and an interconnection agreement with the relevant
incumbent telephone operator.

As of December 31, 2000, in addition to interconnection agreements for the
local origination and termination of our voice traffic with non-incumbent
carriers in Europe, we have also established points of interconnection to
provide for the local origination and termination of our voice traffic with
incumbent carriers in Austria, Belgium, Denmark, France, Germany, Italy, The
Netherlands, Sweden, Switzerland, the United Kingdom and the United States. We
have also implemented several direct operating agreements with carriers in
Africa, Asia and the Middle East.

As of December 31, 2000, we had interconnection applications pending in
Spain, Finland and Norway.

Since most refilers currently operate out of London or New York, much of our
refiled traffic is rerouted to these cities. We can also refile traffic from
most of our other points of presence, where refiled traffic is then carried to
its termination point.

INTERNET TERMINATION. Internet termination is effected free-of-charge
through peering and for a fee through transit arrangements. As of December 31,
2000, we had peering arrangements with approximately 160 ISPs and backbone
providers, primarily in Europe, including Cable & Wireless, GTE Internetworking,
a unit of Verizon, Verio and Deutsche Telekom. As our volume of Internet traffic
increases, we expect to be in a position to negotiate peering with other major
European backbone providers. In the United States, where almost all European
backbone providers must pay to access the backbones of the major United States
Internet backbone providers, we have transit agreements with UUNet
Technologies, Inc., an MCI WorldCom subsidiary, and Sprint. In the United
States, we have peering arrangements with Epoch Networks, Exodus and PSINet.

OPERATIONS

NETWORK IMPLEMENTATION AND OPERATION

In July 1999, we assumed the technical operation of our network from Cisco
and Nortel, other than basic equipment servicing, so that we can control all the
customer-related functions of the business. A small team of operations staff
manages the future planning and architecture of the network.

The voice and Internet network operating systems allow us to use advanced
software to maximize the efficient operation of the network, including managing
the flow of voice and Internet traffic on a daily basis and identifying the
precise location of faults. These systems are also sufficiently flexible to
allow us to migrate to more advanced technological applications as they become
commercially feasible.

We have a network operations center in London from which we operate the
voice and Internet network. We believe that a centralized network operations
center enables us to identify overloaded or malfunctioning circuits and reroute
traffic much more quickly than if the network were controlled by separate
network operations centers in different countries.

CUSTOMER SUPPORT

An essential goal of our business strategy is to provide a level of customer
support above that which is currently available in our target markets in Europe.

The in-country operations support team, together with the operations teams
at our network operations center, manages the point of presence locations and
implementation of a customer's order. The in-country operations and sales teams
provide a customer with local language support and quick access and response to
orders and other needs. A multi-lingual help desk in London serves as the first
place to which customer inquiries are directed. The help desk is open 24 hours a
day, 365 days a year. It not only manages customer inquiries but is the first
place to which customer problems are reported and, from there, internally
directed for resolution. Pro-active customer contact is managed from the
helpdesk at all times. To specifically address our German and French speaking
customers in continental Europe, we opened a Customer Support Center, or CSC, in
Saarbrucken, Germany, situated on the French/German border. The Saarbrucken CSC
will support and supply diversity for the London help desk with important
services such as: customized network functionalities, dedicated 24 hours daily
customer care, sophisticated traffic monitoring tools, network implementation
and field engineering capabilities, highly skilled and trilingual CSC personnel
and other technical staff. The Saarbrucken CSC is dedicated to the growing
numbers of Carrier1 customers in France and Germany.

All customer service orders received by the local support team are reported
to the central order desk at our network operations center. The central desk
then process the order via our intranet computer system and directs the order to
the voice or Internet team. The central desk also tracks the status of an order
during implementation. We have automated our operational workflows so that the
status of customer order implementation, traffic faults, repair histories and
other customer-related information is accessible, on-line, by our employees at
any time. We believe that the internal visibility created by the on-line
availability to employees of all customer-related information enhances the
general monitoring and management of the customer relationship and facilitates
informed and timely responses to customers' service needs or problems. By
tracking on-line all aspects of a customer's history from the customer's first
call through the term of the relationship, we optimize our ability to provide
follow-up and proactive advice to our customers.

In addition to the minimum service level guarantees contained in our voice
service contracts and our Internet and bandwidth service contracts, we also
guarantee response times to customer requests, and repair times for service
faults.

INFORMATION SYSTEMS

We have obtained and installed advanced information technology systems
tailored to providing voice services and Internet and bandwidth services to our
target customers. Among other things, our systems are designed to facilitate on
a real-time basis:

- swift and efficient order management;

- service provisioning;

- customer-responsive traffic fault management;

- daily detailed management information;

- billing;

- general management of the customer service process; and

- compliance with our performance level guarantees.

We currently use software programs developed by third parties as our primary
office and information management systems. These programs have been tailored,
however, to our particular specifications.

BILLING SYSTEMS

As part of our strategy of focusing on the specific needs of many types of
telecommunications service providers, our billing system emphasizes flexibility
and customization. Customers may be billed in the currency of their choice, and
may have their bills broken down by country, site, or other call detail records.
Our billing system analyzes our traffic, revenues and margins by customer and by
route, on a daily basis, which is an important cost management tool for us. Our
voice customers are able to obtain call detail records and other information
through an on-line billing information inquiry function. We maintain separate
billing modules for voice and Internet services, although customers utilizing
both services may be billed on one invoice if desired.

TARGET CUSTOMERS

We target the following specific categories of customers:

- CONTENT PROVIDERS AND MEDIA COMPANIES. This category includes
Internet-based content providers, media companies, cable networks and
emerging broadband service providers looking to distribute their
respective content in a cost-effective manner to their end users. Demand
for distributing media-related content, such as audio and video streaming
and other value-added services, is expected to grow significantly as
broadband capabilities become available to the end user.

- WIRELESS OPERATORS AND THIRD GENERATION LICENSEES. Wireless operators
frequently outsource much of their international and national long
distance traffic and also have demand for bandwidth. We expect that third
generation licensees will be outsourcing similar needs for
telecommunication services. Although we are not currently servicing this
customer category, we are currently targeting third generation licensees.

- COMPETITIVE FIXED-LINE OPERATORS. This category includes fixed-line
operators that compete with the incumbent telephone operators. These
operators typically desire to outsource their international and, from time
to time, their national long distance voice traffic as well as their
Internet and bandwidth needs.

- INCUMBENTS AND THEIR ALLIANCES. A number of incumbent telephone operators
and their affiliated alliances are increasingly using alternative carriers
rather than sending traffic under bilateral agreements with other
incumbent competitors. As these operators concentrate on their domestic
markets, we expect they will increasingly outsource their international
networks and related traffic transmission to independent carriers such as
us.

- NON-EUROPEAN CARRIERS. This category includes operators that lack
infrastructure in Europe or have experienced an imbalance in their
remaining bilateral agreements and wish to outsource their European
telecommunications needs to an independent carrier with which they do not
compete directly. This category will include regional U.S. operating
companies that receive regulatory approval to provide long distance
services.

- ISPS AND REGIONAL AND SPECIALIST PROVIDERS. As demand for Internet and
bandwidth services grows in Europe, ISPs are increasingly requiring
low-cost transmission and connection capabilities from carriers. Many ISPs
do not own or operate their own transmission capacity. This category also
includes application service providers, or ASPs.

- OTHER NON-INCUMBENT CARRIERS. This category includes operators with
international infrastructure, who select us to carry overflow traffic, to
carry traffic to select, low-price destinations and to provide managed
bandwidth services.

- RESELLERS. This category includes switchless resellers, a group that has
been rapidly growing in the United Kingdom and Germany in recent years.
Resellers generally outsource their international and, from time to time,
national long distance traffic. Switchless resellers do not have
telecommunications infrastructure, but access retail markets through the
infrastructure of others. The reseller category also includes satellite
resellers, a group that is currently demanding a significant amount of
low-cost Internet services.

- MULTI-NATIONAL CORPORATIONS. Increasingly, multi-national corporations
are seeking wholesale voice, Internet and bandwidth services to reduce
their costs or as a component of their own value-added services such as
frame relay. Although we are not currently serving this customer category,
we intend to target select multi-national corporations in the future.

- CONSORTIA. A number of groups have formed buying consortia to pool
traffic volume in order to obtain higher discounts from carriers. For
example, a group of European multinational entities have combined to form
the European VPN Users Association's Ventures Group to acquire voice
services and currently split their traffic among incumbent telephone
operators and incumbents' alliances. Although we are not currently serving
this customer category, we intend to target buying consortia and will also
seek to provide our services to research consortia. The research consortia
represent an important part of the Internet market.

Our customers are located primarily in Europe and the United States, with
customers in Germany representing approximately 26% of our revenues for the year
ended December 31, 2000. See note 15 to our consolidated financial statements
for more geographical financial information.

We use a screening process to evaluate potential new customers. In
performing our analysis, we rely primarily on internal assessments of our
exposure, based on the costs of terminating international traffic in certain
countries and the capacity requested by the proposed carrier or service
provider, as well as references provided by the potential customer. We currently
depend on a small number of significant customers for our revenues. For the year
ended December 31, 2000, several of our customers each accounted for
approximately 5% to 7% of our revenues. In the future, we may have customers who
represent a higher portion of our revenues.

SALES

As of December 31, 2000, we had an internal sales force focused on marketing
voice services and data services (Internet, bandwidth and related
telecommunications services) to our target customers. We have sales
representatives in Amsterdam, Brussels, Berlin, Dusseldorf, Frankfurt, London,
Madrid, New York, Milan, Paris, Stockholm, Vienna and Zurich. As of
December 31, 2000 we had approximately 80 sales personnel. The heads of our
sales offices have extensive telecommunications-related marketing and sales
experience, as well as strong customer relationships, in the geographic markets
in which they are located. We intend to hire additional sales staff as we expand
our existing sales efforts. We will continue to seek personnel with a high
degree of experience in and knowledge of the local telecommunications markets in
which they will be working.

The following table sets forth the geographic areas currently covered by
each of our regional head sales offices:

REGIONAL HEAD
SALES OFFICE AREAS COVERED
- ------------- --------------------------

Amsterdam Belgium
Luxembourg
The Netherlands

Berlin Berlin metropolitan area
Poland

Frankfurt Germany

London Ireland
United Kingdom

Madrid Portugal
Spain

Milan Greece
Italy

New York North America

Paris France

REGIONAL HEAD
SALES OFFICE AREAS COVERED
- ------------- --------------------------

Stockholm Demark
Finland
Norway
Sweden
Estonia
Latvia
Lithuania

Vienna Austria
Czech Republic
Hungary
Slovakia
former Yugoslavia

Zurich Switzerland
Customers not covered
within a specific region
by any other sales office

Our Zurich headquarters sales office also co-ordinates servicing
pan-European and global customers. We expect our regional strategy will permit
us to keep operating costs low until traffic volumes in various other locations
in Europe are large enough to justify establishing sales offices in these
locations.

We provide each prospective or actual customer with personalized account
management. Furthermore, in comparison to the mass retail market, the
telecommunications market we target has a relatively small number of customers.
We expect that this market characteristic will permit us to continue to provide
personalized account management even as the number of our customers continues to
grow.

PRICING

contracts that have a flat-fee component that guarantees minimum revenue, in
order to encourage usage of our network services by our Internet transport
customers. Our agreements with our Internet transport customers are generally
for a minimum term of 12 months. Currently, our bandwidth services are also
typically for an initial term of 12 months, although we expect to be able to
offer more flexible pricing alternatives to bandwidth customers in the future.

Our services are priced competitively and we emphasize quality of service
and customer support. The rates charged to voice, Internet and bandwidth
customers are subject to change from time to time. We expect to continue to
experience, and have planned for, declining revenue per billable minute for
voice traffic and significant declining revenue per Mb for Internet traffic, in
part as a result of increasing competition, and bandwidth services, in part as a
result of advances in technology. The impact on our results of operations from
such price decreases are at least partially offset by decreases in our cost of
providing services and increases in our voice and Internet traffic volumes. This
is accomplished by increasing the use of our own fiber thereby decreasing our
access and termination costs and by applying economies of scale associated with
increased traffic volumes for our voice services and Internet and bandwidth
services. In addition, our ability to bundle and cross-sell network services
allows us to compete effectively and to protect our business, in part, against
the impact of these significant price decreases.

COMPETITION

The European telecommunications industry is highly competitive, and the
liberalization it is currently undergoing is rendering it increasingly more so.
The opening of the market to new telecommunications service providers, combined
with technological advances that greatly augment the transmission capacity of
circuits at a relatively small incremental cost, has resulted in significant
reductions in retail and wholesale prices for transmission capacity. New
networks are being built to provide significant additional capacity, creating
further downward pressure on prices. While decreasing prices are fueling growing
demand for bandwidth, they are also narrowing gross profit margins on long
distance voice traffic.

Except for value-added services for switchless resellers or indirect access
customers, basic voice carrier services are not highly differentiated, and
switching carriers is not costly. Most voice customers can easily redirect their
traffic to another carrier, and certain customers may do so on the basis of even
small differences in price. Our ability to compete successfully in this
environment will be highly dependent on our ability to generate high traffic
volumes from our customers while keeping the costs of our services low. We
believe that Internet customers will typically renew their contracts, if the
quality of the service is consistently high, because it is costly and
technically burdensome to switch carriers.

In voice services, we have two main categories of competitors. The first is
the group of large established carriers, consisting of incumbent telephone
operators and affiliated companies, that offer a wide range of wholesale
services in addition to their retail services. This group includes AT&T, British
Telecommunications plc, Cable & Wireless Communications plc, Global One, MCI
WorldCom, Inc., Tele Danmark A/S, Teleglobe Inc. and Telecom Italia S.p.A. The
second category comprises new entrants to the telecommunications market that
provide services to customers in our target market. This group includes Energis
plc, Viatel, Inc., RSL Communications Ltd., Interoute Telecommunications
(U.K.) Ltd. and Storm Telecommunications Limited.

In Internet services, our main competitors include UUNet, a subsidiary of
MCI WorldCom, GTS, Level 3 Communications, Inc., InfoNet and KPNQwest N.V., all
of which have an established customer base and either a significant European
infrastructure or strong connectivity to the United States through various
peering arrangements. Our main bandwidth competitors include KPNQwest N.V.,
Ebone (previously, Global Telesystems, Inc.), Global Crossing Ltd.,
Viatel, Inc., MCI WorldCom, Inc. and Level 3 Communications, Inc. There are
currently several existing and potential operators with

whom we will compete in providing data center services. These include KPNQwest
N.V., Global Crossing Ltd., Level 3 Communications, Inc., Telehouse Europe,
Worldswitch, Dynegy and DigiPlex S.A., in which we have an equity interest of
approximately 15%.

Many of our competitors are larger enterprises that have greater financial
resources than we do and may be able to deploy more extensive networks or may be
better able to withstand pricing and other market pressures. In addition,
incumbent telephone operators and their affiliates have additional competitive
advantages, such as control of access to local networks, significant operational
economies, large national networks and close ties with national regulatory
authorities.

GOVERNMENT REGULATION

The following discussion summarizes the material aspects of the regulatory
frameworks in certain regions in which we currently operate or plan to operate
in the near future. This discussion is intended to provide a general overview of
the more relevant regulations and our current regulatory posture in the most
significant jurisdictions in which we operate and expect to operate. It is not
intended as a detailed description of the entire regulatory framework applicable
to us.

OVERVIEW

Regulatory liberalization in many countries' telecommunications markets
permits greater flexibility in the way we can provide infrastructure and
services to our customers. The steps of the European Union to implement full
liberalization, as well as the World Trade Organization (the "WTO") Basic
Telecom Agreement (the "WTO Agreement"), have significantly reduced most if not
all regulatory barriers to entry in the markets in which we operate. However,
national regulatory frameworks within the European Union that are fully
consistent with the policies and requirements of the European Union and the WTO
have only recently been, or are still being, put in place in many member states.

Various Directorates General ("DG") of the European Commission, including DG
Information Society (previously DG XIII) and DG Competition (previously DG IV),
have had an active role in overseeing the implementation of recently adopted
European Union directives. These directorates have, on their own initiative or
upon formal or informal complaint by interested parties, sought to ensure
consistent implementation and interpretation of various key European Union
directives, including in particular those relating to licensing and
interconnection.

The principal telecommunications operators in many European Union member
states, including in particular the United Kingdom, the Netherlands and most
Scandinavian countries, have generally accepted market liberalization and have
acted accordingly in their dealings with new entrants. In other markets, we and
other new entrants face less open and independent regulatory environments and
hence have experienced more protracted and difficult procedures in obtaining
licenses and negotiating interconnection agreements. We believe that the current
overall regulatory climate in the European Union is favorable to development of
new infrastructure and services by new entrants, and that potential restrictions
on our operations will become less onerous as national regulatory frameworks
within the European Union become more uniform and begin to converge with those
in the countries with fully liberalized regulatory policies such as the United
States. However, we are unable to predict with certainty the precise impact of
regulatory requirements and restrictions on our implementation of our business
strategy or on our financial performance.

International value-added telecommunications services, such as the data
center capabilities and value-added Internet services we intend to provide, are
generally not regulated or only lightly regulated in the United States and
Europe at the present time. The regulatory framework applicable to voice
transported over Internet protocols is still developing. In addition to the
telecommunications regulatory framework in Europe, a separate legal framework is
evolving for electronic commerce. Recently established or pending rules and
conventions on jurisdiction, consumer protection, and ISP liability for

unlawful content, copyright infringement and defamation could directly and
adversely impact our ISP and other of our Internet and bandwidth customers,
which could indirectly impact our business. We cannot predict, however, whether
the final forms of these or similar regulatory developments will affect us
directly or indirectly, or the way in which they may do so.

WTO AGREEMENT

The regulation of the European Union telecommunications industry is subject
to certain multilateral trade rules and regulations. Under the WTO Agreement,
concluded on February 15, 1997, 69 countries comprising more than 90% of the
global market for basic telecommunications services agreed to permit competition
from foreign carriers and adopt regulatory measures designed to protect
telecommunications providers against anticompetitive behavior by incumbent
telephone operators. In addition, 59 of these countries have subscribed to
specific pro-competitive regulatory principles.

The WTO Agreement became effective on February 5, 1998 and for most
signatory countries (including ten European Union member states) the commitments
took effect on January 1, 1998. We believe that the WTO Agreement has increased
and will continue to increase opportunities for us and our competitors. However,
the precise scope and timing of the implementations of the WTO Agreement remain
uncertain and there can be no assurance that the WTO Agreement will
significantly expedite regulatory liberalization already underway in countries
in which we operate.

EUROPEAN UNION

In an effort to promote competition and efficiency in the European Union
telecommunications market, the European Commission and the European Council have
in recent years issued a series of directives establishing basic principles for
the liberalization of such market. The general framework for this liberalized
environment has been set out in the European Commission's Services Directive,
adopted in 1990, and its subsequent amendments, including the Full Competition
Directive, adopted in March 1996. These directives require most European Union
member states to permit competition in all telecommunications services, and had
set January 1, 1998 as the date by which all restrictions on the provision of
telecommunications services and telecommunications infrastructure were to be
removed. These directives have been supplemented by various harmonizing
directives, including primarily the Licensing Directive and the Interconnection
Directive, adopted in 1997.

The Licensing Directive established a common framework for the granting of
authorizations and licenses related to telecommunications services. It permits
European Union member states to establish different categories of authorizations
for providers of infrastructure and services, but requires the overall scheme to
be transparent and non-discriminatory. The Interconnection Directive requires
European Union member states to remove restrictions preventing negotiation of
interconnection agreements, ensure that interconnection requirements are
non-discriminatory and transparent, and ensure adequate and efficient
interconnection for public telecommunications networks and publicly available
telecommunications services. It also requires that interconnection be cost-based
and supported by a cost accounting system that telecommunications operators with
significant market power are expected to put in place under the supervision of
national regulatory agencies.

In October 1997, the European Commission issued a consultative document
supporting the implementation of long run incremental cost ("LRIC") principles
as a basis for interconnection pricing. This document also sets forth
interconnection pricing benchmarks reflecting current interconnection agreements
in European Union member states. The European Commission has subsequently
updated these benchmarks to take account of recently negotiated interconnection
arrangements. It believes such benchmarks should be relied upon pending the
adoption of accounting systems and interconnection rates based on LRIC
principles. These guidelines have become an important reference point for
determining interconnection rates in many countries.

Several European Union member states have chosen to apply the provisions of
the Interconnection Directive within their jurisdictions in such ways as to give
more favorable treatment to infrastructure providers and network operators than
to carriers and resellers that have made no infrastructure investment. Such
distinctions must be objectively justified on the grounds of the type of
interconnection provided or because of relevant licensing conditions. The
Licensing Directive does not provide a clear definition of an infrastructure
investment, and many European Union member states have adopted inconsistent
approaches with respect to the level and type of infrastructure investment
required to justify differences in interconnection charges. However, in
countries where we have not yet effectively built out our own network
infrastructure, these rate differentials can work to our disadvantage. To the
extent we do not have a point of presence in a country we serve, such as Ireland
or Portugal, we will be forced to terminate traffic through refile or resale
agreements with other carriers, resulting in higher costs.

The European Commission has been regularly monitoring the implementation by
European Union member states of its overall regulatory framework. The Commission
has repeatedly indicated its commitment to ensuring more uniform and consistent
steps to put this framework into practice. It has also published its proposals
for a comprehensive overhaul of the existing framework which is intended to
simplify and consolidate existing directives related to licensing and
interconnection.

In particular, the European Commission has stated its intention to assess
various ways of encouraging higher speed local access for Internet and other
data services, including a requirement for unbundling components of incumbent
telecommunications operators' local loops. As as consequence,
Regulation No. 2887/2000 on unbundled access to the local loop was adopted on
December 8, 2000. We believe that such initiatives could stimulate demand for
our Internet backbone and connection services. In addition, the Commission is
proposing to examine other interconnection-related issues, such as the cost of
terminating traffic on mobile systems and the availability for resale of the
infrastructure and services of mobile operators, that might enable us to offer
more cost effective and diverse services to our customers. We believe that the
Commission's proposals to streamline and make more efficient current regulatory
arrangements would have an overall beneficial impact on our business operations
and enable us to become more responsive to our customers' needs. However, there
can be no assurances as to the ultimate outcome of the Commission's review or
its impact on our business operations.

REGULATORY STATUS

The following discussion summarizes our assessment of the regulatory
situation in the major markets in which we expect to operate in the next several
years.

UNITED KINGDOM. The Telecommunications Act 1984 provides a licensing and
regulatory framework for telecommunications activities in the United Kingdom.
The United Kingdom has already liberalized its market to meet or even exceed the
requirements of the Full Competition Directive, and most restrictions on
competition have been removed in practice as well as in law.

We have been granted an international simple voice services resale license
and a Public Telecommunications Operator (PTO) license including Code powers
under section 7 of the Telecommunications Act 1984 through statutory instrument
of the United Kingdom Department of Trade and Industry, which came into force on
February 27, 2001. This national PTO license enables us to provide a wide range
of domestic and international services but excludes mobile radio services. The
PTO license grants us the power to install and to maintain our telecommunication
systems on public and private land which are to be installed and run under the
granted licenses. This license replaces our old PTO license, effective
September 27, 1999, which did not include these Code powers.

We currently have implemented interconnection agreements with Cable &
Wireless and British Telecom. In 2000, British Telecom introduced a flat rate
Internet access connection offer which enables

operators to use the British Telecom access network for Internet access by their
customers for a flat monthly fee. We have entered into such an inter-connection
agreement with British Telecom. In addition, we have entered into
interconnection agreements with other telecommunications operators in the United
Kingdom to route traffic to locations not directly served by us.

The current liberal regulatory climate in the United Kingdom has encouraged
the rapid development of new operators that are available to interconnect with
us or to be served by us as our customers. London, along with New York, has
become one of the major international centers for refiling of traffic among
international telecommunications service providers.

UNITED STATES. In June 1998, we obtained a Section 214 authorization to
provide international telecommunications services to all locations around the
world. We will be subject only to various reporting and filing obligations with
respect to our current operations in the United States.

Under the terms of recent Federal Communications Commission (the "FCC")
orders relating to international settlement rates, the terms of our Section 214
authorization and the WTO Agreement, we will be expected to settle our
international switched traffic at or below the level of the international rate
benchmarks prescribed by the FCC. We would also have to obtain prior FCC
approval to resell leased lines between the United States and any country in
which we might operate with an affiliated carrier with market power. However, we
do not expect that any current or currently anticipated FCC regulatory
requirement would materially limit our commercial or operational flexibility.

The FCC has taken an active role in opening competition on an international
basis and has been involved in a longstanding effort to lower international
accounting rates on a world-wide basis. Although the FCC has implemented the WTO
Agreement and no longer bases its international licensing determinations
specifically on whether international markets are open on a fully reciprocal and
comparable basis to U.S. telecommunications operators, it continues to monitor
competitive developments in international markets in order to assess whether any
restrictive practices with respect to international service arrangements or
rates might have an adverse or distorting impact on competition in the U.S.
domestic telecommunications market. In addition, the FCC as well as various
executive branch agencies of the U.S. government have taken an active posture
with respect to the full implementation of market-opening commitments made in
connection with the WTO Agreement, and have from time to time taken positions
against potential restrictive regulatory practices by national regulators or
operators in the European countries in which we intend to operate.

We have experienced no difficulties in negotiating interconnection
agreements with U.S.-based telecommunications operators. These arrangements
permit us to extend our services into the U.S. domestic market as well as to
terminate traffic worldwide. In addition, refiling arrangements available in the
United States allow us to terminate traffic in European Union and other markets
that are not directly served by our own infrastructure. Depending on market
conditions, such arrangements represent a viable alternative to refiling through
the United Kingdom or one of our other points of presence.

GERMANY. The German Telecommunications Act of July 25, 1996 provided for
the liberalization of all telecommunications activities by January 1, 1998. The
German Telecommunications Act has been complemented by several ordinances
concerning, among other things, license fees, rate regulation, interconnection,
universal service, frequencies and customer protection. The German
telecommunications sector is overseen by the Regulatory Authority for
Telecommunications and Post that operates under the aegis of the Ministry of
Economics.

Under the German Telecommunications Act, licenses can be issued for
different types of infrastructure as well as for the provision of services based
on transmission lines provided by other service providers. We have been issued a
nationwide Class 4 license for the provision of voice telephony services and a
Class 3 infrastructure license to construct and operate fiber optic cables. We
have

obtained amendments to our infrastructure licenses to authorize the geographic
extension of our network.

We have concluded a new interconnection agreement with Deutsche Telecom. The
interconnect tariffs as of June 1, 2001 have not yet been approved by the German
regulator. We do not expect any adverse effect on our business operations from
the new interconnection tariffs and the new interconnection agreement. We have
obtained a switched access number and have implemented it with Deutsche Telekom.
With this access number, we can provide services directly to end users, which
allows our switchless reseller customers to offer switched access services
directly to their customers in Germany.

Deutsche Telekom had introduced a flat rate Internet access offer for its
affiliated Internet service providers. However, it has recently revoked this
arrangement after the German regulator ruled that is should offer such
arrangement also to non-affiliated operators on a non-discriminatory basis.

FRANCE. In July 1996, legislation was enacted providing for the
liberalization of all telecommunications activities in France by January 1,
1998. The establishment and operation of public telecommunications networks and
the provision of voice telephony services are subject to individual licenses
granted by the Minister in charge of telecommunications, upon the recommendation
of the Autorite de regulation des Telecommunications ("ART"), France's
regulatory agency.

We have received an L-33.1 license (governing public telecommunications
network operators) and an L-34.1 license (governing voice telephony providers).
The interconnection tariffs of France Telecom, which have been officially
approved by the ART, provide substantially more favorable interconnection rates
for public telecommunications network operators than for public voice telephony
providers. Public telephony providers are charged interconnection rates that can
be as much as 30% higher than rates charged to public telecommunications network
operators. An L-34.1 license allows an operator to terminate traffic nationwide
via interconnect only if it connects in all 18 interconnect regions, whereas an
L-33.1 license allows an operator to terminate traffic nationwide via
interconnect at only one point.

We have implemented an interconnection agreement with France Telecom.

In France, the ART implements an extra charge (on a cost per minute basis,
regardless of whether the traffic originates in France) to finance the cost of a
universal service fund. The total amount of this universal service fund was
approximately $1.1 billion for 1998 and has been challenged by new entrants in
the French market, who have filed a complaint with DG Competition. In response,
the European Commission sent a reasoned opinion to the French Government
regarding non-conformity of French legislation to European Community Directives
regarding the telecommunication sector, in particular with respect to methods of
calculation of the net costs of telecommunications universal service provision
and contributions paid by telecommunications operators for its financing. We are
unable to estimate at this time the impact of the proposed universal service
program on our operating margins if fully implemented. We have obtained from the
French regulator a switched access number. With this number, we can provide
services directly to end users, which allows our switchless reseller customers
to offer switched access services directly to their customers in France. We are
in the process of obtaining an amendment to our L33.1 license in order to cover
the expansion of our network. However, we do not expect any problems or delays
in obtaining any necessary regulatory approvals.

BELGIUM. In December 1997, the Belgian Parliament provided for the full
liberalization of the provision of telecommunications services. The
Telecommunications Act and secondary legislation have now been fully
implemented.

Under the current licensing scheme, applicants for a telecommunications
network operator license such as us must agree to make a minimum amount of
infrastructure investment or install a minimum amount of fiber capacity within
three years, as well as make a contribution to the advancement of technological
processes by investing an amount equal to 1% of net revenues to fund research
and

development activities. We have been granted approval of our application to
become a network operator from the Belgian national regulator, the Belgian
Institute for Postal Services and Telecommunications ("BIPT"). We plan to deploy
dark fiber in Belgium, and have been granted an infrastructure license for this
purpose. We have also obtained a voice services license in order to serve
switchless resellers and end users directly.

We have implemented an interconnection agreement with Belgacom S.A.,
Belgium's incumbent telephone operator.

The Belgian telecommunications law also provides for the establishment of a
universal service fund, to be managed by BIPT, according to which operators
would be required to contribute in proportion to their revenues derived from the
Belgian market. The fund has not yet been activated. We are unable to estimate
at this time the impact of any potential universal service payments on the
overall cost of terminating our customers' calls in Belgium.

ITALY. In 1997, the Italian authorities enacted a legislative framework for
the full liberalization of telecommunications services by January 1, 1998. This
framework has been fully implemented. We have obtained both infrastructure and
public voice licenses. In contrast with the other major markets in which we
operate, the Italian authorities require general authorization to provide
Internet services, which we have also obtained.

In July 1999, Telecom Italia published its Reference Interconnect Offer (the
"RIO"). The RIO provides for nationwide origination and termination, even
through one single point of interconnect with the incumbent's network, and has
brought interconnection rates down to a level much closer to the European Union
benchmarks for "best practices." We have implemented an interconnection
agreement with Telecom Italia.

We have obtained a switched access number which is implemented with Telecom
Italia. With this access number, we can provide services directly to end users,
which allows our switchless reseller customers to offer switched access services
directly to their customers in Italy.

In Italy, providers of network infrastructure and switched voice services,
as national mobile operators, are required to contribute to a universal service
fund. This requirement has been imposed for the first time to the fiscal year
1999. Because Telecom Italia would have had to suffer net losses in order to
comply with its universal services obligations, the Italian regulator decided
that in addition to Telecom Italia, Telecom Italia Mobile, Omnitel and
Infostrada also had to contribute to the fund in different percentages. The
Italian regulator also decided to exempt all other new entrants from any
contributions for the fiscal year 1999. Whether this exception will also be
given for 2000 and subsequent years is at the sole discretion of the Italian
authority. However we cannot assess at this time any possible impact of any such
universal service contribution on our operating margins.

THE NETHERLANDS. The Netherlands liberalized voice telephony in July 1997.
Legislation to implement the requirements of the Full Competition Directive has
been enacted.

We have obtained the necessary authorizations to provide both services and
infrastructure in The Netherlands.

We have implemented an interconnection agreement with KPN Telecom and we
have obtained a switched access number from the Dutch regulator. With this
access number, we can provide services directly to end users, which allows our
switchless reseller customers to offer switched access services directly to
their customers in the Netherlands.

SWITZERLAND. A new Telecommunications Act went into effect on January 1,
1998, together with ordinances containing more detailed regulations covering
telecommunications services, frequency management, numbering, terminal equipment
and license fees. The Telecommunications Act provides for liberalization of the
Swiss telecommunication market as of January 1, 1998.

We have obtained the necessary authorization to provide voice services in
Switzerland. We also have authorization to construct infrastructure in
Switzerland. Although Switzerland is not a member of the European Union and
accordingly European Union directives do not apply, the Swiss regulatory agency,
Ofcom, generally follows European Union policies and directives. Switzerland is
a party to the WTO Agreement as well, and we expect that the national regulatory
body will continue to follow the general principles and policies embedded in the
WTO Agreement.

We signed an interconnection agreement with Swisscom which has been
implemented, and we have obtained a switched access number which has been
implemented by Swisscom. With this access number, we can provide services
directly to end users, which allows our switchless reseller customers to offer
switched access services directly to their customers in Switzerland.

AUSTRIA. A new Telecommunications Act came into effect on January, 1, 1998,
together with ordinances providing more detailed regulations on
telecommunications services, interconnection and numbering. We obtained the
necessary licenses in Austria necessary to provide voice services and to operate
our own infrastructure.

The interconnection rules provide for cost-based interconnection rates for
every licenseholder, without distinction between infrastructure owners and
resellers. We have implemented an interconnection agreement with Telekom
Austria, the Austrian incumbent telephone operator. We have also obtained a
switched access number from the Austrian regulator which has been implemented by
Telekom Austria.

SPAIN. The Spanish government implemented the full liberalization of public
switched telephone services on December 1, 1998. Prior to full liberalization, a
second telecommunications operator was authorized to compete with Telefonica de
Espana, S.A., and a third national voice telephony license was granted in
May 1998. Cable television operators have been granted licenses to provide voice
telephony services. As of the end of 1999, numerous individual licenses for the
provision of telecommunications services to third parties or for the operation
of public telecommunications networks have been granted by the Spanish
regulator. In addition, a third license for a mobile telecommunications operator
was granted in June 1998. We expect to be able to provide services on a
wholesale basis to these newly authorized operators.

In June 2000, the Spanish regulatory agency, the Commision del Mercado de
las Telecommunicationes granted Carrier1/Iberia its nationwide license to
provide network infrastructure services throughout Spain. We have also obtained
appropriate voice licenses and Internet authorizations.

As in the case of Italy, and unlike the other major markets in which we
operate, the Spanish authorities require specific authorization to provide
Internet services. We have applied for an interconnection agreement for our
point of presence in Spain, which we expect to implement by mid-2001. We are not
currently subject to access deficit contributions or contributions to universal
service obligations, but such obligations might be imposed in the future by
regulatory authorities.

SWEDEN, DENMARK, FINLAND, NORWAY, AND IRELAND. We are offering services in
Sweden and are planning to provide services in a number of countries including
Denmark, Finland, Norway, and Ireland which have adopted a liberal approach to
authorizing new service providers.

In Norway, new service providers must register with the national regulator,
and in Finland and Sweden, a similar notification procedure is required to
authorize new service providers. In Denmark,

services and infrastructure can be provided by new entrants on the basis of a
class license requiring no registration, notification, or prior approval
procedures involving the national regulator. We have complied with the
applicable procedures in each of these countries.

We have implemented an interconnection agreement with Tele Danmark in
Denmark and with Telia in Sweden. We have obtained switched access numbers in
both Sweden and Denmark, which are implemented by Telia and Tele Danmark. We
have opened discussions with the main national operators in Finland and Norway
and we expect that interconnection arrangements will be implemented when our
points of presence become operational in these countries. We have obtained a
switched access number in Finland and in Norway.

Any new service provider must obtain a license to provide services in
Ireland. We have received such a license. We expect that an interconnection
agreement with Telecom Eireann will be implemented when our point of presence in
Dublin is operational. We have also received a switched access number in
Ireland.

OTHER COUNTRIES. We will also be able to provide service through direct
operating agreements with correspondent telecommunications operators in
countries where we have not been directly authorized to provide services. As a
consequence of our having obtained the status of a recognized operator agency
under the rules of the International Telecommunications Union, we will negotiate
such correspondent agreements with foreign telecommunications operators in
circumstances where such agreements will result in lower termination costs than
might be possible through refile arrangements. See "--Network--Existing and
Planned Traffic Termination Arrangements."

EMPLOYEES

As of December 31, 2000, we employed 277 permanent staff. Our employees
represent 15 different nationalities in total. None of our employees is
represented by a labor union or covered by a collective bargaining agreement. We
believe that relations with our employees are good.

ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES

Carrier1 International is a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg. Carrier1 International is a holding company that
conducts its operations primarily through other European companies. In addition,
certain members of our board, all of our executive officers and certain of the
experts named in this report are residents of countries other than the United
States. A substantial portion of our assets and the assets of such non-resident
persons are located outside the United States. As a result, it may not be
possible for investors to:

- effect service of process within the United States upon us or such
persons; or

- enforce against us or such persons in U.S. courts judgments obtained in
U.S. courts predicated upon civil liability provisions of the federal
securities laws of the United States.

There is doubt as to whether the courts of Luxembourg would recognize
jurisdiction of the U.S. courts in respect of judgments obtained in U.S. courts
in actions against us or such directors and officers, as well as certain of the
experts named in this report, and as to whether Luxembourg courts would enforce
judgments of U.S. courts predicated upon the civil liability provisions of the
U.S. federal or state securities laws. There is also doubt as to whether
Luxembourg courts would admit original actions brought under the U.S. securities
laws. In addition, certain remedies available under the U.S. federal or state
laws may not be admitted or enforced by Luxembourg courts on the basis of being
contrary to Luxembourg's public policy. We cannot assure investors that they
will be able to enforce any judgment against us, certain members of our board,
our executive officers or certain of the experts named in this report, including
judgments under the U.S. securities laws.

RISK FACTORS

A NUMBER OF IMPORTANT FACTORS, INCLUDING THOSE RISKS AND UNCERTAINTIES
DESCRIBED BELOW, COULD AFFECT FUTURE OPERATING RESULTS AND OUR FINANCIAL
POSITION AND CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN
THE FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE
NOT EXHAUSTIVE. THESE AND OTHER DEVELOPMENTS COULD CAUSE OUR ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE FORECAST OR IMPLIED IN THE FORWARD-LOOKING
STATEMENTS. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-
LOOKING STATEMENTS. WE HAVE NO OBLIGATIONS, AND WE DO NOT INTEND, TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO
REFLECT SUBSEQUENT EVENTS OR CIRCUMSTANCES. IF ANY OF THE FOLLOWING RISKS AND
UNCERTAINTIES OCCUR, OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS OR
CASH FLOW COULD BE MATERIALLY ADVERSELY AFFECTED. IN SUCH CASE, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENTS.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
PERFORMANCE.

We formed our business in March 1998, and we commenced commercial operations
on September 1, 1998. Accordingly, you have limited historical operating and
financial information on which to base your evaluation of our performance.

WE EXPECT TO EXPERIENCE NET LOSSES AND NEGATIVE CASH FLOW.

Our continued business development and network deployment will require that
we incur substantial capital expenditures. To date, we have experienced net
losses and negative cash flow from operating activities. We expect to incur net
losses and negative cash flow from operating activities through at least 2002.
Whether or when we will generate positive cash flow from operating activities
will depend on a number of financial, competitive, regulatory, technical and
other factors, many of which are beyond our control. We cannot assure you that
we will achieve profitability or positive cash flow.

IF WE ARE UNABLE TO IMPROVE AND ADAPT OUR OPERATIONS AND SYSTEMS AS WE GROW,
WE COULD LOSE CUSTOMERS AND REVENUES.

We expect our business to continue to grow, which may significantly strain
our customer support, sales and marketing, accounting and administrative
resources, network operation and management and billing systems. Such a strain
on our operational and administrative capabilities could adversely affect the
quality of our services and our ability to collect revenues. To manage our
growth effectively, we will have to further enhance the efficiency of our
operational support and other back office systems and procedures, and of our
financial systems and controls. We will also have to expand and train our
employee base to handle the increased volume and complexities of our business.
We cannot assure you that we will maintain adequate internal operating,
administrative and financial systems, procedures and controls, or obtain, train
and adequately manage sufficient personnel to keep pace with our growth.

In addition, if we fail to project traffic volume and routing preferences
correctly, or to determine the optimal means of expanding the network, we could
lose customers, make inefficient use of the network, and have higher costs and
lower margins.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

Our revenues are dependent upon a relatively small number of significant
customers and contracts. The loss or addition of one or more of these customers
or contracts could cause significant fluctuations in our financial performance.
In addition, the significant expenses resulting from the expansion of our
network and services are likely to lead to operating results that vary
significantly from quarter to quarter.

OUR ABILITY TO GENERATE CASH TO SERVICE OUR SUBSTANTIAL CAPITAL NEEDS
DEPENDS ON MANY FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL.

We will require significant capital to fund our capital expenditures and
working capital needs, as well as our debt service requirements and operating
cash flow deficits.

We expect to incur significant capital expenditures in connection with the
expansion of our network. The actual amounts and timing of our future capital
requirements may vary significantly from our estimates. The demand for our
services, regulatory developments and the competitive environment of the
telecommunications industry could cause our capital needs to exceed our current
expectations. In that case, we may need to seek additional capital sooner than
we expect, and such additional financing may not be available on acceptable
terms or at all. Moreover, our substantial existing indebtedness and any
additional indebtedness we may incur may adversely affect our ability to raise
additional funds. A lack of financing may require us to delay or abandon plans
for deploying parts of our network, which in turn could increase our costs and
hinder our ability to exchange with, or sell transmission capacity to, other
telecommunications entities.

OUR SIGNIFICANT INDEBTEDNESS AND OUR ABILITY TO INCUR MORE INDEBTEDNESS
COULD PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER OUR EXISTING DEBT
OBLIGATIONS OR CAPITALIZING ON BUSINESS OPPORTUNITIES.

Our total long-term debt as of December 31, 2000 was $238.6 million.

Our existing debt agreements impose significant operating and financial
restrictions on us. The terms of any other financings we may obtain may do so as
well. These restrictions may substantially limit or prohibit us from taking
various actions, including incurring additional debt, making investments, paying
dividends to our shareholders, creating liens, selling assets, engaging in
mergers, consolidations or other business combinations, repurchasing or
redeeming our shares, or otherwise capitalizing on business opportunities.
Failure to comply with the covenants and restrictions in our indentures or other
financing agreements could trigger defaults under such agreements even if we are
able to pay our debt.

In addition, the indentures governing our 13 1/4% senior notes provide that
upon a change of control, each note holder will have the right to require us to
purchase all or a portion of the holder's notes at a purchase price of 101% of
the principal amount, together with accrued and unpaid interest, if any, to the
redemption date. We may be unable to incur the additional indebtedness or
otherwise obtain the additional funds necessary to satisfy that obligation,
which could have a material adverse effect on us. This provision could also
delay, deter or prevent a change of control transaction.

If we cannot generate sufficient cash flow from operations to meet our debt
service requirements, we may be required to refinance our indebtedness. Our
ability to obtain such financing will depend on our financial condition at the
time, the restrictions in the agreements governing our indebtedness and other
factors, including general market and economic conditions. If such refinancing
were not possible, we could be forced to dispose of assets at unfavorable prices
or risk a default on our debt obligations.

IF WE ARE UNABLE TO EXTEND OUR NETWORK IN THE MANNER WE HAVE PLANNED, OUR
OPERATING REVENUES OR GROSS MARGINS COULD BE ADVERSELY AFFECTED.

Our success will depend, in part, on our ability to continue to deploy our
network on a timely basis. A number of factors could hinder the deployment of
our network. These factors include cost overruns, the unavailability of
additional capital, strikes, shortages, delays in obtaining governmental or
other third-party approvals, other construction delays, natural disasters and
other casualties, delays in the deployment or delivery of network capacity of
others that we have arranged to acquire, and other events that we cannot
foresee. For example, we have experienced some construction delays in connection
with the completion of our Amsterdam network, and some cost overruns and
construction delays in connection with the completion of portions of our German
network.

Delays in the continued deployment of our network could:

- limit the geographic scope of our services;

- prevent us from providing services on a cost-effective basis;

- reduce the number of customers we can attract and the volume of traffic we
carry;

- force us to rely more heavily on refiling or reselling for terminating our
voice traffic, increasing termination costs and making our quality control
more difficult; and

- affect our ability to obtain lower cost capacity on other networks by
trading our excess capacity, or cause us to incur penalties for untimely
delivery of promised capacity or could result in renegotiation (as has
occurred on one occasion) or termination of our swaps.

Any one of these results could prevent us from increasing our operating
revenues or could adversely impact gross margins.

EUROPEAN USE OF THE INTERNET, ELECTRONIC COMMERCE AND THE DEMAND FOR
BANDWIDTH INTENSIVE APPLICATIONS MAY NOT INCREASE AS SUBSTANTIALLY AS WE EXPECT,
WHICH WOULD LIMIT DEMAND FOR OUR SERVICES AND LIMIT OUR ABILITY TO INCREASE OUR
REVENUES.

Our business plan assumes that European use of the Internet, electronic
commerce and other bandwidth intensive applications will continue to increase in
the next few years, in a manner similar to the increased use in the United
States market in the past few years. If the use of bandwidth intensive
applications in Europe does not increase as anticipated, demand for some of our
services, including our Internet and bandwidth services, will be lower than we
currently anticipate and our ability to generate revenues will be adversely
affected. We cannot assure you that demand for our services will grow in
accordance with our expectations. Reduced demand for our services will have a
negative effect on our business.

WE HAVE NO CONTROL OVER THIRD PARTIES ON WHOM WE RELY FOR THE OPERATION OR
MAINTENANCE OF PORTIONS OF OUR NETWORK, AND IF THEY OR THEIR FACILITIES DO NOT
PERFORM OR FUNCTION ADEQUATELY, OUR NETWORK MAY BE IMPAIRED.

Our success is dependent on the technical operation of our network and on
the management of traffic volumes and route selections over the network. We
depend on parties from whom we have leased or acquired a right to use
transmission capacity or dark fiber to provide or maintain certain of the
network's circuits which exposes us to risks related to these third parties'
performance. Shortfalls in maintenance or other failure to perform, including
bankruptcy, by any of these parties could lead to transmission failure or
additional costs. Our network is also subject to other risks outside our
control, such as the risk of damage from fire, power loss, natural disasters and
general transmission failures caused by these or other factors.

ANY DIFFICULTY IN RETAINING OUR CURRENT EMPLOYEES OR IN HIRING NEW EMPLOYEES
WOULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS.

Our operations are managed by a small number of key executive officers,
including our Chief Executive Officer, Stig Johansson. In addition, our business
functions are managed by a relatively small number of key employees. The loss of
any of these individuals could have a material adverse effect on us. Our success
depends on our ability to attract, recruit and retain sufficient qualified
personnel as we grow. A key component of the compensation package for these
employees is based on grants of options to purchase our shares. The value of
this component of compensation has decreased significantly as share prices in
the telecommunications sector, including our stock, have fallen dramatically in
recent months. Therefore, we cannot assure you that we will be able to retain
these employees, including senior management, integrate new managers or recruit
enough qualified personnel in the future; as

competition for qualified personnel in Europe and the United States remains at a
high level with a limited number of persons with the requisite experience in the
sectors in which we operate.

A FAILURE TO ENTER INTO OR MAINTAIN ADEQUATE INTERCONNECTION AND PEERING
ARRANGEMENTS COULD CAUSE US TO INCUR HIGHER TERMINATION COSTS THAN COMPETITORS
WHO HAVE SUCH ARRANGEMENTS.

One of the most cost-effective ways for an international operator to achieve
voice termination and access in a country in which it has a point of presence is
to negotiate an interconnection agreement with the national incumbent telephone
operator. Failure to maintain adequate interconnection arrangements would cause
us to incur higher voice termination and access costs, which could have a
material adverse effect on our ability to compete with carriers that have a more
effective system of interconnection agreements for the countries in which they
operate.

A substantial portion of our revenue from our voice products is based on
mobile traffic. We have arrangements in place for termination of mobile traffic.
However, direct operating agreements with mobile operators tend to be expensive
and refiling of mobile traffic generally does not meet our quality targets.
Although we currently have a number of direct agreements with mobile operators
and quality refilers in place, we cannot guarantee that we can maintain these
agreements or enter into similar agreements of adequate price levels, or at all,
to support the expansion of our mobile traffic.

Our ability to maintain arrangements for the free exchange of data with
European and United States ISPs that have traffic volumes roughly equivalent to
ours will also affect our costs. To the extent we do not maintain these peering
arrangements, we are required to pay a transit fee in order to exchange Internet
traffic. Our inability to maintain sufficient peering arrangements would keep
our Internet termination costs high and could limit our ability to compete
effectively with other European Internet backbone providers that have lower
transit costs than we do.

IF WE LOST ONE OR MORE OF OUR GOVERNMENT LICENSES OR BECAME SUBJECT TO MORE
ONEROUS GOVERNMENT REGULATIONS, OUR OPERATIONS COULD BE ADVERSELY AFFECTED.

We are subject to varying degrees of regulation in each of the jurisdictions
in which we provide services. Local laws and regulations, and their
interpretation, differ significantly among those jurisdictions. Future
regulatory, judicial and legislative changes may have a material adverse effect
on the operation of our business.

National regulatory frameworks that are fully consistent with the policies
and requirements of the European Commission and the World Trade Organization
have only recently been, or are still being, put in place in many European Union
member states. These nations are still providing for and adapting to a
liberalized telecommunications market. As a result, in these markets, we and
other new entrants may encounter more protracted and difficult procedures to
obtain licenses and negotiate interconnection agreements.

Our operations are dependent on licenses that we acquire from governmental
authorities in each jurisdiction in which we operate. These licenses generally
contain clauses pursuant to which we may be fined or our license may be revoked
in certain circumstances. Such revocation may be on short notice, at times as
short as 30 days' written notice to us. The revocation of any of our licenses
may cause us to lose favorable interconnection rates or, in some cases, force us
to stop operating in the relevant country.

THE ADOPTION OR MODIFICATION OF LAWS OR REGULATIONS RELATING TO THE INTERNET
COULD ADVERSELY AFFECT OUR BUSINESS.

The adoption or modification of laws or regulations relating to the Internet
could adversely affect our business. The European Union has recently enacted its
own privacy regulations. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws, such as those governing

intellectual property, privacy, libel and taxation, apply to the Internet. In
addition, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on companies conducting business online.

THE TELECOMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE
TO COMPETE SUCCESSFULLY.

The European telecommunications market is highly competitive, and
liberalization is rendering it increasingly more so. The opening of the market
to new service providers, combined with technological advances, has resulted in
significant reductions in retail and wholesale prices for voice services. We
expect prices to continue to decline. Decreasing prices are also narrowing gross
profit margins on long distance voice traffic. Our ability to compete
successfully in this environment will significantly depend on our ability to
generate high traffic volumes from our customers while keeping our costs of
services low and to effectively bundle and cross-sell the services we offer to
our customers. We cannot assure you that we will be able to do so.

We expect price decreases in the European Internet market over the next few
years as competition increases. We cannot assure you that Internet service
prices will not decline more quickly than our Internet transmission or
termination costs, which could have a material adverse effect on our gross
profit margins.

OUR COMPETITORS MAY HAVE MORE EXPERIENCE, SUPERIOR OPERATIONAL ECONOMIES OR
GREATER FINANCIAL RESOURCES, PLACING US AT A COST AND PRICE DISADVANTAGE.

We compete with a number of incumbent telephone operators, who generally
control access to local networks and have significant operational economies,
including large national networks and existing operating agreements with other
incumbents. Moreover, national regulatory authorities have, in some instances,
shown reluctance to adopt policies that would result in increased competition
for the local incumbent. In addition, incumbents may be more likely to provide
transmission capacity on favorable terms and direct excess traffic to their
related carriers than to us.

There are numerous new entrants with which we compete in specific markets
for data center services. Many of our competitors have been established
providers of data center services in Europe for longer than we have. There can
be no assurance that new entrants like us will be able to effectively compete.

We also compete with companies that are building European networks to the
extent these companies offer services to our target customers. Some of these
companies have more experience operating a network than our company does. We may
not be able to deploy a European network as quickly or run it as efficiently as
some or all of these competitors, which could impair our ability to compete with
them.

Many of our competitors have greater financial resources and would be in a
better position than we would be to withstand the adverse effect on gross
margins and cash flow caused by price decreases, particularly those competitors
that own more infrastructure and thus may enjoy a lower cost base than we do.
Unless and until we are able to reduce our cost base, we may not be able to
compete on the basis of price if market prices are reduced below a certain
level. Inability to price services competitively may in turn cause us to lose
customers.

WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT COST-EFFECTIVE TRANSMISSION
CAPACITY, WHICH COULD DELAY OUR ABILITY TO PENETRATE CERTAIN MARKETS OR CARRY A
HIGHER VOLUME OF TRAFFIC IN MARKETS IN WHICH WE ALREADY OPERATE.

We lease or have purchased rights to use transmission capacity from others,
and we have swapped capacity on our own German network for transmission capacity
on other carriers' networks. We therefore currently depend on other parties for
much of our transmission capacity. We cannot assure

you that we will always be able to obtain capacity where and when we need it at
an acceptable price or at all. Any failure to obtain such capacity could delay
our ability to penetrate certain markets or to carry a higher volume of traffic
in the markets in which we already operate. Furthermore, to the extent some of
our capacity suppliers begin to compete with us, those suppliers may no longer
be willing to provide us with capacity.

Although we have expanded our fiber based network, we will still need to
continue to lease capacity. We will therefore, in the short term, continue to
have transmission costs that are higher than our target cost levels and higher
than the costs of our competitors who own transmission infrastructure. We cannot
assure you that the cost of obtaining capacity will decrease. In addition, if
our owned network is not completed on a timely basis, we will need to rely on
leased lines to a greater extent than currently anticipated. If we cannot
purchase additional capacity at our target costs for additional needs we may
have in the future, we may have to seek to meet those needs by building
additional capacity, for which we would need to incur additional capital
expenditures and debt. It is also possible that additional capacity would not be
available for purchase at the time that we need it.

IF ESTIMATES WE HAVE MADE ARE NOT CORRECT, WE MAY HAVE TOO MUCH OR TOO
LITTLE CAPACITY.

We rely on other carriers to provide certain voice termination services.
Negotiation of refile or resale agreements with such carriers involves making
estimates of the future calling patterns and traffic levels of our customers.
Underestimation of traffic levels or failure to estimate calling patterns
correctly could lead to:

- a shortage of capacity, requiring us to either lease more capacity or
reroute calls to other carriers at a higher termination cost;

- higher termination costs, as we may have to use additional, higher priced,
refilers or resellers; and

- a possibly lower quality of service, as we may not be carrying the traffic
over our own network.

Our leased capacity costs are fixed monthly payments based on the capacity
made available to us. If our traffic volumes decrease, or do not grow as
expected, the resulting idle capacity will increase our per unit costs.

WE MAY HAVE DIFFICULTY ENHANCING OUR SOPHISTICATED BILLING, CUSTOMER AND
INFORMATION SYSTEMS. ANY SUCH DIFFICULTIES COULD DELAY OR DISRUPT OUR ABILITY TO
SERVICE OR BILL OUR CUSTOMERS.

Sophisticated information systems are vital to our growth and our ability
to:

- manage and monitor traffic along our network;

- track service provisioning, traffic faults and repairs;

- effect best choice routing;

- achieve operating efficiencies;

- monitor costs;

- bill and receive payments from customers; and

- reduce credit exposure.

The billing and information systems we have acquired will require
enhancements and ongoing investments, particularly as traffic volume increases.
We may encounter difficulties in enhancing our systems or integrating new
technology into our systems in a timely and cost-effective manner. Such
difficulties could have a material adverse effect on our ability to operate
efficiently and to provide adequate customer service.

RAPID CHANGE IN OUR INDUSTRY COULD REQUIRE US TO INCUR SUBSTANTIAL COSTS TO
IMPLEMENT NEW TECHNOLOGIES. WE COULD LOSE CUSTOMERS IF OUR COMPETITORS IMPLEMENT
NEW TECHNOLOGIES BEFORE WE DO.

If the growth we anticipate in the demand for telecommunications services
were not to occur or we were precluded from servicing this demand, we might not
be able to generate sufficient revenues in the next few years to fund our
working capital requirements.

To compete effectively, we must anticipate and adapt to rapid technological
changes and offer, on a timely basis, competitively priced services that meet
evolving industry standards and customer preferences. We may choose new
technologies that prove to be inadequate or incompatible with technologies of
our customers, providers of transmission capacity or other carriers. As new
technologies develop, we may be forced to implement such new technologies at
substantial cost to remain competitive. In addition, competitors may implement
new technologies before we do, allowing such competitors to provide lower priced
or enhanced services and superior quality compared to those we provide. Such a
development could have a material adverse effect on our ability to compete,
particularly because we seek to distinguish ourselves on the basis of the
quality of our services.

CUSTOMERS THAT ARE PRICE SENSITIVE MAY DIVERT THEIR TRAFFIC TO ANOTHER
CARRIER BASED ON SMALL PRICE CHANGES, RESULTING IN FLUCTUATIONS OR LOSS IN OUR
REVENUE.

Voice customers often maintain relationships with a number of
telecommunications providers, and our contracts with our voice customers
generally do not impose on customers minimum usage requirements. Furthermore,
basic voice services are not highly differentiated. As a result, most customers
are price sensitive and certain customers may divert their traffic to another
carrier based solely on small price changes. These diversions can result in
large and abrupt fluctuations in revenues. Similarly, while we seek to provide a
higher quality of service than our competitors, there is somewhat limited scope
for differentiation. There can be no assurance that small variations between our
prices and those of other carriers will not cause our customers to divert their
traffic or choose other carriers.

Our contracts with our voice customers require us to carry their voice
traffic at a contractually fixed price per minute that can only be changed upon
seven or thirty days' notice. Similarly, we have contracted with some Internet
customers to carry their Internet traffic at a fixed monthly rate that can only
be changed upon six or twelve months' notice. If we were forced to carry voice
or Internet traffic over a higher-cost route due to capacity and quality
constraints, our gross profit margins would be reduced.

WE RELY ON A SMALL NUMBER OF SIGNIFICANT CUSTOMERS, AND THE LOSS OF ANY
SINGLE CUSTOMER COULD THEREFORE HAVE A MATERIAL ADVERSE EFFECT ON OUR REVENUES.

We currently depend on a small number of significant customers for our
revenues. In the year ended December 31, 2000, for example, several customers
accounted each for approximately 5% to 7% of our revenue. The loss of any
significant customer could therefore have a material adverse effect on us. In
addition, certain customers may be unprofitable or only marginally profitable,
resulting in a higher risk of delinquency or nonpayment. As a result of adverse
developments in the financial situation of some of our customers, we increased
our provision for bad debt by $3.9 million in the fourth quarter of 2000.
Recently, the Internet services industry has experienced increased merger and
consolidation activity among ISPs and Internet backbone providers. The
consolidation of ISPs may reduce the customer base for our Internet services.

WE WILL ENGAGE IN ALLIANCES, JOINT VENTURES AND PARTNERSHIPS, WHICH ARE
ACCOMPANIED BY INHERENT RISKS.

We constructed the German network with Viatel and Metromedia. We are, in
part, developing our data center facilities through strategic partnerships. We
may enter into future joint ventures with other companies. All joint ventures
are accompanied by risks. These risks include:

- the lack of complete control over the relevant project;

- diversion of our resources and management time;

- inconsistent economic, business or legal interests or objectives among
joint venture partners;

- the possibility that a joint venture partner will become bankrupt or
default in connection with a capital contribution or other obligation,
thereby forcing us to fulfill such obligation or causing the joint venture
or us to lose essential assets or services which cannot be replaced or may
only be replaced or obtained at significant cost; and

- difficulty maintaining uniform standards, controls, procedures and
policies.

THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING BUSINESSES OR
ENGAGING IN OTHER STRATEGIC TRANSACTIONS COULD IMPEDE OUR FUTURE GROWTH AND
ADVERSELY AFFECT OUR COMPETITIVENESS.

We intend to evaluate, and may enter into, acquisition or other strategic
transactions in order to expand our business or enhance our product portfolio.
We may acquire interests in businesses in countries in which we do not currently
operate. Any such acquisitions or other strategic transactions may expose us to
the following risks:

- the difficulty of identifying appropriate strategic transaction candidates
in the countries in which we do business or intend to do business;

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

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

- our failure to successfully incorporate licensed or acquired technology
into our network and product offerings;

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

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

We cannot assure you that we would be successful in overcoming these risks,
and our failure to overcome these risks could have a negative effect on our
business. Additionally, in connection with an acquisition, we will generally
record goodwill that must be amortized and which would reduce our net income and
earnings per share.

WE ARE CONTROLLED BY PARTIES WHOSE INTERESTS MAY NOT BE ALIGNED WITH OTHER
HOLDERS OF OUR SECURITIES.

Funds managed by Providence Equity Partners Inc. alone, and funds managed by
Providence and funds managed by Primus Venture Partners Inc. together,
indirectly control us. Such ownership may present conflicts of interest between
the Providence or Primus funds and us. They may pursue or cause us to pursue
transactions that could enhance their controlling interest, or permit them to
realize gains on their investment, in a manner that is not in the financial
interests of minority shareholders.

Providence and Primus, or their affiliates, currently have significant
investments in other telecommunications companies, and may in the future invest
in other entities engaged in the telecommunications business, some of which may
compete with us. Providence and Primus are under

no obligation to bring us any investment or business opportunities of which they
are aware, even if opportunities are within our objectives. Conflicts may also
arise in the negotiation or enforcement of arrangements we may enter into with
entities in which Providence or Primus, or their affiliates, have an interest.

THE INTERNATIONAL SCOPE OF OUR OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS.

We may face certain risks because we conduct an international business
including:

- regulatory restrictions or prohibitions on the provision of our services;

- tariffs and other trade barriers;

- longer payment cycles;

- problems in collecting accounts receivable;

- political risks; and

- potentially adverse tax consequences of operating in multiple
jurisdictions.

In addition, an adverse change in laws or administrative practices in
countries within which we operate could have a material adverse effect on us.

We are exposed to fluctuations in foreign currencies, as our revenues,
costs, assets and liabilities are denominated in multiple local currencies. Our
payment obligations on our debt are denominated in euros and U.S. dollars and
although our services are denominated in various currencies, they are primarily
denominated in euros. Any appreciation in the value of the U.S. dollar or the
euro relative to such other currencies could decrease our revenues, increase our
debt and interest payments and, therefore, materially adversely affect our
operating margins. Fluctuations in foreign currencies may also make period to
period comparisons of our results of operations difficult. For further
discussion of foreign currency expenses, see "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Foreign Currency"
contained elsewhere in this document.

ENFORCING JUDGMENTS AGAINST US MAY REQUIRE COMPLIANCE WITH NON-U.S. LAW.

Most assets of Carrier1 International and its subsidiaries are located
outside the United States. You will need to comply with foreign laws to enforce
judgments obtained in a U.S. court against our assets, including to foreclose
upon such assets. In addition, it may not be possible for you to effect service
of process within the United States upon us, or to enforce against us U.S. court
judgments predicated upon U.S. federal securities laws.

VOLATILITY IN THE PRICE OF OUR COMMON SHARES COULD RESULT IN A LOWER TRADING
PRICE THAN YOUR PURCHASE PRICE.

The market price of our common shares and ADSs has fluctuated significantly
since our shares and ADSs began to trade publicly in March 2000. The market
price of the shares and ADSs may continue to fluctuate significantly in response
to a number of factors, some of which are beyond our control, including:

- quarterly variations in our operating results;

- changes in financial estimates by securities analysts;

- changes in market valuations of telecommunications companies;

- announcements by us, or our competitors, of significant contracts,
acquisitions, strategic partnerships, joint ventures, business
combinations, or capital commitments;

- loss of a major customer;

- additions or departures of key personnel; and

- sales of shares or ADSs.

THE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR SHAREHOLDERS.

Recently, the market prices for securities of the telecommunications
industry have been highly volatile, particularly for emerging companies. In
addition, the stock market has experienced volatility that has affected the
market prices of equity securities of many companies and that often has been
unrelated to the operating performance of those companies. These broad market
fluctuations may adversely affect the market price of our shares or ADSs.
Furthermore, following periods of volatility in the market price of a company's
securities, shareholders of these companies have often instituted securities
class action litigation against the companies. Any similar litigation against us
could result in substantial legal costs and a diversion of management's
attention and resources, which could adversely affect the conduct of our
business.

FUTURE SALES OF SUBSTANTIAL NUMBERS OF SHARES COULD ADVERSELY AFFECT THE
MARKET PRICE OF THE SHARES.

Of the 42,862,853 shares outstanding as of March 20, 2001, approximately
65.96% are held indirectly by funds managed by Providence and approximately
10.85% are held indirectly by funds managed by Primus. Subject to some
exceptions, the investment vehicle for the Providence and Primus funds and each
of our executive officers and directors may sell their shares as permitted by
the securityholders' agreement, U.S. securities laws and other applicable laws.
In addition, as of March 20, 2001, 1,349,067 shares were issuable upon the
exercise of outstanding options. We expect to grant additional options to
employees in the future.

Future sales of a large block of our shares, or the perception that these
sales could occur, could cause a decrease in the market price of our shares or
ADSs.

OUR COMMITMENT TO ISSUE ADDITIONAL ORDINARY SHARES MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR SHARES AND ADSS AND MAY IMPAIR OUR ABILITY TO RAISE CAPITAL.

We currently have outstanding commitments in the form of warrants and
options to issue a substantial number of new ordinary shares. The shares subject
to these issuance commitments, to some degree, will be issued in transactions
registered with the Securities and Exchange Commission and thus will be freely
tradable. In other instances, these shares are subject to grants of registration
rights that, if and when exercised, would result in those shares becoming freely
tradable. We have also granted registration rights with respect to a number of
our outstanding shares. The exercise of registration rights by persons holding
those shares would permit those persons to sell those shares without regard to
the limitations of Rule 144 under the Securities Act of 1933. An increase in the
number of shares that will become available for sale in the public market may
adversely affect the market price of our shares and ADSs and, as a result, could
impair our ability to raise additional capital through the sale of our equity
securities.

THESE RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES WE FACE.

Additional risks and uncertainties not presently known to us or that we may
currently deem immaterial may also impair our business operations.

ITEM 2. PROPERTIES

We lease certain office and other space under operating leases and subleases
that expire at various dates, including a lease of Carrier1 International GmbH's
1,122 square meter headquarters in Zurich, Switzerland, which expires in 2004.

Our aggregate rent expense was approximately $7.6 million for the fiscal
year ended December 31, 2000, approximately $3.8 million for the fiscal year
ended December 31, 1999 and approximately $1.0 million for the period from
inception on February 20, 1998 to December 31, 1998.

For information regarding our data centers and networks, see "Item 1.
Business" contained elsewhere in this document.

ITEM 3. LEGAL PROCEEDINGS

We have, from time to time, been a party to litigation that arises in the
normal course of our business operations. Since our inception we have not been,
and we are not presently, a party to any litigation or arbitration that we
believe had or would reasonably be expected to have a material adverse effect on
our business or results of operations.

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

During the fourth quarter of 2000, no matters were submitted to a vote of
security holders.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITYHOLDER MATTERS

MARKET INFORMATION. Our shares are listed on the Neuer Markt segment of the
Frankfurt Stock Exchange under the symbol "CJN." Our American Depositary Shares
are quoted on the Nasdaq National Market under the symbol "CONE." Our American
Depositary Shares each represent the right to receive 0.2 shares. American
Depositary Receipts for our American Depositary Shares are issued by Bankers
Trust Company, as depositary. As of March 20, 2001, 4,477,758 of our shares are
held in the form of American Depositary Shares. Prior to the February 2000
initial public offering of our shares of common stock, par value $2.00 per
share, and American Depositary Shares representing shares of common stock (our
"IPO"), there was no established public trading market for our common stock. The
high and low prices for each full quarter since our IPO for the Nasdaq Market
and the Neuer Markt are shown below:

NASDAQ
MARKET ($) NEUER MARKT (E)
----------------------- -------------------
2000 HIGH LOW HIGH LOW
- ---- ---------- ---------- -------- --------

Second Quarter.............................................. 31 7/8 10 3/4 165 53
Third Quarter............................................... 15 7/8 6 2/3 85 39
Fourth Quarter.............................................. 7 2 7/8 55.50 16.10

HOLDERS. There were 162 owners of record of our shares as of March 20,
2001. This number excludes shareholders whose stock is held in nominee or street
name by brokers, and we believe that we have a significantly larger number of
beneficial holders of our shares.

DIVIDENDS. Carrier1 International has never declared or paid any dividends
and does not expect to do so in the foreseeable future. We do not expect to
generate any net income in the foreseeable future, but anticipate that future
earnings generated from operations, if any, will be retained to finance the
expansion and continued development of our business. Subject to the declaration
of interim dividends by Carrier1 International's board of directors, decisions
to pay dividends may only be made by its shareholders acting at a shareholders'
meeting. If Carrier1 International were to pay dividends, we would expect to pay
them in either U.S. dollars or euros. Any cash dividends payable to holders of
shares or ADSs who are nonresidents of Luxembourg would normally be subject to
Luxembourg statutory withholding taxes. Any future determination with respect to
the payment of dividends on our shares will depend upon, among other things, our
earnings, capital requirements, the terms of the existing indebtedness,
applicable requirements of Luxembourg corporate law, general economic conditions
and such other factors considered relevant by Carrier1 International's board of
directors. In addition, Carrier1 International's ability to pay dividends will
be restricted under the terms of our debt agreements. There are currently no
Luxembourg foreign exchange control restrictions affecting payment of dividends
on our common stock.

CERTAIN LUXEMBOURG TAX CONSIDERATIONS

THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER OF OUR
COMMON SHARES IS STRONGLY URGED TO CONSULT WITH ITS OWN TAX CONSULTANTS TO
DETERMINE POSSIBLE LUXEMBOURG TAX CONSEQUENCES OF AN INVESTMENT IN OUR SHARES.

The following summary outlines certain Luxembourg tax consequences to
persons who are nonresidents of Luxembourg and who do not have a permanent
establishment in Luxembourg ("Non-Resident Holders") with respect to the
ownership and disposition of shares. It does not examine tax consequences to
residents or to some extent, former residents.

Non-Resident Holders of shares are not liable for Luxembourg tax on capital
gains on any such shares; PROVIDED, HOWEVER, that if they hold more than 25% of
the share capital of Carrier1 International, they are subject to tax on capital
gains on the disposal of shares held for not more than six months.

Dividends paid on shares to Non-Resident Holders are subject to a
withholding tax of 25%. Under certain circumstances, European Union Non-Resident
Holders may benefit from an exemption of withholding tax. Reductions of the
withholding rate may also be provided by tax treaties. In the case of the
current treaty between Luxembourg and the United States, the withholding tax is
reduced to 12.5% or less, and in the new proposed treaty the rate will be
reduced to 15%, provided that the holder is entitled to claim treaty benefits.

No inheritance tax is payable by a non-resident holder of shares except if
the deceased holder were a resident of Luxembourg at the time of death.

RECENT SALES OF UNREGISTERED SECURITIES

Since our inception on February 20, 1998, we have sold and issued the
following securities:

1. Between March 1, 1998 and June 14, 1999 we sold to employees 2,537,236
shares of our capital stock at $2.00 per share for an aggregate
consideration of $5,074,472; between June 15, 1999 and September 8, 1999 we
sold to employees 90,664 shares of our capital stock at $5.00 per share, for
an aggregate consideration of $453,320; and between September 9, 1999 and
December 31, 1999 we sold to employees 37,940 shares of our capital stock at
$10.00 per share, for an aggregate consideration of $379,400.

2. From time to time from our inception to February 19, 1999 we issued to
Carrier One, LLC a total of 29,999,999 shares of our capital stock at $2.00
per share for an aggregate consideration of $59,999,998. In addition, in
1998 we issued to Providence Equity Partners L.P. one share of our capital
stock for $2.00.

3. On June 14, 1999, we sold to Carrier One LLC a total of 400,000 shares of
our capital stock at $2.00 per share for an aggregate consideration of
$800,000, which amount was funded by Messrs. Thomas Wynne and Victor Pelson,
both directors of Carrier 1 International S.A., who received a total of
800,000 Class A Units in Carrier One LLC at $1.00 per Class A Unit.

4. Between our inception and September 8, 1999, we granted to our employees
pursuant to our 1999 share option plan options to purchase 2,255,718 shares
of our capital stock, at an exercise price of $2.00 per share.

5. Between September 9, 1999 and December 1, 1999 we granted to our employees
pursuant to our 1999 share option plan options to purchase 123,500 shares of
our capital stock, at an exercise price of $10.00 per share.

6. On December 6, 1999 we granted to Mr. Alexander Schmid, a new member of
management, pursuant to our 1999 share option plan options to purchase
100,000 shares of our capital stock, at an exercise price of $40.34 per
share.

7. In addition, on September 9, 1999 we granted to Messrs. Wynne and Pelson
options to purchase a total of 40,000 shares of our capital stock (20,000
shares each) at an exercise price of $2.00 per share.

8. On February 19, 1999, we issued 160,000 dollar units each consisting of one
13 1/4% senior dollar note together with one detachable warrant entitling
the holder to purchase 6.71013 shares of our capital stock, and 85,000 euro
units, each consisting of one 13 1/4% senior euro note together with one
detachable warrant entitling the holder to purchase 7.53614 shares of our
capital stock. The aggregate principal amount of the dollar notes was
$160 million and the aggregate principal amount of the euro notes was
85 million euro. The warrants become exercisable on February 19, 2000 and
have an exercise price per share equal to the greater of $2.00 and the
minimum par value required by Luxembourg law (currently 50 Luxembourg
francs) excluding a 1% Luxembourg capital duty which is payable by us.
Morgan Stanley Dean Witter, Salomon Smith Barney, Warburg Dillon Read LLC
and Bear, Stearns & Co. Inc. acted as placement agents in connection with
this offering.

9. During the quarter ended September 30, 2000, we issued 2,000 shares in
connection with the exercise by an employee of vested options.

Approximately 55,000 shares of our common stock which were purchased by our
employees at $5.00 and $10.00 per share prior to January 1, 2000 were formally
issued under Luxembourg law on January 19, 2000.

During the quarter ended March 31, 2000, we granted to our employees
pursuant to our 1999 share option plan options to purchase 105,500 shares of our
common stock, at an exercise price of $40.34 per share.

During the quarter ended September 30, 2000, we granted to our employees
pursuant to our 2000 share option plan options to purchase 939,584 and 1,500
shares of our common stock, at an exercise price of $37.50 and $33.75 per share,
respectively.

During the quarter ended December 31, 2000, we granted to our employees
pursuant to our 2000 share option plan options to purchase 1,891,794 of our
capital stock, at an exercise price of $15 per share.

During the quarter ended December 31, 2000, we exchanged 1,223,717 shares of
our common stock for warrants that were exercised.

The securities issued in the transactions described above were deemed exempt
from registration under the Securities Act in reliance upon Section 4(2) of the
Securities Act, or Regulation D or Regulation S under the Securities Act, or
Rule 701 under the Securities Act as transactions by an issuer not involving a
public offering, or transactions pursuant to compensation benefit plans and
contracts relating to compensation. The recipients of securities in each of such
transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution of the securities. All recipients were either furnished with or had
adequate access to, through their relationship with us, information about
Carrier1 International.

On March 1, 2000, we completed our initial public offering of 8,625,000
shares of common stock (including the underwriters' overallotment of 1,125,000
shares) at a price of 87 euro per share (approximately $87.42 per share). We
received proceeds of approximately $681.6 million, net of underwriting discounts
and commissions, listing fees, and offering-related expenses. Through
December 31, 2000, we have used approximately $146 million of proceeds from the
IPO to repay (i) 40 million euro of floating rate indebtedness that was
outstanding under an interim credit facility with Morgan Stanley Senior
Funding, Inc. and Citibank, N.A., plus interest thereon, (ii) $75 million of
floating rate indebtedness that was outstanding under an equipment financing
agreement with Nortel

Networks Inc., plus interest thereon, (iii) paid back $24 million to a vendor
who had delivered the fiber optical cable installed in the German network and
with whom we had an agreement to defer payment until December 31, 2000, without
interest, (iv) invested $28 million in DigiPlex and 3.5 million euro (currently
$3.3 million) in Servecast.com Limited and (v) used $28.3 million to fund 2000
operating loss. We intend to use the balance of the net proceeds (i) to fund an
estimated $65 million for the expansion of our network to intra-city networks
and (ii) for working capital and other general corporate purposes.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected consolidated financial data as
of and for the years ended December 31, 2000 and 1999 and as of and for the
period from our inception to December 31, 1998. The selected consolidated
financial data as of and for the years ended December 31, 2000 and 1999, and as
of and for the period from our inception to December 31, 1998 were derived from
our consolidated financial statements which were audited by Deloitte & Touche
Experta AG, independent auditors. The information set forth below is not
necessarily indicative of the results of future operations and should be read in
conjunction with our consolidated financial statements and related notes and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained elsewhere in this document.

Amounts are presented in thousands, except per share data.

YEAR ENDED YEAR ENDED INCEPTION TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................ $ 261,551 $ 97,117 $ 2,792
---------- ---------- ---------
Cost of services (exclusive of amounts shown separately
below)................................................ 264,973 113,809 11,669
Selling, general and administrative expenses............ 39,596 18,369 8,977
Depreciation and amortization........................... 33,445 13,849 1,409
---------- ---------- ---------
Loss from operations.................................... (76,463) (48,910) (19,263)
Other income (expense):
Interest income....................................... 20,245 5,859 92
Interest expense...................................... (31,711) (29,475) (11)
Other expense, net.................................... (2,147) (555) --
Currency exchange loss, net........................... (18,067) (15,418) (53)
---------- ---------- ---------
Loss before income tax benefit and extraordinary item... (108,143) (88,499) (19,235)
Income tax benefit, net of valuation allowance (1)...... -- -- --
---------- ---------- ---------
Loss before extraordinary item.......................... (108,143) (88,499) (19,235)
Extraordinary loss on early extinguishment of debt...... (3,789) -- --
---------- ---------- ---------
Net loss................................................ $ (111,932) $ (88,499) $ (19,235)
========== ========== =========
Weighted average number of shares outstanding (2)....... 40,455,000 29,752,000 7,367,000
Basic and diluted loss per common share: (3)
Net loss before extraordinary item.................... $ (2.67) $ (2.97) $ (2.61)
Extraordinary loss on early extinguishment of debt.... (0.10) -- --
---------- ---------- ---------
Net loss.............................................. $ (2.77) $ (2.97) $ (2.61)

OTHER FINANCIAL DATA:
EBITDA (4).............................................. $ (43,018) $ (35,061) $ (17,854)
Capital expenditures (5)................................ 284,431 195,376 37,168
Net cash used in operating activities................... (28,258) (77,895) (14,441)
Net cash used in investing activities................... (381,801) (253,711) (19,866)
Net cash provided by financing activities............... 566,240 353,450 37,770

BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 162,162 $ 28,504 $ 4,184
Restricted cash......................................... 24,429 5,512 1,518
Restricted investments (6).............................. 29,951 90,177 --
Total assets (7)........................................ 1,054,261 437,655 51,434
Total long-term debt (8)................................ 238,641 337,756 --
Shareholders' equity (deficit).......................... 525,104 (34,509) 19,189

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

(1) Due to our limited operating history, we were unable to conclude that
realization of our deferred tax assets in the near future was more likely
than not. Accordingly, a valuation allowance was recorded to offset the full
amount of such assets. See note 12 to our consolidated financial statements.

(2) See note 4 to our consolidated financial statements.

(3) Potential dilutive securities have been excluded from the computation for
all periods presented, as their effect is antidilutive. See note 4 to our
consolidated financial statements.

(4) EBITDA stands for earnings before interest, taxes, depreciation,
amortization, foreign currency exchange gains or losses, other income
(expense) and extraordinary items.

EBITDA is used by management and certain investors as an indicator of a
company's ability to service debt and to satisfy its capital requirements.
However, EBITDA is not a measure of financial performance under generally
accepted accounting principles and should not be considered as an
alternative to cash flows from operating, investing or financing activities
as a measure of liquidity or an alternative to net income as indications of
our operating performance or any other measure of performance derived under
generally accepted accounting principles. EBITDA as presented may not be
comparable to other similarly titled measures of other companies or to
similarly titled measures as calculated under our debt agreements.

(5) Consists of purchases of property and equipment and equity investments.

(6) Reflects:

(a) the remaining portion of the net proceeds of our 13 1/4% senior notes
which was used to purchase government securities to secure and fund the
first five scheduled interest payments on the notes, and

(b) amounts used to collateralize a letter of credit relating to the
construction of the German network.

See notes 7 and 8 to our consolidated financial statements.

(7) Includes net capitalized financing costs of approximately $8.7 million and
$14.2 million as of December 31, 2000 and 1999, respectively.

(8) For a description of indebtedness incurred subsequent to December 31, 1999,
see "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" contained elsewhere
in this document.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES. CERTAIN INFORMATION CONTAINED IN THE DISCUSSION
AND ANALYSIS OR SET FORTH ELSEWHERE IN THIS REPORT, INCLUDING INFORMATION WITH
RESPECT TO OUR PLANS AND STRATEGY FOR OUR BUSINESS AND RELATED FINANCING,
INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES. SEE
"ITEM 1. BUSINESS--RISK FACTORS" CONTAINED ELSEWHERE IN THIS DOCUMENT FOR A
DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE RESULTS DESCRIBED IN OR IMPLIED BY THE FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS REPORT.

OVERVIEW

In recent quarters and especially recent months, the overall economic
situation has worsened significantly. This is especially true for companies
operating in the technology and telecommunications related market segments. This
has affected, and will continue to affect, Carrier1. We recognize that a
sustained economic slowdown will affect companies operating in the technology
and telecommunications related markets segment and may have a material adverse
effect on our business. We have observed evidence of this slowdown in recent
public capital market sentiment and recent announcements of various technology
and telecommunications companies warning of slowing revenue growth and reduced
profits or increased financial losses. Even though we remain optimistic
regarding the long-term viability of the telecommunications industry, especially
in light of the continued growth of demand for services, we will pay very close
attention to the development of the overall economic situation within and
outside of our market segment.

Even though we expect our financial results for 2001 to demonstrate
continued growth and improved profitability, as a result of the above described
situation, we have decided to significantly increase our provisions for bad debt
from $0.9 million to $5.7 million in 2000. We may make further provisions for
bad debt during 2001 if the economic climate continues to deteriorate. These
increases will negatively affect our financial results for these periods.

However, given our relative financial strength and operational maturity, we
believe we will be able to gain additional customers from providers that we
expect will no longer be able to finance their respective business plans.
However, we cannot assure that we will be able to gain such customer
relationships or that these relationships will generate meaningful revenues for
us.

COMPANY OVERVIEW

We are an expanding European facilities-based provider of voice services and
data services (Internet, bandwidth and related telecommunications services). We
offer these services primarily to other telecommunications service providers.

Due to our focus on telecommunications service providers and other large
telecommunications users with similar needs, we service significantly fewer
customers than a telecommunications service provider directly addressing an end
user customer base. As a result, the loss of one customer or the shift in
traffic pattern of any one customer, especially in the near term, could have a
material adverse impact on our financial results. For the year ended
December 31, 2000, none of our customers accounted for more than 7% of our
revenues. Furthermore, substantially all customers we target for voice services
are price sensitive and may switch suppliers for certain routes on the basis of
small price differentials. In contrast, data service customers tend to use fewer
suppliers and, in general, cannot switch suppliers as easily as our voice
customers due to significant technical obstacles.

In furtherance of our core business strategy, we regularly explore possible
strategic alliances, joint ventures, acquisitions, business combinations and
other similar transactions, with a view to expanding our European and
international presence, securing cost-effective access to transmission capacity
or other products and services, or otherwise enhancing our business operations
and competitive position. Our industry is characterized by high levels of this
type of activity. We expect to continue to regularly explore opportunities with
other telecommunications companies. We believe that the flexibility to utilize
either cash or our publicly traded shares as a currency for possible
transactions may enhance our ability to pursue acquisitions or other business
combinations. Any future transaction may be significant to us, although no
assurance can be given that any transaction will occur.

In 1999, we decided to invest, together with Providence Equity Partners and
other financial and strategic shareholders, in DigiPlex S.A, formerly known as
HubCo S.A. To date, we have invested $10,000 during 1999 and $27.7 million
during 2000. As a result we have an approximately 15% equity interest in
DigiPlex as of December 31, 2000. In January 2001, we invested an additional
$4.3 million in DigiPlex. DigiPlex is developing a network of data centers in
major European markets. Our data centers with DigiPlex in Frankfurt, Geneva,
Oslo and Milan are leased on a 10 year term. We expect to compete with DigiPlex
and another shareholder of DigiPlex in providing data center capabilities.

To date, we have experienced net losses and negative cash flows from
operating activities. From our inception to September 1998, our principal
activities included developing our business plans, obtaining governmental
authorizations and licenses, acquiring equipment and facilities, designing and
implementing our voice and Internet networks, hiring management and other key
personnel and executing our initial customer service agreements. In
September 1998, we commenced the rollout of our services. During 1999, we
expanded our core service offerings across several countries in Europe such as
Germany, the United Kingdom, France, the Netherlands, Sweden and Belgium. During
that period, we also continued to construct and purchase our own network assets
to support our service rollout. During 2000, we not only continued our
geographic expansion but also concentrated on

launching new services such as a Virtual ISP service, new enhanced voice
services and value-added Internet transport services. During 2000, we also
finalized certain network construction projects and continued to expand our
networks into additional countries and further points of presence. We expect to
continue to generate net losses and negative cash flow through at least 2002 as
we expand our operations. Whether or when we will generate positive cash flow
from operating activities will depend on a number of financial, competitive,
regulatory, technical and other factors. See "--Liquidity and Capital Resources"
contained elsewhere in this document.

Although our management is highly experienced in the wholesale
telecommunications business, we have a limited operating history. Prospective
investors therefore have limited operating and financial information about us
upon which to base an evaluation of our performance and an investment in our
securities.

Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, or US GAAP. Our
fiscal year ends on December 31.

SERVICES OVERVIEW

We are focusing on providing voice services and data services (Internet,
bandwidth and related services), primarily to other telecommunications service
providers, at the high level of quality expected by European customers. For the
year ended December 31, 2000, we had $220.2 million of revenues from voice
services and $41.3 million of revenues from data services.

PRICING OF OUR SERVICES: Our agreements with our voice customers are
typically for an initial term of 12 months and will be renewed automatically
unless cancelled. They employ usage-based pricing and do not provide for minimum
volume commitments by the customer. Our data services are generally charged at a
flat monthly rate, based on the line speed and level of performance made
available to the customer. We offer usage-based Internet pricing but only in
combination with Internet transport contracts that have a flat-fee component
that guarantees minimum revenue, in order to encourage usage of our network
services by our Internet transport customers. Our agreements with our Internet
transport customers are generally for a minimum term of 12 months. Currently,
our bandwidth services are also typically for an initial term of 12 months,
although we expect to be able to offer more flexible pricing alternatives to
bandwidth customers in the future.

NETWORK/NETWORK OPERATIONS OVERVIEW

Network operating costs represent the cost to run the network and
transmission platforms. It includes the cost for the network operation center
and the customer care centers, the switch and router facilities costs and the
related maintenance and repair cost. To date we have made significant
investments in network related assets such as the actual network layer,
electronics, network equipment, information systems and monitoring tools. We
expect to continue to invest significant additional capital in our network and
related equipment in order to be able to provide high quality, low cost
services.

THREE YEARS ENDED DECEMBER 31, 2000

SUMMARY TABLE

PERIOD
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER
2000 1999 31, 1998
------------ ------------ ----------
$ 000, EXCEPT SHARES AND PER SHARE DATA

Voice Revenue........................................... $ 220,227 $ 87,619 $ 2,735
Data related revenue (Internet, infrastructure,
bandwidth)............................................ 41,324 9,498 57
---------- ---------- ----------

TOTAL REVENUE........................................... 261,551 97,117 2,792
Cost of services (exclusive of amounts shown separately
below)................................................ 264,973 113,809 11,669
---------- ---------- ----------

GROSS MARGIN............................................ (3,422) (16,692) (8,877)
Selling, general and administrative expenses............ 39,596 18,369 8,977
---------- ---------- ----------

EBITDA.................................................. (43,018) (35,061) (17,854)
Depreciation and amortization........................... 33,445 13,849 1,409
OTHER INCOME (EXPENSE):
Interest expense........................................ (31,711) (29,475) (11)
Interest income......................................... 20,245 5,859 92
Other income (expense).................................. (2,147) (555) --
Currency exchange gain (loss), net...................... (18,067) (15,418) (53)
---------- ---------- ----------
Total other income (expense)............................ (31,680) (39,589) (19,235)
---------- ---------- ----------

LOSS BEFORE INCOME TAX EXPENSE AND EXTRAORDINARY ITEM... (108,143) (88,499) (19,235)
Income tax expense...................................... -- -- --
---------- ---------- ----------
Loss before extraordinary item.......................... (108,143) (88,499) (19,235)

Extraordinary loss on early extinguishment of debt...... (3,789) -- --
---------- ---------- ----------
NET LOSS................................................ $ (111,932) $ (88,499) $ (19,235)
========== ========== ==========

BASIC AND DILUTED LOSS PER SHARE:
Loss before extraordinary item.......................... $ (2.67) $ (2.97) $ (2.61)
========== ========== ==========
Extraordinary loss on early extinguishment of debt...... $ (0.10) $ -- $ --
========== ========== ==========
Net loss................................................ $ (2.77) $ (2.97) $ (2.61)
========== ========== ==========

Weighted average shares outstanding..................... 40,455,000 29,752,000 7,367,000
========== ========== ==========

We define EBITDA as earnings before interest, taxes, depreciation,
amortization, foreign currency exchange gains or losses, other income (expense)
and extraordinary items. EBITDA is used by management and certain investors as
an indicator of a company's ability to service debt and to satisfy its capital
requirements. However, EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered as an
alternative to cash flows from

operating, investing or financing activities as a measure of liquidity or an
alternative to net income as indications of our operating performance or any
other measure of performance derived under generally accepted accounting
principles. EBITDA as presented may not be comparable to other similarly titled
measures of other companies or to similarly titled measures as calculated under
our debt agreements.

The financial information for the year ended December 31, 1998 is for the
period of operation since the inception of Carrier1 on February 20, 1998.

REVENUE

Revenues increased from $2.8 million in 1998 to $97.1 million in 1999 and to
$261.6 million in 2000. We divide our revenues into two principal categories:
voice services revenue and data services revenue. Voice services revenues
increased from $2.7 million in 1998 to $87.6 million in 1999 and to
$220.2 million in 2000. Data services revenues increased from $0.1 million in
1998 to $9.5 million in 1999 and to $41.3 million in 2000.

Increased revenue over the three-year period reflects significant growth in
demand for our service offerings from both new and existing customers, a variety
of new service introductions and a significant expansion of our addressable
market. We expanded in late 1999 and early 2000 our entire service portfolio
into three new countries (Italy, Spain and Belgium) and significantly enhanced
our data service offerings in all of our service countries. During the year
2000, we have focused on developing a number of enhanced voice services as well
as data services such as Internet access, value added Internet transport, a
Virtual ISP platform as well as a variety of content distribution and caching
service offerings. Another focal point was the development of partnerships with
other data services providers in order to help distribute our core services and
provide better end-user functionality to our customer's customers. During fiscal
1999, we concentrated on rolling out our basic voice services and Internet and
bandwidth services across the major countries in Europe such as Germany, United
Kingdom, France, Netherlands, and Sweden. Furthermore, we continued the
construction of our German fiber optic network and began extending our owned
network reach across other countries in Europe. During 1998, we finalized the
business-planning phase including our network roll out plan and began
construction of our German fiber optic network. We also focused on signing up
customers for our basic services and began delivering our basic voice and data
services during the latter part of 1998.

VOICE SERVICES: Revenues from wholesale voice services and enhanced voice
services, that is, the revenues we derived from calling cards, premium number
services and other enhanced voice services, increased from $2.7 million in 1998
to $87.6 million in 1999 and to $220.2 in 2000. Voice traffic volume increased
from 10 million minutes in 1998, to 0.6 billion minutes in 1999 and to
1.5 billion minutes in 2000. The average revenue per minute decreased from
26.9 cents in 1998 to 14.5 cents in 1999 and to 14.4 cents in 2000, a decrease
of 46% over the total period. The price decrease reflects a change in traffic
mix as well as overall price decreases for the voice services as a result of
increased competition.

The voice volume increases in 1999 and 2000 were driven not only by the
growth in our customer base, build out of our network, the formation of
subsidiaries and the establishing of sales teams in the Nordic countries, Italy
and Spain, but also due to the launch of the new enhanced services. The voice
customer base grew from 48 at the end of 1998 to more than 400 at the end of
2000. The change in revenue per minute is related to the traffic mix and price
changes.

In 1998 most of the traffic was refiled to destinations outside of Europe
generating a higher revenue per minute than is derived from European traffic
destinations. During 1999 and 2000, with the continuous build out of our
network, more than half of the voice traffic was terminated in Europe at a lower
revenue rate per minute but at a much higher profitability as this traffic was
mostly handled on our owned network.

DATA SERVICES: Repetitive data services revenues, that is, the revenues we
derived from internet transport, internet access services, managed bandwidth,
and data center services increased from $0.1 million in 1998 to $6.3 million in
1999 and to $26.1 million in 2000. Non-recurring data revenues or one-off sales,
such as duct sales and IRU duct sales, including those where title transfers to
the respective customer, increased from $0 in 1998 to $3.2 million in 1999 and
$15.2 million in 2000. Internet traffic volume for our Internet transport
services increased from approximately 56 Mbits sold in 1998 to 8,476 Mbits sold
in 2000. This increase in traffic volume reflects the underlying growth of
demand for Internet transport services by the overall market as well as our
specific customers. The average revenue per 2 Mbit equivalent decreased from
approximately $9,000 to approximately $2,000 for the same period, a decrease of
78%. This decrease in equivalent unit pricing reflects overall market price
declines for Internet capacity as well as significant discounting for larger
average contract quantities of Internet capacity per customer. In addition,
prices have decreased significantly due to the completion of new fiber optic
networks very similar to our network and increased network footprint by a number
of new entrants. These new providers pursued similar strategies, targeted a
similar customer group and thereby increased competition. Financial comparisons
for other data services, in particular Internet access, Virtual ISP and other
services, are not meaningful as these services have been introduced very
recently and, therefore, little information is available upon which to base such
comparisons.

COST OF SERVICES

Cost of services (exclusive of items shown separately) increased from
$11.7 million in 1998 to $113.8 million in 1999 and to $265.0 million in 2000.
Depreciation of our network assets is included in depreciation and amortization.

Cost of services consist of voice interconnection cost, Internet termination
costs, network operation cost, transmission cost and costs related to duct sales
and IRU duct sales with title transfer. Such cost increased from $11.7 million
to $265.0 million over the three-year period, an increase of 2,165%. The
increase was primarily attributable to interconnection payments associated with
the approximately 149 times the 1998 volume increase in traffic volume for our
voice services, additional network operating costs associated with the increased
demand for our repetitive data services, the development of new services and our
geographic expansion during 2000. The most significant portion of our costs of
services consisted of voice termination expenses, such as refiling, internet
termination costs, interconnect expenses for our Internet access services,
additional network operating costs, temporary or permanent leases for
transmission capacity as well as operating costs for the operation,
administration and maintenance of owned fiber.

OPERATING EXPENSES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased from $9.0 million in 1998 to $18.4 million in
1999 and to $39.6 million in 2000. The increase was primarily attributable to
additional personnel costs, in particular an increase of our sales force,
information technology costs, office costs and professional fees and expenses
necessary to manage and administer our overall growth. In addition, we also
increased our bad debt provision to $4.8 million during 2000. Expressed as a
percentage of revenues, selling, general and administrative expenses decreased
from 19% in 1999 to 15% in 2000. We generated more revenues per employee due to
the completion of our network and network operating systems that allow more
efficient provisioning and selling of larger capacities of communication
services.

DEPRECIATION AND AMORTIZATION: Depreciation and amortization expenses
increased from $1.4 million in 1998 to $13.8 million in 1999 and to
$33.4 million in 2000. The increase was primarily attributable to the completion
and initial operation of the German fiber ring, additional investments in ducts,
fiber, cables, electronics, network equipment, build out of data centers and
other furniture and

fixtures. Once again, the additional investments are mainly attributable to
growth of demand for our services and our geographic expansion of our network
footprint. Depreciation and amortization for 1999 and 1998 consisted primarily
of depreciation costs for network equipment, indefeasible rights of use, and
other furniture and equipment.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")

We define EBITDA as earnings before interest, taxes, depreciation,
amortization, foreign currency exchange gains or losses, other income (expense)
and extraordinary items. Our EBITDA for 2000 reflected a loss of $43.0 million,
compared with a loss of $35.1 million in 1999 and a loss of $17.9 million in
1998. Our EBITDA margin improved significantly from (36)% in 1999 to (16)% in
2000. The improvement of EBITDA margins can be attributed to an improvement of
our gross margins for all of our services. During 2000, we were able to reduce
these negative margins by moving traffic on-net thereby reducing leased line
costs, applying economies of scale to our direct out-payments, improving the
efficiency of our staff, increasing the relative revenue contributions from
higher margin products and services and introducing additional products and
services such as Virtual ISP and on-net managed bandwidth services.

IT SHOULD BE NOTED THAT EBITDA IS USED BY OUR MANAGEMENT AND CERTAIN
INVESTORS AS AN INDICATOR OF OUR ABILITY TO SERVICE DEBT AND TO SATISFY OUR
CAPITAL REQUIREMENTS. HOWEVER, EBITDA IS NOT A MEASURE OF FINANCIAL PERFORMANCE
UNDER US GAAP AND SHOULD NOT BE CONSIDERED AS AN ALTERNATIVE TO CASH FLOWS FROM
OPERATING, INVESTING OR FINANCING ACTIVITIES AS A MEASURE OF LIQUIDITY OR AN
ALTERNATIVE TO NET INCOME AS AN INDICATION OF OUR OPERATING PERFORMANCE OR ANY
OTHER MEASURE OF PERFORMANCE DERIVED UNDER US GAAP. EBITDA AS USED IN THIS
REPORT MAY NOT BE COMPARABLE TO OTHER SIMILARLY TITLED MEASURES OF OTHER
COMPANIES OR TO SIMILARLY TITLED MEASURES AS CALCULATED UNDER OUR DEBT
AGREEMENTS.

OTHER INCOME (EXPENSE)

INTEREST EXPENSE AND INTEREST INCOME. Net interest expense decreased from
$23.6 million in 1999 to $11.5 million in 2000. Interest income increased from
$92,000 in 1998 to $5.9 million in 1999 and to $20.2 million in 2000. This
increase is primarily attributable to interest earned on the net proceeds of our
initial public offering in March 2000. Interest expense increased from
$29.5 million in 1999 to $31.7 million in 2000. This increase is primarily
attributable to interest paid and accrued on our senior notes and other
borrowings, less capitalized interest of approximately $4.5 million in 2000 and
$1.5 million in 1999. No material interest expense was incurred in 1998.

OTHER INCOME (EXPENSE). Other expense increased from $0.6 million in 1999
to $2.1 million in 2000 due to the write-off of an investment in an IRU
resulting from to the bankruptcy of the service provider.

CURRENCY EXCHANGE (LOSS)--NET. Currency and exchange loss increased from
$53,000 in 1998 to $15.4 million in 1999 and $18.1 million in 2000. The increase
is primarily attributable to a continued strengthening of the U.S. dollar during
2000 in relation to most European currencies. No material currency exchange loss
was incurred during 1998.

LOSS BEFORE INCOME TAX BENEFIT AND EXTRAORDINARY ITEM

Our loss before income tax benefit and extraordinary item increased from
$19.2 million in 1998 to $88.5 million in 1999 and to $108.1 million in 2000.
The loss before income tax increased in both of our operating segments due to
the continued increase in personnel costs, costs associated with the development
and expansion of the customer base, new services, product development and entry
into new markets.

INCOME TAX BENEFIT

For each of the three periods, we generated tax losses on ordinary
activities and therefore did not incur a tax obligation other than a L100,000
($165,776) tax obligation to the United Kingdom in 1998.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

The costs associated with the initial installation and expansion of our
networks, including development, installation and initial operating expenses,
have been, and in new markets are expected to be, significant and will result in
an increasing negative cash flow. Negative cash flow is expected to continue in
each of our markets until an adequate customer base and related revenue stream
have been established. We believe that our operating losses and negative cash
flow will continue until at least 2002 as we expand our networks and service
offerings.

CASH FLOW INFORMATION

Net cash used in operating activities decreased to $28.3 million in fiscal
year ended 2000 compared to $77.9 million and $14.4 million in 1999 and 1998,
respectively. In each of the these years, cash used in operating activities was
primarily derived from loss before depreciation and amortization and from
changes in receivables, accounts payable and accrued liabilities. In 2000, net
cash used in operating activities also changed as a result of changes in current
and noncurrent deferred revenue of $97.0 million, combined, due to an increase
in IRU contracts executed.

Receivables increased by $80.1 million to $145.6 million at December 31,
2000 compared to $65.5 million and $5.9 million at December 31, 1999 and 1998,
respectively. Receivables increased during the three year period as a result of
increased volume and number of customers. Accounts payable and accrued
liabilities increased by $55.9 million to $172.6 million at December 31, 2000
compared to $116.7 million and $32.2 million at December 31, 1999 and 1998,
respectively. Accounts payable and accrued liabilities increased during the
three year period due to the expansion of the business.

Carrier1 used $381.8 million in cash for investing activities during 2000
compared to $253.7 million and $19.9 million during the year ended December 31,
1999 and the period February 20, 1998 to December 31, 1998, respectively. During
2000, Carrier1 purchased $197.2 million in available for sale securities in
euro-denominated bonds and $30.8 million in common stock investments. The Euro
bonds, in the amount of (u)30 million ($28.2 million) each, yield on average
approximately 4.8% per annum. The bonds have maturity dates ranging from
September 2001 to February 2003, although all are freely tradable should cash
requirements necessitate. The rest of the free cash, excluding a small working
balance, is invested in short term money market deposits with an interest rate
of approximately 4.0% for Euro deposits and approximately 7% for U.S. dollars
deposits. In addition, in 2000, Carrier1 purchased $221.3 million in property
and equipment compared to $160.9 million and $15.2 million for the year ended
December 31, 1999 and the period February 20, 1998 to December 31, 1998,
respectively, in order to invest in fiber infrastructure and transmission
equipment, along with the completion of the German network. During the ordinary
course of business, Carrier1 enters into purchase commitments for property and
equipment. As of December 31, 2000, outstanding purchase commitments totaled
$35.5 million. In addition, Carrier1 is obligated to make $126.7 million in non-
cancellable lease payments in the future and is scheduled to receive
$117.1 million in lease payments over a similar period. (See note 9 to our
consolidated financial statements for additional information.) In 1999, Carrier1
purchased $145.8 million of investments that are restricted for use to be used
as collateral for the line of credit securing certain construction commitments
and the terms of a long term debt agreement. Cash receipts related to the
restricted investments was $58.7 million and $53.1 million for the year ended
December 31, 2000 and 1999, respectively.

Net cash provided by financing activities was $566.2 million in 2000,
compared to $353.5 million and $37.8 million during the year ended December 31,
1999 and the period February 20, 1998 to December 31, 1998, respectively. On
March 1, 2000, we completed our initial public offering of 8,625,000 shares of
common stock (including the underwriters' overallotment of 1,125,000 shares) at
a

price of (u)87 per share (approximately $87.42 per share). We received proceeds
of approximately $681.6 million, net of underwriting discounts and commissions,
listing fees, and offering-related expenses. The net cash provided was used to
help fund the purchases of property and equipment, investments, operating losses
and the repayment on a portion of the long-term debt that was incurred during
1999.

From our inception through December 31, 1998, we financed our operations
through the initial equity contributions by our two founding investors
Providence Equity Partners and Primus Ventures. On February 19, 1999, we issued
$160 million and (u)85 million (currently $79.8 million) of 13 1/4% senior
notes, with a scheduled maturity of February 15, 2009, with detachable warrants.
These notes contain covenants that restrict Carrier1's ability to enter into
certain transactions including, but not limited to, incurring additional
indebtedness, creating liens, paying dividends, redeeming capital stock, selling
assets, issuing or selling stock of restricted subsidiaries, or effecting a
consolidation or merger.

As required by the terms of the notes, Carrier1 used approximately
$49.2 million of the net proceeds to purchase a portfolio of U.S. Government
securities and approximately (u)26.9 million ($29.8 million) of the net proceeds
to purchase a portfolio of European government securities, and pledged these
portfolios for the benefit of the holders of the respective series of notes to
collateralize and fund the first five interest payments. On February 18, 1999 we
entered into an agreement to purchase fiber optic cable for the German network
for $20.3 million plus value-added tax. We have borrowed an additional amount of
approximately $4.0 million under this agreement since December 31, 1999. We had
the right to defer payment until December 31, 2000 without interest, after which
we may obtain seller financing, with interest accruing from January 1, 2001. The
outstanding balance was repaid from the proceeds of our initial public offering.

In June 1999, we entered into a financing facility with Nortel
Networks Inc., an equipment supplier. As of December 31, 1999, we had borrowed
substantially the full amount of the $75 million available under the facility.
The debt outstanding under this facility bore interest at a LIBOR-based floating
interest rate, and the weighted average interest rate on outstanding amounts was
11.04% as of December 31, 1999. The debt was repaid from the proceeds of our
initial public offering.

In December 1999, we entered into an interim credit agreement with Morgan
Stanley Senior Funding, Inc. and Citibank N.A. As of December 31, 1999, we had
borrowed (u)10 million ($10.1 million) of the $200.0 million (or the euro
equivalent) available under the facility. This debt bore interest at a
LIBOR-based floating interest rate equal to 6.72% as of December 31, 1999. The
debt outstanding under this facility (40 million euros at the time of our
initial public offering) was repaid from the proceeds of our initial public
offering, and the facility terminated.

We believe that the net proceeds from the offerings discussed above together
with cash and marketable securities on hand and future capacity sales on our
network will provide sufficient funds for us to expand our business as planned
and to fund operating losses through 2002. However, the amount of future capital
requirements will depend on a number of factors, including:

- the overall success of our business;

- any acquisitions or investments we make;

- the start-up of each additional segment of our network;

- the dates on which we further expand our network;

- whether our network build-out is on-time and on-budget;

- the types of services we may offer in the future;

- staffing levels;

- customer growth; and

- the overall economic situation over the foreseeable future.

Additional factors that are not within our control, including competitive
conditions, government regulatory developments and capital, may also impact our
future capital requirements. Depending on the factors listed above, we may need
to issue additional debt, secure additional credit facilities, delay or abandon
some or all of our development and expansion plans or may be required to seek
other sources of funding. Carrier1 may not be able to secure any such financing,
if and when it is needed. Our inability to secure additional funding may have a
material adverse effect on our business.

FOREIGN CURRENCY

We report our financial results in U.S. dollars. We make interest and
principal payments on our 13 1/4% senior notes in U.S. dollars and euros.
However, the majority of our revenues and operating costs derived from sales and
operations outside the United States and are incurred in a number of different
currencies. Accordingly, fluctuations in currency exchange rates may have a
significant effect on our results of operations and balance sheet data.

During the third quarter of 2000, Carrier1 determined that the functional
currency of the Luxembourg holding company, Carrier 1 International S.A., had
clearly changed from the U.S. dollar to the euro due to significant changes in
economic facts and circumstances underlying our business. The functional
currencies of our subsidiaries have not changed and, in all instances, are the
respective local currency.

We applied this change prospectively as of the beginning of the third
quarter. As a result of this change, transactions entered into by the holding
company that are denominated in currencies other than the Euro are now
translated into Euros in accordance with Statement of Financial Accounting
Standards No. 52, Foreign Currency Translation.

The net effect of this change in functional currency for the six months
ended December 31, 2000 was to increase the currency exchange loss (net) and the
net loss reported in the statement of operations by approximately $0.8 million
and to reduce the negative currency translation adjustment component of other
comprehensive income (loss) reported in the statement of shareholders' equity by
approximately $0.8 million.

The euro has eliminated exchange rate fluctuations among the 11
participating European Union member states. Adoption of the euro has therefore
reduced the degree of intra-Western European currency fluctuations to which we
are subject. We will, however, continue to incur revenues and operating costs in
non-euro denominated currencies, such as pounds sterling.

Although we do not currently engage in exchange rate-hedging strategies, we
may attempt to limit foreign exchange exposure by purchasing forward foreign
exchange contracts or engage in other similar hedging strategies. Any reversion
from the euro currency system to a system of individual country floating
currencies could subject us to increased currency exchange risk.

INFLATION

We do not believe that inflation has had, or in the foreseeable future will
have, a material effect on our results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard was subsequently amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging

Activities--Deferral of The Effective Date of FASB Statement No. 133" and SFAS
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." These statements establish accounting and reporting standards for
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The adoption of SFAS 133, as amended, is effective for the first
quarter of our fiscal year ending December 31, 2001. Management has determined
that this standard will not have a material effect on our consolidated financial
statements.

BUSINESS OUTLOOK

CARRIER1 OUTLOOK

For 2001, we expect to grow our revenues to between $420 million and
$450 million, an increase of 58% to 70% over 2000. Data services revenues are
assumed to generate approximately 40% of our total revenues. We expect to
generate positive earnings before interest, taxes, depreciation and
amortization, foreign currency exchange gains or losses, other income (expense)
and extraordinary items ("EBITDA") for 2001. We furthermore expect to increase
the portion of total traffic volumes over our owned network infrastructure
thereby reducing leased network costs. At the same time, we project our selling,
general and administrative costs to decrease in proportion to total revenues to
approximately 13% during 2001.

We expect to make investments ranging from $170 to $200 million in 2001
mainly on extending our long haul networks, introducing new data technologies
servicing our existing platforms and constructing or purchasing additional
intracity fibre networks.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Because our outstanding debt at December 31, 2000 is fixed-rate debt, a
change in market interest rates has no material effect on our earnings, cash
flows or financial condition.

We are exposed to market risk from changes in foreign currency exchange
rates. Our market risk exposure exists from changes in foreign currency exchange
rates associated with our non-derivative financial instruments, such as our
13 1/4% senior dollar notes, and with transactions in currencies other than
local currencies in which we operate. As of December 31, 2000, we did not have a
position in futures, forwards, swaps, options or other similar financial
instruments to manage the risk arising from our foreign currency exchange rate
exposures.

In addition, we have foreign currency exposures related to purchasing
services and equipment and selling our services in currencies other than the
local currencies in which we operate. The introduction of the euro has
significantly reduced the degree of intra-Western European currency fluctuations
to which we are subject as of December 31, 2000 (other than fluctuations in
currencies that were not converted to the euro, such as the British pound and
the Swiss franc). Additionally, we are exposed to cash flow risk related to debt
obligations denominated in foreign currencies, particularly our 13 1/4% senior
dollar notes.

The table below presents principal cash flows and related average interest
rates for our obligations by expected maturity dates as of December 31, 2000.
The information is presented in U.S. dollar equivalents, our reporting currency,
using the exchange rate at December 31, 2000. The actual cash

flows are payable in either U.S. dollars (US$) or euro (u), as indicated in the
parentheses. Average variable interest rates are based on our borrowing rate as
of December 31, 2000. Fair value of the dollar and euro notes was estimated
based on quoted market prices. Fair value for all other debt obligations was
estimated using discounted cash flows analyses, based on our borrowing rate as
of December 31, 2000.

EXPECTED MATURITY DATE 2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE
- ---------------------- -------- -------- -------- -------- -------- ---------- -------- ----------
(IN THOUSANDS)

Notes payable:
Fixed rate (u)............... $ 79,842 $ 79,842 $ 55,490
Interest rate................ 13.25% 13.25%
Fixed rate ($)............... $160,000 $160,000 $111,200
Interest rate................ 13.25% 13.25%

Other long-term debt:
Fixed rate ($)............... $2,838 $753 $ 3,591 $ 3,591
Interest rate................ 9.7% 9.7%

The cash flows in the table above are presented in accordance with the
maturity dates defined in the debt obligations. However, the dollar and euro
notes allow for early redemption at specified dates in stated principal amounts,
plus accrued interest. We have not determined if these debt obligations will be
redeemed at the specified early redemption dates and amounts. We may elect to
redeem these debt obligations early at a future date. Cash flows associated with
the early redemption of these debt obligations are not assumed in the table
above. Should we elect to redeem these debt obligations earlier than the
required maturities, the cash flow amounts in the table above could change
significantly.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED QUARTERLY FINANCIAL DATA

The following table sets forth our consolidated financial data as of and for
the three-month periods ended December 31, September 30, June 30 and March 31,
2000 and December 31, September 30, June 30 and March 31, 1999. The consolidated
financial data were derived from our unaudited consolidated financial statements
and include, in the opinion of our management, all adjustments, consisting
solely of normal recurring adjustments, necessary to present fairly the data for
such period. The information set forth below is not necessarily indicative of
the results of future operations and should be read in conjunction with the rest
of this discussion and with our consolidated financial statements and related
notes.

UNAUDITED QUARTERLY INFORMATION

THREE MONTHS ENDED
----------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30,
2000 2000 2000 2000 1999 1999
------------ ------------- -------- --------- ------------ -------------
($ IN THOUSANDS)

Revenue (1),(3)............... $ 76,195 $ 76,558 $ 57,531 $ 51,267 $ 37,319 $ 27,311
Cost of services (exclusive of
amounts shown separately
below) (1).................. 75,624 76,346 58,467 54,536 41,905 32,543
Selling, general and
administrative expenses..... 14,094 8,699 9,l65 7,638 7,688 4,216
Depreciation and
amortization................ 10,865 9,201 7,228 6,151 6,032 4,183
-------- -------- -------- -------- -------- --------
Loss from operations
(1),(3)..................... (24,388) (17,688) (17,329) (17,058) (18,306) (13,631)
Other income (expense):
Interest income............. 5,661 5,494 6,406 2,684 772 2,009
Interest expense............ (7,818) (8,057) (5,712) (10,124) (8,152) (8,718)
Other income (expense)........ (2,145) 4 (3) (3) (117) (25)
Currency exchange gain (loss),
net......................... 8,065 (10,307) 3,862 (19,687) (10,200) 1,931
-------- -------- -------- -------- -------- --------
Loss before income tax benefit
and extraordinary
item (1),(3)................ (20,625) (30,554) (12,776) (44,188) (36,003) (18,434)
Income tax benefit, net of
valuation allowance......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Loss before extraordinary
item (1),(3)................ (20,625) (30,554) (12,776) (44,188) (36,003) (18,434)
Extraordinary item (2)........ -- -- -- (3,789) -- --
-------- -------- -------- -------- -------- --------
Net loss (1),(3).............. $(20,625) $(30,554) $(12,776) $(47,977) $(36,003) $(18,434)
======== ======== ======== ======== ======== ========
Basic and Diluted Loss Per
Common Share:
Loss before extraordinary
item (1),(3).............. $ (0.49) $ (0.73) $ (0.31) $ (1.21) $ (1.21) $ (0.59)
Extraordinary loss on early
extinguishment of debt
(2)....................... -- -- -- (0.10) -- --
-------- -------- -------- -------- -------- --------
Net loss (1),(2),(3).......... $ (0.49) $ (0.73) $ (0.31) $ (1.31) $ (1.21) $ (0.59)
======== ======== ======== ======== ======== ========

THREE MONTHS ENDED
--------------------
JUNE 30, MARCH 31,
1999 1999
-------- ---------
($ IN THOUSANDS)

Revenue (1),(3)............... $ 20,194 $ 12,293
Cost of services (exclusive of
amounts shown separately
below) (1).................. 22,346 17,015
Selling, general and
administrative expenses..... 3,147 3,318
Depreciation and
amortization................ 2,298 1,336
-------- --------
Loss from operations
(1),(3)..................... (7,597) (9,376)
Other income (expense):
Interest income............. 2,099 979
Interest expense............ (8,400) (4,205)
Other income (expense)........ (413) --
Currency exchange gain (loss),
net......................... (4,721) (2,428)
-------- --------
Loss before income tax benefit
and extraordinary
item (1),(3)................ (19,032) (15,030)
Income tax benefit, net of
valuation allowance......... -- --
-------- --------
Loss before extraordinary
item (1),(3)................ (19,032) (15,030)
Extraordinary item (2)........ -- --
-------- --------
Net loss (1),(3).............. $(19,032) $(15,030)
======== ========
Basic and Diluted Loss Per
Common Share:
Loss before extraordinary
item (1),(3).............. $ (0.63) $ (0.53)
Extraordinary loss on early
extinguishment of debt
(2)....................... -- --
-------- --------
Net loss (1),(2),(3).......... $ (0.63) $ (0.53)
======== ========

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

(1) Reflects impact of revenue previously recorded in the fourth quarter of 2000
related to an infrastructure contract that should have been recorded in the
third quarter. This transaction increased revenue as previously reported by
$0.9 million, cost of services as previously reported by $0.8 million and
net loss as previously reported by $0.1 million in the third quarter.

(2) Reflects a reclassification of the write-off of financing costs related to
the early repayment of debt associated with the Nortel financing facility
and Morgan Stanley interim credit facility in March 2000 previously reported
in interest expense.

(3) Reflects impact of revenue previously recorded in the third quarter of 2000
related to infrastructure and bandwidth contracts that should have been
recorded in future periods. These transactions decreased revenue and
increased net loss by $1.7 million.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have not been any changes in or disagreements with our accountants
regarding our accounting and financial disclosure during 2000, 1999 or 1998.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors of Carrier1 International and our executive officers and other key
employees as of December 31, 2000.

NAME AGE POSITION WITH CARRIER1
- ---- -------- ----------------------------------------------------------

Stig Johansson.................... 58 Chief Executive Officer, President and Director of
Carrier1 International
Eugene A. Rizzo................... 49 Executive Vice President, Voice & Access Services
Terje Nordahl..................... 53 Chief Operating Officer
Joachim W. Bauer.................. 56 Executive Vice President & Chief Financial Officer
Kees van Ophem.................... 38 Executive Vice President, Corporate Services and General
Counsel
Neil E. Craven.................... 32 Executive Vice President, Infrastructure Development &
Bandwidth Sales
Alex Schmid....................... 32 Executive Vice President, Strategic Development
Pim Versteeg...................... 44 Executive Vice President, Broadband Solutions
Philip Poulter.................... 50 Managing Director of Sales, United Kingdom and Ireland
Edward A. Gross................... 42 Managing Director of Sales, Germany, Austria, Switzerland
and Central and Eastern Europe
Isabelle Russier.................. 36 Managing Director of Sales, France
Marcus J. Gauw.................... 40 Managing Director of Sales, Benelux
Carlos Colina..................... 48 Managing Director of Sales, North America
Oscar Escribano................... 42 Managing Director of Sales, Spain and Portugal
Thomas Svalstedt.................. 48 Managing Director of Sales, Nordic and Baltic Regions
Sebastiano Galantucci............. 34 Managing Director of Sales, Italy and Greece
Glenn M. Creamer.................. 38 Director of Carrier1 International
Jonathan E. Dick.................. 42 Director of Carrier1 International
Mark A. Pelson.................... 38 Director of Carrier1 International
Victor A. Pelson.................. 63 Director of Carrier1 International
Thomas J. Wynne................... 60 Director of Carrier1 International

STIG JOHANSSON has served as a director of Carrier1 International since
August 1998 and as our Chief Executive Officer and President since March 1998
and has more than 30 years of experience in the telecommunications industry.
Prior to founding Carrier1, Mr. Johansson was President of Unisource Carrier
Services AG from September 1996 until February 1998, where he was responsible
for transforming Unisource Carrier Services from a network development and
planning company into a fully commercial, wholesale carrier of international
traffic. Mr. Johansson was a member of Unisource N.V.'s supervisory board from
1992 until 1996. Prior to joining Unisource Carrier Services, Mr. Johansson
worked for Telia AB, the Swedish incumbent telephone operator, where he was most
recently Executive Vice President. During his 26 years at Telia, Mr. Johansson
held a variety of positions. He began in 1970 working in engineering operations
and rose to head of strategic network planning (1977), general manager of the
Norrkoping Telecom region (1978), head of CPE-business division (1980),
executive vice president and marketing director of Televerkit/Telia AB (1984)
and Executive Vice President responsible for Telia's start-up operations in the
Nordic countries and the

United Kingdom (1995). He was a member of Telia's corporate management board
from 1985 to 1996. Mr. Johansson holds a Master's degree in Business Economics
from Hermods Institut, Sweden and a degree of Engineer of Telecommunications
from Luleo College, and he completed a senior executive business course at IMD
in Lausanne, Switzerland. He is a citizen of Sweden.

EUGENE A. RIZZO has served as our Executive Vice President, Voice & Access
Services since March 1998 and has over 23 years of experience in international
sales and marketing and 11 years of experience in the telecommunications
industry. From 1993 to 1998, Mr. Rizzo managed sales and marketing groups for
several affiliates of Unisource NV, including Unisource Carrier Services and
AT&T-Unisource Communications Services, an international joint venture between
AT&T Corp. and Unisource NV. Prior to joining Unisource, Mr. Rizzo held various
marketing and management positions with International Business Machines
Corporation, or "IBM", Wang Laboratories, Inc. and Tandem Computers Inc. While
at Tandem, Mr. Rizzo assisted in the start-up of Tandem's European Telco Group.
Mr. Rizzo holds a Master of Business Administration degree from the University
of Massachusetts. He is a citizen of the United States.

TERJE NORDAHL has served as our Chief Operating Officer since March 1998 and
has 27 years of experience in telecommunications operations. Mr. Nordahl also
has extensive experience in the computer and Internet industry. As a Managing
Director at Unisource Business Networks BV from 1997 to 1998, he established and
built the Unisource Business Data Network in Norway. From 1995 to 1997,
Mr. Nordahl was President of Telia AS (Norway), Telia's subsidiary in Norway,
where he supervised the building of an ATM backbone network with integrated
voice and data services. From 1993 to 1995, Mr. Nordahl established and operated
Creative Technology Management AS, which provided business development services
for government and industrial organizations. Prior to establishing CTM,
Mr. Nordahl held engineering, development and marketing positions with various
companies, including IBM and telecommunications companies affiliated with
Ericsson (L.M.) Telephone Co. and ITT Corp. Mr. Nordahl holds a First Honors
Bachelor of Science degree from Heriot-Watt University, Edinburgh and has
completed the INSEAD Advanced Management Program. He is a citizen of Norway.

JOACHIM W. BAUER has served as our Executive Vice President & Chief
Financial Officer since March 1998 and has seven years of experience in the
telecommunications industry. From 1994 to 1998, Mr. Bauer served as Chief
Financial Officer of Unisource Carrier Services. Before joining Unisource
Carrier Services, Mr. Bauer held various management positions with IBM and its
affiliates, including Controller of IBM (Switzerland). Mr. Bauer graduated from
a commercial school in Zurich, was educated at IMEDE business school, Lausanne,
Switzerland, and completed the senior executive program of the Swiss Executive
School (SKU). Mr. Bauer holds a Certified Diploma in Accounting and Finance
(CPA). He is a citizen of Germany.

KEES VAN OPHEM has served as our Executive Vice President, Corporate
Services and General Counsel since March 1998, with responsibility for
interconnection, licensing, legal affairs and carrier relations. Mr. van Ophem
has nine years of experience in the telecommunications industry. Prior to
joining us, he was Vice President, Purchase and General Counsel for Unisource
Carrier Services from 1994 to 1998 and was on its management board from its
inception in early 1994. From 1992 to 1994 Mr. van Ophem served as legal counsel
to Royal PTT Nederland NV (KPN), with responsibility for the legal aspects of
its start-up ventures in Hungary, Bulgaria, Czech Republic and Ukraine and the
formation of Unisource Carrier Services. Prior to joining KPN, Mr. van Ophem
worked at law firms in Europe and the United States. Mr. van Ophem holds a Juris
Doctorate degree from the University of Amsterdam and, as a Fulbright scholar, a
Master of Laws degree in International Legal Studies from New York University.
He is a citizen of The Netherlands.

NEIL E. CRAVEN has served as our Executive Vice President, Infrastructure
Development & Bandwidth Sales since March 1998 and has seven years of experience
in the telecommunications

industry. From 1995 to 1998, Mr. Craven was a member of the management team at
Unisource Carrier Services, initially responsible for Corporate Strategy and
Planning and later serving as Vice President of Business Development. Prior to
joining Unisource Carrier Services, Mr. Craven was employed by Siemens AG in
Germany, where he worked on various international infrastructure projects.
Mr. Craven has an Honors degree in Computer Engineering from Trinity College,
Dublin and a Master of Business Administration degree from the Rotterdam School
of Management. He is a citizen of Ireland.

ALEX SCHMID has served as our Executive Vice President, Strategic
Development since December 1999 and has over eight years of experience in
international telecommunications, Internet technology and media industry
investments. Immediately prior to joining us, Mr. Schmid was the General Partner
of personal investment vehicles targeting the technology, Internet,
telecommunications and media industries. From February 1996 until
September 1998, Mr. Schmid was a Managing Director and Head of Private Equity
for the Bank Austria Group, where he was responsible for investing primarily in
European telecommunications and telecommunications-related companies and
investment vehicles. Mr. Schmid also served on the board of directors of Central
Europe Telecom Investment L.P., a venture capital fund targeting investments in
telecommunications and telecommunications-related companies in Central Europe.
From August 1995 until February 1996, Mr. Schmid was a Vice President at AIG
Capital Partners. From March 1993 until August 1995, Mr. Schmid was an Associate
of the Private Equity Group at Creditanstalt. Mr. Schmid is a graduate of the
Wharton School at the University of Pennsylvania with a Bachelor of Science in
Economics. He is a German citizen.

PIM VERSTEEG has served as our Executive Vice President, Broadband Solutions
since September of 2000, and before that as our Chief Technology Officer and
Director for Special Solutions & Customer Engineering since April 1999. Prior to
joining Carrier1, Mr. Versteeg was a Sales Director for European Carriers at
Nortel Networks from August 1996 to March 1999. Mr. Versteeg is a retired
Lieutenant Colonel from the Dutch Army. He began his telecommunications career
in 1991 with the Army with the responsibility to design and implement the
Ministry of Defense's national SDH and data networks. Mr. Versteeg is a graduate
of the Military Academy of the Netherlands and holds Bachelor's Degrees in
Business Administration and Computer Science. He is a citizen of The
Netherlands.

PHILIP POULTER has served as our Managing Director of Sales, United Kingdom
and Ireland since June 1998 and has over 31 years of experience in the
telecommunications industry. Prior to joining us, Mr. Poulter was Operations
Director of ACC Long Distance U.K. Ltd., a switch-based provider of
telecommunications services, from December 1997 to June 1998. From March 1997 to
December 1997, Mr. Poulter served as Network & Carrier Services Director of ACC.
From August 1996 to March 1997, Mr. Poulter was Managing Director of Nelcraft
Services Ltd., a provider of installation and maintenance services relating to
the cable television and telecommunications industries. From March 1995 to
August 1996, Mr. Poulter served as Carrier Manager of ACC. From 1993 to 1995,
Mr. Poulter was employed as Sales Director for Business Communication for
Videotron Corporation Ltd., a U.K. provider of cable television and telephony
services. Prior to joining Videotron, Mr. Poulter held various management, sales
and engineering positions, including more than fifteen years of experience in
designing and implementing telecommunications switching and transmission systems
for British Telecom. Mr. Poulter is a director of Carrier1 U.K. Ltd., a
subsidiary of Carrier1 International. Mr. Poulter has a Final Certificate in
Electronics and Communications from the London C & G Institute. He is a citizen
of the United Kingdom.

EDWARD A. GROSS has served as our Managing Director of Sales, Germany,
Austria and Switzerland since May 1998 and has over 21 years of experience in
the telecommunications and networking industries. Prior to joining us,
Mr. Gross served as Sales Director, Germany for Unisource Carrier Services from
December 1996 to May 1998. From March 1996 to December 1996, Mr. Gross served as
Director of Customer Services Engineering-Central Europe for AT&T-Unisource.
From 1992 to 1996, Mr. Gross was a member of the management team at Unisource
Business Networks, where he was responsible for the start-up of operations in
Germany and Austria and subsequently served as Director

of Customer Services. Prior to joining Unisource Business Networks, Mr. Gross
was employed by Unisys Corporation for more than 14 years, during which time he
held various positions in network support and software development, primarily in
Germany as well as South Korea and the United States. Mr. Gross holds a Bachelor
of Science degree in Management Studies from the University of Maryland and has
completed the Accelerated Development Program at London Business School. He is a
citizen of the United States.

ISABELLE RUSSIER has served as our Managing Director of Sales, France since
August 1998 and has five years of experience in the telecommunications industry.
From November 1997 to July 1998, Ms Russier was employed in London by ACC, where
she handled various projects in its Business Development Europe Division. From
December 1995 to October 1997, Ms Russier was employed in France as General
Manager of Sales for UNIFI Communications, Inc., a U.S.-based telecommunications
value-added service provider. From 1992 to 1995, she worked for Apple
Computer, Inc., most recently as a Regional Sales Director, and from 1987 to
1992, she was employed by Intel Corp. in a variety of sales positions.
Ms Russier holds an Engineering degree in Microelectronics and a European Master
of Business Administration degree (ISA) from the HEC School of Management. She
is a citizen of France.

MARCUS J. GAUW has served as our Managing Director of Sales, Benelux since
June 1999 and prior to that had served as our Managing Director of Sales,
Internet, since May 1998. He has 15 years of experience in the
telecommunications industry. From 1996 to 1998, Mr. Gauw served as Sales Manager
for Internet Transit Services at AT&T-Unisource, and from 1994 to 1996, he
served as Sales Manager, Voice Services at AT&T-Unisource. From 1992 to 1994,
Mr. Gauw was a Senior Sales Consultant for Unisource Business Networks. Prior to
joining Unisource Business Networks, Mr. Gauw was employed by KPN for
approximately seven years, during which time he held various positions in sales
and marketing. Mr. Gauw holds a Bachelor's degree in Telecommunications and
Electronics from Hogere Technische School, Alkmaar, The Netherlands. He is a
citizen of The Netherlands.

CARLOS COLINA has served as our Managing Director of Sales, North America
since March 1999 and before that as its Manager, Carrier Sales-North America
since September 1998. He has over 25 years of experience in the
telecommunications industry. Prior to joining us, Mr. Colina handled various
sales and marketing assignments with AT&T, including responsibility for
directing AT&T's efforts in the assessment and analysis of the international
business switched services marketplace from 1993 to 1998. Mr. Colina has
extensive training in voice and data communications and holds a Bachelor's
degree in Information Sciences from Fordham University. He also has completed
the Wharton School of Business/AT&T business education program. He is a citizen
of the United States.

OSCAR ESCRIBANO has served as our Managing Director of Sales, Spain and
Portugal since December 1999 and has 14 years experience in the
telecommunications industry. Prior to joining us, Mr. Escribano held various
positions in sales management at Unisource Carrier Services from 1995 to 1999,
among them Director of Sales for Internet Services and Director of Sales
Southern Europe. From 1986 to 1995, he worked for Telefonica, where he served as
Project Manager for planning and procurement of fixed telephony and data
networks, as well as satellite communications. Prior to his involvement in the
telecommunications industry, Mr. Escribano worked four years as an engineer in
the field of Safety of Nuclear Power Plants. Mr. Escribano holds an Engineering
degree in Power and Energy from the Politechnical University of Madrid. He is a
citizen of Spain.

THOMAS SVALSTEDT has served as our Managing Director of Sales for the Nordic
and Baltic Regions since April 1999 and has 24 years of experience in the
telecommunications industry. Prior to joining us, Mr. Svalstedt was the Managing
Director for Corporate Business and a member of the Management Board at Telecom
Eireann in Ireland from 1997 to 1999. From 1993 to 1997, he was the Nordic
Region's Managing Director for Unisource. Mr. Svalstedt was the Sales Director
for Telia Megacom, Telia's company for corporate business customers, from 1991
to 1993. From 1976 to 1991, Mr. Svalstedt

held various positions in sales management and project management at the Telia
Group and for different data communications companies in the Nordic Region.
Mr. Svalstedt holds a Masters Degree in Business Administration from the
Stockholm School of Economics. He is a citizen of Sweden.

SEBASTIANO GALANTUCCI has served as our Managing Director of Sales for Italy
and Greece since January 1, 2000. He has 13 years of experience in the
telecommunications industry. Prior to joining us, Mr. Galantucci held various
positions in sales and marketing management at Telecom Italia and Telemedia
International, most recently as Area Sales Manager for International Accounts
from December 1998 to December 1999. From 1995 to 1998, Mr. Galantucci worked in
Singapore and then Hong Kong for the Asia Pacific Area of Telemedia where he
served as a Marketing & Sales Manager and Senior Marketing Manager,
respectively. Prior to working overseas, Mr. Galantucci worked from 1987 to 1993
in planning and project implementation for Telecom Italia in Milan, Italy.
Mr. Galantucci holds a Degree in Business Administration from the Cattolica
University of Milan and a Diploma in Marketing from the University of Hong Kong.
He is a citizen of Italy.

GLENN M. CREAMER has served as a director of Carrier1 International since
August 1998. Mr. Creamer has been a Managing Director of Providence Equity
Partners Inc. since its inception in 1996 and is also a General Partner of
Providence Ventures L.P., which was formed in 1991. Mr. Creamer is a director of
Celpage, Inc., Epoch Networks, Inc., DigiPlex S.A. (formerly Hubco S.A.), and
360networks inc. Mr. Creamer received a Bachelor of Arts degree from Brown
University and a Master of Business Administration degree from the Harvard
Graduate School of Business Administration. He is a citizen of the United
States.

JONATHAN E. DICK has served as a director of Carrier1 International since
August 1998. Mr. Dick has been a Managing Director of Primus Venture
Partners, Inc. since December 1993. Prior to joining Primus in June 1991,
Mr. Dick held various positions in sales management at Lotus Development
Corporation. Mr. Dick is also a director of Paycor, Inc., PlanSoft Corporation
and Spirian Technologies, Inc. Mr. Dick received a Bachelor of Science degree in
Applied Mathematics and Economics from Brown University and a Master of Business
Administration degree from the Harvard Graduate School of Business
Administration. He is a citizen of the United States.

MARK A. PELSON has served as a director of Carrier1 International since
August 1998. Mr. Pelson is a Principal of Providence Equity Partners Inc., which
he joined in August 1996. Prior to 1996, Mr. Pelson was a co-founder and
director, from 1995 to 1996, of TeleCorp., Inc., a wireless telecommunications
company, and from 1989 to 1995 served in various management positions with AT&T,
including most recently as a general manager of strategic planning and mergers
and acquisitions. Mr. Pelson is a director of Madison River Telephone Company,
L.L.C., Mpower Communications Corp., Global Metro Networks and Language Line
Holdings, LLC. Mr. Pelson received a Bachelor of Arts degree from Cornell
University and a Juris Doctorate from Boston University. Mr. Pelson is the son
of Victor A. Pelson. He is a citizen of the United States.

VICTOR A. PELSON has served as a director of Carrier1 International since
January 1999. Mr. Pelson is a Senior Advisor to UBS Warburg LLC, an investment
banking firm. He was a Director and Senior Advisor of Dillon, Read & Co. Inc. at
the time of its merger in 1997 with SBC Warburg. Before joining Dillon, Read in
April 1996, Mr. Pelson was associated with AT&T from 1959 to March 1996, where
he held a number of executive positions, including Group Executive and President
responsible for the Communications Services Group, Executive Vice President and
member of the Management Executive Committee. At his retirement from AT&T,
Mr. Pelson was Chairman of Global Operations and a member of the board of
directors. Mr. Pelson is a director of Eaton Corporation, Dun & Bradstreet
Corporation, United Parcel Service, Inc. and Acterna Corporation. Mr. Pelson
received a Bachelor of Science degree in Mechanical Engineering from New Jersey
Institute of Technology and a Master of Business Administration degree from New
York University. Mr. Pelson is the father of Mark A. Pelson. He is a citizen of
the United States.

THOMAS J. WYNNE has served as a director of Carrier1 International since
January 1999. Mr. Wynne is currently a partner with Sycamore Creek Development
Co. He is also chairman of the board of directors of Aerie Networks Inc., a
privately held U.S. company which is building a U.S. based fiber network. He was
President and Chief Operating Officer of LCI International Inc. and its
subsidiaries from July 1991 to October 1997. From 1977 to 1991, Mr. Wynne held
several executive positions with MCI Communications Corp., including President
of the West Division, Vice President of Sales and Marketing for the Mid-Atlantic
Division, and Vice President in the Midwest Division. Mr. Wynne holds a Bachelor
of Science degree in Political Science from St. Joseph's University. He is a
citizen of the United States.

BOARD OF DIRECTORS

The general affairs and business of Carrier1 International are managed by
the board of directors. Carrier1 International's articles of incorporation
provide for at least three directors appointed by a general meeting of
shareholders for terms no greater than six years. Under the articles, the number
and terms of directors are to be determined, and each director may be reelected
or removed at any time, by a general meeting of shareholders. Directors are not
required to hold any shares in Carrier1 International in order to serve as
directors. Carrier1 International is bound by the joint signature of two
directors or the sole signature of a managing director for ordinary course
management decisions, if one has been appointed by the board. Carrier1
International currently has six directors and has no persons appointed as
corporate officers. Each director was appointed to hold office for a term of six
years.

COMMITTEES OF THE BOARD OF DIRECTORS

Our board has an audit committee, with a written charter. The audit
committee, consisting of Messrs. Dick, Wynne and M. Pelson, is responsible for
reviewing the services provided by our independent auditors, our annual
financial statements and our system of internal accounting controls.

COMPENSATION OF DIRECTORS

Carrier1 International will reimburse the members of the board for their
reasonable out-of-pocket expenses incurred in connection with attending board
meetings. Additionally Carrier1 International maintains directors' and officers'
liability insurance. Carrier1 International has granted 20,000 options to
purchase shares to each of Messrs. Wynne and V. Pelson. Members of the board
receive no other compensation for services provided as directors.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors, officers, and
persons who own more than 10% of a registered class of our equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. These regulations require the directors, officers, and
greater than 10% shareholders to furnish us with copies of all Section 16(a)
forms they file. Based solely upon our review of the copies of such forms
received by us during the fiscal year ended December 31, 2000, and written
representations that no other reports were required, we believe that each person
who, at any time during such fiscal year was a director, officer, or beneficial
owner of more than 10% of our common stock, complied with all Section 16(a)
filing requirements during such fiscal year, except that during fiscal 2000,
Mr. Dick filed a Form 5 covering his initial statement of beneficial ownership
that was not timely filed on Form 3, Primus Capital Fund IV L.P. filed a Form 5
covering its initial statement of beneficial ownership that was not timely filed
on Form 3, and Mr. Versteeg has not timely filed a Form 3 covering his initial
statement of beneficial ownership.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY EXECUTIVE COMPENSATION TABLE

The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, our Chief Executive
Officer and our other four most highly compensated executive officers during the
periods from March 4, 1998 through December 31, 1998, from January 1, 1999
through December 31, 1999 and from January 1, 2000 through December 31, 2000.
During 1998, these individuals, other than Mr. Schmid, held options in Carrier
One, LLC, which in turn held substantially all of the equity of Carrier1
International. Pursuant to a restructuring of our management equity, these
options for Carrier One, LLC interests were cancelled and equivalent options for
shares of Carrier1 International were issued in their place. The economic terms
of these new options are substantially the same as the terms of the Carrier One,
LLC options.

LONG TERM
SHORT TERM COMPENSATION(A) COMPENSATION
--------------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION PERIOD (B) (B) (C) OPTIONS (B) (E)
- --------------------------- -------- -------- -------- ------------ ------------ ------------

Stig Johansson 2000 $295,805 $36,976 $21,727 88,889 $103,337
PRESIDENT AND CHIEF EXECUTIVE OFFICER 1999 279,603 43,339 27,938 355,555 72,823
1998 245,569 46,044 22,188 (d) 39,550

Eugene A. Rizzo 2000 $181,920 $25,469 $28,976 88,889 $ 29,483
EXECUTIVE VICE PRESIDENT, 1999 197,368 30,592 26,723 355,555 31,649
VOICE & ACCESS SERVICES 1998 173,343 32,502 22,188 (d) 27,248

Terje Nordahl 2000 $159,971 $32,594 $23,893 138,194 $ 35,608
CHIEF OPERATING OFFICER 1999 171,051 26,513 25,263 177,777 37,666
1998 135,207 25,352 19,969 (d) 24,248

Alex Schmid 2000 $177,483 $18,858 $21,229 243,750 $ 12,944
EXECUTIVE VICE PRESIDENT, 1999 $ 15,400 -- -- 100,000 --
STRATEGIC DEVELOPMENT

Kees van Ophem 2000 $158,433 $19,819 $34,143 88,889 $ 15,515
EXECUTIVE VICE-PRESIDENT, CORPORATE 1999 171,051 26,513 25,111 355,555 16,788
SERVICES AND GENERAL COUNSEL 1998 150,230 28,168 22,188 (d) 14,756

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

(a) Short term compensation for the 1998 period relates to the period from
March 4, 1998 through December 31, 1998 except in the case of Terje Nordahl,
for whom the relevant 1998 period was March 26, 1998 through December 31,
1998. Mr. Schmid was hired by Carrier1 in November 1999.

(b) We record this compensation expense in Swiss Francs, or SFr. The U.S. dollar
amounts shown for 1998 were calculated using an average exchange rate of
$0.69337 to SFr1, for 1999 were calculated using an average exchange rate of
$0.65789 to SFr1, and for 2000 were calculated using an average exchange
rate of $0.59161 to SFr1.

(c) Consists of general business expenses and contributions under a health plan
for our executive officers. Business expenses consist of company car and
related travel expenses in the following approximate amounts, in thousands:

1998 1999 2000
-------- -------- --------

Stig Johansson.............................................. $22.2 $27.9 $21.7
Eugene A. Rizzo............................................. 22.2 26.7 29.0
Terje Nordahl............................................... 20.0 25.3 23.9
Alex Schmid................................................. N/A N/A 21.2
Kees van Ophem.............................................. 22.2 25.1 34.1

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

(d) Pursuant to the equity restructuring, options to purchase Carrier One, LLC
interests, which were granted to each executive in 1998, have been cancelled
and were replaced by the economically equivalent options shown above as
granted in 1999.

(e) Consists of contributions under a defined contribution pension plan.

STOCK OPTION GRANTS AND FISCAL YEAR-END VALUES

The following tables set forth information regarding grants of options to
purchase shares of Carrier1 International and the fiscal year-end value of such
options, which were granted to the executive officers listed in the Summary
Compensation Table above pursuant to the 2000 share option plan and the 1999
share option plan. The options granted pursuant to the 1999 share option plan
were intended to replace options to purchase Carrier One, LLC interests pursuant
to a restructuring of our management equity. The economic terms of these new
options are substantially the same as the terms of the Carrier One, LLC options.
Options vest in equal annual installments over the five years ending on the
fifth anniversary of the grant date of the predecessor options, subject to the
executive's continuing employment.

OPTION GRANTS IN 2000

INDIVIDUAL GRANTS
---------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED FAIR VALUE
UNDERLYING TO EXERCISE AT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION OF GRANT($)
NAME GRANTED IN 2000 ($/SHARE) DATE (A)
- ---- ---------- ---------- --------- ----------------- -----------

Stig Johansson................... 88,889 3% 15.00 December 19, 2010 9.64
Eugene A. Rizzo.................. 88,889 3% 15.00 December 19, 2010 9.64
Terje Nordahl.................... 138,194 4.7% 15.00 December 19, 2010 9.64
Alex Schmid...................... 243,750 8.3% 15.00 December 19, 2010 9.64
Kees van Ophem................... 88,889 3% 15.00 December 19, 2010 9.64

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

(a) The fair value of options grants is estimated on the date of the grant using
the Black-Scholes option pricing model with the following assumptions used:
dividend yield of 0%, risk-free interest rate range of 5.12% to 6.68%,
expected option life of three years and a volatility factor of 100%.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS/
UNEXERCISED OPTIONS/SARS AT SARS AT DECEMBER 31,
DECEMBER 31, 2000 2000
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE (#) UNEXERCISABLE ($)
- ---- --------------- -------------- ------------------------------- ---------------------

Stig Johansson....... 0 0 142,222/302,222 1,893,301/2,867,773
Eugene A. Rizzo...... 0 0 142,222/302,222 1,893,301/2,867,773
Terje Nordahl........ 0 0 71,110/244,861 946,652/1,463,190
Alex Schmid.......... 0 0 20,000/323,750 - /76,172
Kees van Ophem....... 0 0 142,222/302,222 1,893,301/2,867,773

Carrier1 International has authorized the issuance of options for up to
2,747,222 shares of Carrier1 International pursuant to its 1999 share option
plan dated as of December 30, 1998 and up to 2,832,878 shares of Carrier1
International pursuant to its 2000 share option plan dated as of March 30, 2000.
As of December 31, 2000, Carrier1 International had outstanding options for a
total of 2,538,068 shares under the 1999 share option plan and outstanding
options for a total of 2,805,378 shares under the 2000 share option plan. We
expect to grant additional options to employees. Carrier1 International has also
issued options to acquire 20,000 shares to each of Messrs. Wynne and V. Pelson
outside the scope of the 1999 share option plan. See "Item 13. Certain
Relationships and Related Transactions-Equity Investments--1999 Share Option
Plan" contained elsewhere in this document.

EMPLOYMENT AGREEMENTS

Each of Stig Johansson, Eugene A. Rizzo, Terje Nordahl, Alex Schmid and Kees
van Ophem has entered into an employment agreement with a wholly owned
subsidiary of Carrier1 International. The employment agreements provide that the
executive shall serve in his current capacity and that the executive shall be
paid base salary, bonus and pension plan contributions as set forth in the
Summary Compensation Table. Such agreements include, among others, the following
terms:

TERM. The employment agreements continue for an unspecified period of time
and may be terminated by either party upon six months' notice.

NONDISCLOSURE, NONCOMPETITION AND NONSOLICITATION COVENANTS. Each of the
above executives has agreed that during his period of employment and the
eighteen months thereafter he will not participate in any business that is
engaged in the provision of international long distance telecommunications
services or that is otherwise in competition with any business conducted by
Carrier One, LLC or its subsidiaries. Additionally, each of the above executives
has agreed that during this non-compete period, he will not induce or attempt to
induce any of our employees to leave our employ, nor will he attempt to induce
any of our suppliers, distributors or customers to cease doing business with us.
Each of the above executives has also agreed that he will refrain from
disclosing confidential information. In addition, each of the above executives
is subject to nondisclosure, noncompetition and nonsolicitation covenants
pursuant to deeds of covenant entered into among Carrier One, LLC, Carrier One
Limited, Providence and the executives.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Carrier1 International does not have a compensation committee. The
compensation of executive officers and other of our key employees is determined
by the board. Stig Johansson, our President and Chief Executive Officer, is
currently a member of the board and has participated in such determinations. See
"Item 13. Certain Relationships and Related Transactions" for a description of
transactions involving some members of the board.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of the shares of Carrier1 International, as of March 20, 2001 by:

(1) each person known to Carrier1 International to own beneficially more than 5%
of Carrier1 International's outstanding shares,

(2) each director of Carrier1 International,

(3) each executive officer of Carrier1 International listed in the Summary
Compensation Table under "Management" above, and

(4) all executive officers and directors of Carrier1 International as a group.

All information with respect to beneficial ownership has been furnished to
us by the respective shareholders of Carrier1 International.

NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER OF SHARES PERCENTAGE OF SHARES
- ---------------------------------------- ---------------- --------------------

Carrier One, LLC........................................... 28,272,087 65.96%
c/o Providence Equity Partners Inc.
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Providence Equity Partners L.P. (2)........................ 28,272,088 65.96%
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Jonathan M. Nelson (2)..................................... 28,272,088 65.96%
Paul J. Salem (2).......................................... 28,272,088 65.96%

NAME OF EXECUTIVE OFFICER OR DIRECTOR
Stig Johansson (3)......................................... 247,463 *
Eugene A. Rizzo (3)........................................ 247,463 *
Terje Nordahl (3).......................................... 144,796 *
Alex Schmid (3)............................................ 21,692 *
Kees van Ophem (3)......................................... 247,463 *
Glenn M. Creamer (2)....................................... 28,272,088 65.96%
Jonathan E. Dick........................................... -- --
Mark A. Pelson............................................. -- --
Victor A. Pelson (4)....................................... 12,000 *
Thomas J. Wynne (4)........................................ 12,000 *
All directors and executive officers as a group (13
persons)................................................. 29,741,221 69.39%

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

* Less than one percent.

(1) "Beneficial owner" refers to a person who has or shares the power to vote or
direct the voting of a security or the power to dispose or direct the
disposition of the security or who has the right to acquire beneficial
ownership of a security within 60 days. More than one person may be deemed
to be a beneficial owner of the same securities. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of March 20, 2001 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.

(2) Carrier One, LLC is the direct beneficial owner of 28,272,087 shares and
Providence Equity Partners L.P. ("Providence L.P.") is the direct beneficial
owner of one share. Providence L.P. is the majority Class A Unit holder of
Carrier One, LLC, and by virtue of such status may be deemed to be the
beneficial owner of the shares in which Carrier One, LLC has direct
beneficial ownership. Providence Equity Partners L.L.C. ("PEP LLC") is the
general partner of Providence L.P., and by virtue of such status may be
deemed to be the beneficial owner of the shares in which Providence L.P. has
direct or indirect beneficial ownership. Jonathan M. Nelson, Glenn M.
Creamer and Paul J. Salem may be deemed to share voting and investment power
with respect to the shares in which PEP LLC has direct or indirect
beneficial ownership. Each of Jonathan M. Nelson, Glenn M. Creamer, Paul J.
Salem, PEP LLC and Providence L.P. disclaims such deemed beneficial
ownership. The address of Messrs. Nelson and Salem is c/o Providence Equity
Partners Inc., 901 Fleet Center, 50 Kennedy Plaza, Providence, RI 02903.

(3) Includes 34,130 shares (38,130 in case of Mr. Nordahl and 1,692, in the case
of Mr. Schmid) and an additional 213,333 shares (106,666, in the case of
Mr. Nordahl and 20,000, in the case of Mr. Schmid) issuable to each such
person upon exercise of options which are exercisable within 60 days).

(4) Consists of options exercisable within 60 days that Carrier1 International
has issued to each of Thomas J. Wynne and Victor A. Pelson out of a total of
40,000 shares (20,000 shares each).

BENEFICIAL OWNERSHIP OF CARRIER ONE, LLC, THE MAJORITY SHAREHOLDER OF CARRIER1
INTERNATIONAL

The following table sets forth certain information regarding the beneficial
ownership of Class A Units (the "Class A Units") of Carrier One, LLC, the
majority shareholder of Carrier1 International, as of December 31, 2000 by:

(1) each director of Carrier1 International,

(2) each executive officer of Carrier1 International listed in the Summary
Compensation Table under "Management" above,

(3) all directors and executive officers of Carrier1 International as a group as
of December 31, 2000, and

(4) each person known to Carrier1 International to own beneficially more than 5%
of Carrier One, LLC's Class A Units.

NAME OF DIRECTOR/EXECUTIVE OFFICER (1) NUMBER OF UNITS PERCENTAGE OF UNITS (1)
- -------------------------------------- --------------- -----------------------

Stig Johansson............................................. -- --
Eugene A. Rizzo............................................ -- --
Terje Nordahl.............................................. -- --
Alex Schmid................................................ -- --
Kees van Ophem............................................. -- --
Glenn M. Creamer (2)....................................... 50,000,000 82.24%
Jonathan E. Dick........................................... -- --
Mark A. Pelson............................................. -- --
Victor A. Pelson........................................... 100,000 *
Thomas J. Wynne (3)........................................ 400,000 *
All directors and executive officers as a group (13
persons)................................................. 50,500,000 83.06%

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

* Less than one percent.

NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF UNITS PERCENTAGE OF UNITS (1)
- ------------------------------------ --------------- -----------------------

Providence Equity Partners, L.P. (2)....................... 49,312,400 81.11%
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Jonathan M. Nelson (2)..................................... 50,000,000 82.24%
Paul J. Salem (2).......................................... 50,000,000 82.24%
Primus Capital Fund IV Limited Partnership (4)............. 9,600,000 15.79%
5900 Landerbrook Drive
Suite 200
Cleveland, OH 44124-4020

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

(1) Based upon 60.8 million Class A Units outstanding.

(2) Providence L.P. holds 49,312,400 Class A Units, and another fund managed by
Providence holds 687,600 Class A Units. PEP LLC is the general partner of
Providence L.P. and the other fund, and by virtue of such status may be
deemed to be the beneficial owner of the Class A Units in which Providence
L.P. and the other fund have direct or indirect beneficial ownership.
Jonathan M. Nelson, Glenn M. Creamer and Paul J. Salem may be deemed to
share voting and investment power with respect to the Class A Units in which
PEP LLC has direct or indirect beneficial ownership. Each of Jonathan M.
Nelson, Glenn M. Creamer, Paul J. Salem and PEP LLC disclaims such deemed
beneficial ownership.

(3) Thomas J. Wynne holds (directly or through trusts organized for the benefit
of family members) 400,000 Class A Units. These Class A Units do not include
additional options that Carrier1 International has issued to Mr. Wynne for a
total of 40,000 shares. Mr. Wynne disclaims beneficial ownership in any
Class A Units held in any such trusts.

(4) Primus Capital Fund IV Limited Partnership ("Primus Capital LP") holds
9,600,000 Class A Units and another fund managed by Primus holds 400,000
Class A Units. Primus Venture Partners IV Limited Partnership ("Primus
Venture LP") is the general partner of Primus Capital LP and the other fund,
and Primus Venture Partners IV, Inc. ("Primus Venture Inc.") is the General
Partner of Primus Venture LP. By virtue of such status, either of Primus
Venture LP or Primus Venture Inc. may be deemed to be the beneficial owner
of the Class A Units in which Primus Capital LP and the other fund have
beneficial ownership. Each of Primus Venture LP and Primus Venture Inc.
disclaims such deemed beneficial ownership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

EQUITY INVESTMENTS

As of December 31, 2000, shares of Carrier1 International were held by
Carrier1's management and employees, Providence Equity Partners L.P. (which
holds one share) and Carrier One, LLC. Messrs. Johansson, Bauer, Rizzo, van
Ophem, Craven, Nordahl, Schmid and Versteeg are among the executive management
that have subscribed and paid for outstanding shares.

Carrier One, LLC is the vehicle through which Providence and Primus
participate in the equity investment in Carrier1 International. In addition,
Thomas J. Wynne and Victor A. Pelson, who are directors of Carrier1
International, hold interests in Carrier One, LLC through arrangements arrived
at separately with Providence and Primus. Mr. Wynne owns (directly or through
trusts organized for the benefit of family members) 400,000 Class A Units in
Carrier One, LLC, acquired at a purchase price of $1.00 per Class A Unit.
Mr. Wynne disclaims beneficial ownership of any Class A Units in any such
trusts. Mr. Pelson owns 100,000 Class A Units in Carrier One, LLC, acquired at a
purchase price of

$1.00 per Class A Unit. Messrs. Wynne and Pelson do not directly hold any
outstanding shares of Carrier1 International.

1999 SHARE OPTION PLAN

The board of Carrier1 International has adopted the 1999 share option plan,
dated as of December 30, 1998, under which we and related companies of the
consolidated Carrier1 group may grant to any employee or director options for
shares of Carrier1 International or other equity securities issued by Carrier1
International. The option plan is administered by the board or a committee
appointed by the board, and authorizes the board or such committee to issue
options in such forms and on such terms as determined by the board or such
committee. The board or such committee may determine the number of options to
grant. During 1999, the board raised the maximum number of shares issuable
pursuant to the option plan from 2,222,222 to 2,747,222 shares. The per share
exercise price for the options may not be less than $2.00. If options are to be
granted to an employee of a subsidiary, such subsidiary will grant such options
instead of Carrier1 International. Carrier1 International will grant the
subsidiary options to acquire shares to meet its option obligations at a per
share exercise price based upon an agreed fair market value (or, failing
agreement, a fair market value determined by the board). Options granted under
the option plan will vest in five equal annual installments beginning on the
first anniversary of the date of commencement of employment. Options will expire
if not exercised within 10 years of the grant, or on an earlier date as
specified by the board or the committee. If the employment of a participant is
terminated for any reason, all unvested options will immediately expire and
vested options must be exercised within a particular number of days, which
number will vary depending on the reasons for termination. Subject to certain
exceptions, options will be nontransferable during the life of an optionee
except pursuant to a valid domestic relations order. Upon an optionee's death,
disability or termination of employment, the subsidiary which employs the
optionee, or its designee, will have the right to repurchase all shares held by
the optionee, whether or not such shares were acquired pursuant to the exercise
of options. Under Luxembourg law, Carrier1 International and certain
subsidiaries may be precluded from exercising such right directly.

As of December 31, 2000, we have granted options pursuant to the 1999 option
plan to acquire 2,538,068 shares at exercise prices ranging from $2.00 to $40.34
per share plus applicable capital duty (currently 1% of the subscription price
payable to Carrier1 International by the subsidiary granting the applicable
option).

2000 STOCK OPTION PLAN

The board of Carrier1 International has adopted the 2000 share option plan,
dated as of March 30, 2000, under which we and related companies of the
consolidated Carrier1 group may grant to any employee or director options for
shares of Carrier1 International or other equity securities issued by Carrier1
International. The number of shares issuable pursuant to the option plan is
2,832,878. The terms and conditions governing the plan are in all material
respects the same as those for the 1999 option plan except that the exercise per
share is set at five times the closing price for our American Depositary Shares
as quoted on the Nasdaq National Market on the date of grant and that options
granted under the plan vest in four equal instalments beginning on the first
anniversary of the date of grant.

As of December 31, 2000, we have granted options pursuant to the 2000 share
option plan to acquire 2,805,378 shares at exercise prices ranging from $15 to
$37.50 per share plus the applicable capital duty (currently 1% of the
subscription price payable to Carrier1 International by the subsidiary granting
the applicable option).

SECURITIES PURCHASE AGREEMENT

Carrier1 International, Carrier One, LLC and employee investors have entered
into the securities purchase agreement (effective as of March 1, 1999) under
which Carrier One, LLC and each employee investor has purchased a specified
number of shares at prices ranging from $2.00 to $10.00 per share, for an
aggregate purchase price of approximately $6.0 million. As part of the
restructuring of the management equity arrangements described above, each of
Messrs. Johansson, Bauer, Rizzo, van Ophem, Craven, Nordahl, Gross, and Poulter,
in effect, exchanged 68,260 Class A Units (at $1.00 per unit) of Carrier One,
LLC to acquire, pursuant to the securities purchase agreement, 34,130 shares (at
$2.00 per share). Carrier1 International intends in the future to issue
additional shares to employees that are or become party to the securities
purchase agreement. The securities purchase agreement also contains provisions
relating to the completion of the equity investment in Carrier1 International by
Carrier One, LLC in which Providence, Primus and Messrs. Wynne and Pelson have
membership interests. The $60 million equity investment by Providence and Primus
was completed in February 1999. Carrier One, LLC has paid in an additional
$800,000 to the capital of Carrier1 International and received 400,000 shares.
The securities purchase agreement provides that Carrier1 International will
indemnify Carrier One, LLC and employee investors for, among other things,
losses related to any transaction financed or to be financed with proceeds from
the sale of securities purchased pursuant to the securities purchase agreement
or any related agreement and environmental losses. The securities purchase
agreement contains customary conditions, representations and warranties.

REGISTRATION RIGHTS AGREEMENT

Carrier1 International, Carrier One, LLC, and Messrs. Johansson, Bauer,
Rizzo, van Ophem, Craven, Nordahl, Gross, Poulter, Wynne and Pelson, as the
original investors, have entered into a registration rights agreement, effective
as of March 1, 1999. The registration rights agreement provides that Carrier
One, LLC may at any time request registration under the Securities Act of its
shares and certain other equity securities. In addition, the registration rights
agreement gives certain piggyback registration rights to Carrier One, LLC and
the original investors and, at the request of certain original investors,
possibly additional employees party to the securityholders' agreement described
below. The original investors do not, however, have piggyback rights in
connection with an initial public offering. The registration rights agreement
contains provisions governing the registration statement filing process. Among
other things, it provides that Carrier1 International will bear all registration
expenses and expenses for each piggyback registration in which Carrier One, LLC
or any of the original investors participate, other than underwriting discounts
and commissions, in connection with its obligations under the registration
rights agreement.

SECURITYHOLDERS' AGREEMENT

In connection with the securities purchase agreement, Carrier1 International
has entered into a securityholders' agreement, effective as of March 1, 1999,
with Messrs. Wynne and Pelson, the employee investors and Carrier One, LLC. This
agreement places restrictions on employee investors' ability to transfer their
securities without the prior written consent of the board except under special
circumstances. Transfers of securities are subject to the right of first refusal
by Carrier One, LLC or its transferee. Carrier One, LLC will also benefit from
preemptive rights in certain other circumstances. This agreement also provides
that the employee investors will (i) consent to and raise no objections to a
sale of Carrier1 International approved by the board and (ii) comply with a
board request to pledge their securities to secure financing to be provided to
Carrier1 International. Employee investors have tag-along rights in the event of
sales by Carrier One, LLC or its members of securities if a change of control is
involved. Finally, under this agreement, the employee investors agree not to
disclose confidential information of, compete with, or solicit employees or
customers from Carrier One, LLC or Carrier1.

EPOCH PEERING ARRANGEMENT

We have entered into a peering arrangement with Epoch Networks. The contract
with Epoch Networks provides for the free exchange of Internet traffic between
us and Epoch Networks. A fund managed by Providence that holds a majority of the
Class A Units of Carrier One, LLC and another fund managed by Providence that
also holds an interest in Class A Units of Carrier One, LLC own a combined 19%
of the outstanding equity of Epoch Networks. Glenn Creamer, one of our
directors, is also a director of Epoch.

DATA CENTER FACILITIES WITH DIGIPLEX

We are developing some of our data centers in major European markets through
DigiPlex S.A., in which we hold an equity interest of approximately 15%. The
data centers with DigiPlex in Frankfurt, Geneva, Oslo and Milan are leased on a
10 year term.

We expect to connect each facility in which we become a strategic anchor
tenant to our fiber optic network. As a strategic anchor tenant in these
facilities, we will have favorable rents and rights to additional space, subject
to some conditions, including that we not become an affiliate of a DigiPlex
competitor. We can opt not to be a tenant in some planned locations and, if we
wish to build data centers in additional locations, we have given DigiPlex the
right of first refusal to construct them.

We expect to compete with DigiPlex and another shareholder in DigiPlex in
providing data center capabilities. The agreement permits us to do so, with some
exceptions. Moreover, we will be entitled to retain the benefits of our
strategic anchor tenant status unless we default or we cease to be a DigiPlex
shareholder or we acquire or are acquired by a company that competes with
DigiPlex.

Our partners in DigiPlex include an investment vehicle for funds managed by
Providence and Primus. Glenn Creamer, one of our directors, is a director of
DigiPlex, and Terje Nordahl, our chief operating officer, is Carrier1's director
on DigiPlex's board.

360NETWORKS FIBER BACKHAUL AGREEMENT

In December 1999, we entered into an agreement with a subsidiary of
360networks inc. (formerly Worldwide Fiber Networks Inc.), a wholesale managed
bandwidth services provider with substantial North American and transatlantic
assets, under which we will provide bandwidth from the point of termination of
its transatlantic capacity in London, to destinations across Europe. We expect
to commence transmission pursuant to this agreement in March 2001 and, as one of
their major providers of European backhaul capacity, expect to deliver a
substantial amount of bandwidth over the 15 year term of the agreement. Under
the agreement, 360networks inc. has the option to trade excess transatlantic
capacity for four strands of fiber on our German network or a combination of two
strands of fiber and a 10 Gbps wavelength once it has purchased a total of 100
STM-1s. A fund managed by Providence owns approximately 4.5% of the outstanding
common stock of 360networks inc. Glenn Creamer, one of our directors, is also a
director of 360networks inc.

SERVECAST.COM

In November 2000, we made an equity investment of 3.4 million euros in
Servecast.com Limited, a private limited company incorporated in Ireland. Funds
managed by Providence Equity Partners L.P. are also shareholders and have
nomination rights for board members of Servecast.com. We have also entered into
a multi-country agreement with Servecast.com pursuant to which Carrier1 will
provide Servecast.com data center facilities, IP and enhanced connectivity
solutions.

OTHER TRANSACTIONS

Carrier One, LLC previously had advanced a loan of $68,260, bearing interest
at 12%, to Mr. van Ophem, evidenced by a promissory note dated June 30, 1998, to
finance his original equity investment in Carrier One, LLC. The loan was paid in
full in September 2000. Carrier1 International GmbH advanced a loan of $83,937,
bearing interest at 9%, to Mr. van Ophem. This loan is secured by his shares and
options, and proceeds from sales of such securities must be used to repay the
loan. As of December 31, 2000, Mr. van Ophem owed $83,937 to Carrier1.

During the years ended December 31, 2000 and December 31, 1999 and during
the period ended December 31, 1998, we reimbursed Providence and Primus for
expenses incurred in connection with our formation and the negotiation of
certain agreements we entered into. Such reimbursements totaled $136,000,
$96,000 and $339,000, respectively, and were expensed as selling, general and
administrative expenses.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)Financial statements

The following financial statement and schedules of the Company are included
as Appendix A to this Report.

I. Consolidated Balance Sheets--December 31, 2000 and 1999.

II. Consolidated Statements of Operations--Year ended December 31, 2000,
Year ended December 31, 1999 and Period from February 20, 1998 (Date of
Inception) to December 31, 1998.

III. Consolidated Statements of Shareholders' Equity (Deficit)--Year ended
December 31, 2000, Year ended December 31, 1999 and Period from
February 20, 1998 (Date of Inception) to December 31, 1998.

IV. Consolidated Statements of Cash Flows--Year ended December 31, 2000,
Year ended December 31, 1999 and Period from February 20, 1998 (Date of
Inception) to December 31, 1998.

V. Notes to Consolidated Financial Statements.

(2) Financial statement schedules

Schedule II--Valuation and Qualifying Accounts (See Appendix A)

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements or related
notes and therefore has been omitted.

(3) Exhibits

EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------

3.1 Articles of Incorporation of Carrier1 International S.A.
(filed as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (No. 333-44058) (the "Registrant's
Form S-1"))*

4.1 Indenture, dated as of February 19, 1999, between Carrier1
International S.A. and the Chase Manhattan Bank, as Trustee,
relating to Carrier1 International S.A.'s 13 1/4% Senior
Dollar Notes Due 2009 (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-4 (No.
333-75195) (the "Registrant's Form S-4))*

EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------

4.2 Form 13 1/4% Senior Dollar Note (included in Exhibit 4.1 to
the Registrant's Form S-1)

4.3 Indenture, dated as of February 19, 1999, between Carrier1
International S.A. and the Chase Manhattan Bank, as Trustee,
relating to Carrier1 International S.A.'s 13 1/4% Senior
Euro Notes Due 2009 (filed as Exhibit 4.3 to the
Registrant's Form S-4)*

4.4 Form of 13 1/4% Senior Euro Note (included in Exhibit 4.3 to
the Registrant's Form S-1)

4.5 Notes Registration Rights Agreement, dated February 12,
1999, among Carrier1 International S.A., Morgan Stanley &
Co. Incorporated, Salomon Smith Barney Inc., Warburg Dillon
Read LLC and Bear, Stearns & Co. Inc. (filed as Exhibit 4.5
to the Registrant's Form S-4)*

4.6 U.S. Dollar Collateral Pledge and Security Agreement, dated
as of February 19, 1999, among Carrier1 International S.A.,
The Chase Manhattan Bank, as Trustee and The Chase Manhattan
Bank, as securities intermediary (filed as Exhibit 4.6 to
the Registrant's Form S-4)*

4.7 Euro Collateral Pledge and Security Agreement, dated as of
February 19, 1999, among Carrier1 International S.A., The
Chase Manhattan Bank, as Trustee and The Chase Manhattan
Bank AG, as securities intermediary (filed as Exhibit 4.7 to
the Registrant's Form S-4)*

4.8 Loan Agreement, dated June 25, 1999, between Carrier1
International S.A. as Borrower, the Lenders and Financial
Institutions named therein, and Nortel Networks Inc. as
Agent (filed as Exhibit 4.8 to the Registrant's Form S-4)*

4.9 Credit Agreement, dated as of December 21, 1999, among
Carrier1 International S.A., certain of its subsidiaries as
Borrowers and certain of its subsidiaries as Guarantors, the
Lenders and Financial Institutions named therein, and Morgan
Stanley Senior Funding, Inc. and Citibank, N.A. as Lead
Arrangers and Morgan Stanley Senior Funding, Inc. as
Administrative Agent and Security Agent (filed as Exhibit
4.9 to the Registrant's Registration Statement on Form S-1
(No. 333-94541)).*

10.1 Dollar Warrant Agreement, dated as of February 19, 1999,
between Carrier1 International S.A. and The Chase Manhattan
Bank, as Warrant Agent (filed as Exhibit 10.1 to the
Registrant's Form S-4)*

10.2 Euro Warrant Agreement, dated as of February 19, 1999,
between Carrier1 International S.A. and The Chase Manhattan
Bank, as Warrant Agent (filed as Exhibit 10.2 to the
Registrant's Form S-4)*

10.3 Warrants Registration Rights Agreement, dated as of February
12, 1999, between Carrier1 International S.A. and The Chase
Manhattan Bank, as Warrant Agent (filed as Exhibit 10.3 to
the Registrant's Form S-4)*

10.4 Carrier1 International S.A. 1999 Share Option Plan (filed as
Exhibit 10.4 to the Registrant's Form S-4)*

10.5 Master Option Agreement, dated as of December 30, 1998,
among Carrier1 International S.A., Carrier One LLC, Carrier1
International GmbH, Carrier1 B.V., Carrier1 France S.A.R.L.,
Carrier1 UK Limited and Carrier1 GmbH & Co. AG (filed as
Exhibit 10.5 to the Registrant's Form S-4)*

10.6 Form of Option Agreement (filed as Exhibit 10.6 to the
Registrant's Form S-4)*

EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------

10.7 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Stig Johansson (filed as Exhibit 10.7 to
the Registrant's Form S-4)*

10.8 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Eugene A. Rizzo (filed as Exhibit 10.8 to
the Registrant's Form S-4)*

10.9 Employment Agreement, dated as of March 26, 1998, between
Carrier One AG and Terje Nordahl (filed as Exhibit 10.9 to
the Registrant's Form S-4)*

10.10 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Joachim Bauer (filed as Exhibit 10.10 to
the Registrant's Form S-4)*

10.11 Employment Agreement, dated as of March 4, 1998, between
Carrier One AG and Kees van Ophem (filed as Exhibit 10.11 to
the Registrant's Form S-4)*

10.12 Securities Purchase Agreement, dated as of March 1, 1999,
among Carrier1 International S.A., Carrier One LLC and the
employee investors named therein (filed as Exhibit 10.12 to
the Registrant's Form S-4)*

10.13 Registration Rights Agreement, dated as of March 1, 1999,
among Carrier1 International S.A., Carrier One LLC, Stig
Johansson, Joachim Bauer, Gene Rizzo, Kees van Ophem, Terje
Nordahl and the other parties named therein (filed as
Exhibit 10.13 to the Registrant's Form S-4)*

10.14 Securityholders' Agreement, dated as of March 1, 1999, among
Carrier1 International S.A. and the employee investors named
therein (filed as Exhibit 10.14 to the Registrant's
Form S-4)*

10.15 Development Agreement, dated as of February 19, 1999 by and
among ViCaMe Infrastructure Development GmbH, Viatel German
Asset GmbH, Carrier1 Fiber Network GmbH & Co. oHG,
Metromedia Fiber Network GmbH, Viatel, Inc. and Metromedia
Fiber Network, Inc. (filed as Exhibit 10.15 to the
Registrant's Form S-4)* ++

10.16 Amendment No. 1 to Securityholders' Agreement and
Registration Rights Agreement, dated as of March 1, 1999
(filed as Exhibit 10.16 to the Registrant's Form S-4)*

10.17 Amendment No. 2 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.17 to the Registrant's Form S-4)*

10.18 Amendment No. 3 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.18 to the Registrant's Form S-4)*

10.19 Amendment No. 4 to Securityholders' Agreement and Securities
Purchase Agreement, dated as of March 1, 1999 (filed as
Exhibit 10.19 to the Registrant's Form S-4)*

10.20 Amended and Restated Shareholders Agreement, dated as of
January 13, 2000, among Carlyle Hubco International
Partners, L.P., iaxis B.V., Carrier1 International S.A.,
Providence Equity Hubco (Cayman) L.P., and Hubco S.A. (filed
as Exhibit 10.1 to the Registrant's periodic report filed on
Form 8-K/A dated January 4, 2000 (the "Registrant's Form
8-K/A"))*++

10.21 Strategic Anchor Tenant Agreement, dated November 23, 1999,
between Carrier1 International S.A. and Hubco S.A., (filed
as Exhibit 10.3 to the Registrant's Form
8-K/A)*++

EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------

10.22 Registration Rights Agreement, dated November 23, 1999, by
and among The Carlyle entities named therein, iaxis B.V.,
Carrier1 International S.A., Providence Equity Partners III
L.P., Providence Equity Operating Partners III L.P. and
Hubco S.A. (filed as Exhibit 10.2 to the Registrant's
periodic report filed on Form 8-K/A dated February 17, 2000
(the "Registrant's Revised Form 8-K/A"))*

10.23 Amendment No. 1 to the Registration Rights Agreement, dated
as of January 13, 2000, by and among Hubco S.A. and the
Persons listed on the signature pages thereto (filed as
Exhibit 10.4 to the Registrant's Revised Form 8-K/A)*

10.24 Employment Agreement, dated as of November 24, 1999, between
Carrier1 International GmbH and Alex Schmid, with amendment
thereto

21.1 List of Subsidiaries of Carrier 1 International S.A.

23.1 Consent of Deloitte & Touche Experta AG

24.1 Power of Attorney for Glenn M. Creamer

24.2 Power of Attorney for Jonathan E. Dick

24.3 Power of Attorney for Mark A. Pelson

24.4 Power of Attorney for Victor A. Pelson

24.5 Power of Attorney for Thomas J. Wynne

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

* Incorporated by reference.

++ Previously filed under a request for confidential treatment.

(b) Reports on Form 8-K

One report on Form 8-K, dated November 8, 2000, reporting matters under Item
5, Other Events.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

CARRIER 1 INTERNATIONAL S.A.

By: /s/ STIG JOHANSSON
-----------------------------------------
Name: Stig Johansson
Title: CHIEF EXECUTIVE OFFICER AND
PRESIDENT
Date: April 2, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
date indicated:

NAME TITLE DATE
---- ----- ----

Director, Chief Executive
/s/ STIG JOHANSSON Officer and President
------------------------------------------- (Principal Executive April 2, 2001
Stig Johansson Officer)

Chief Financial Officer
/s/ JOACHIM W. BAUER (Principal Financial
------------------------------------------- Officer and Principal April 2, 2001
Joachim W. Bauer Accounting Officer)

*
------------------------------------------- Director April 2, 2001
Glenn M. Creamer

*
------------------------------------------- Director April 2, 2001
Jonathan E. Dick

*
------------------------------------------- Director April 2, 2001
Mark A. Pelson

*
------------------------------------------- Director April 2, 2001
Victor A. Pelson

*
------------------------------------------- Director April 2, 2001
Thomas J. Wynne

*By: /s/ STIG JOHANSSON
--------------------------------------
ATTORNEY-IN-FACT

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

TABLE OF CONTENTS

PAGE
--------

INDEPENDENT AUDITORS' REPORT................................ F-2

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999 AND THE PERIOD FROM FEBRUARY
20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998:

Consolidated Balance Sheets................................. F-3

Consolidated Statements of Operations....................... F-4

Consolidated Statement of Shareholders' Equity (Deficit).... F-5

Consolidated Statements of Cash Flows....................... F-6

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

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
CARRIER1 INTERNATIONAL S.A.

We have audited the accompanying consolidated balance sheets of Carrier1
International S.A. and subsidiaries (collectively, the "Company") as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for the years ended
December 31, 2000 and 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998. Our audits also included the financial
statement schedule listed at Item 14. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Carrier1 International S.A. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999
and the period from February 20, 1998 (date of inception) to December 31, 1998
in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

DELOITTE & TOUCHE EXPERTA AG

David Wilson Aniko Smith

Zurich, Switzerland

March 31, 2001

F-2

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2000 AND 1999

(In Thousands of U.S. Dollars, Except Share Information)

2000 1999
---------- --------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 162,162 $ 28,504
Restricted cash........................................... 24,429 5,512
Restricted investments held in escrow (See Note 5)........ 29,951 61,863
Available-for-sale securities (See Note 5)................ 198,186 --
Accounts receivables, net of allowance for doubtful
accounts of $5,659 and $840, respectively............... 77,625 26,795
Unbilled receivables...................................... 32,202 18,226
Value-added tax refunds receivable........................ 35,741 20,499
Prepaid expenses and other current assets................. 19,334 9,873
---------- --------
Total current assets.................................. 579,630 171,272
RESTRICTED INVESTMENTS HELD IN ESCROW (See Note 5).......... -- 28,314
PROPERTY AND EQUIPMENT--Net (See Notes 6, 8 and 9).......... 423,194 213,743
INVESTMENT IN RELATED PARTY (See Note 13)................... 27,750 10
INVESTMENTS--OTHER (See Note 7)............................. 3,258 4,681
OTHER ASSETS................................................ 20,429 19,635
---------- --------
TOTAL ASSETS................................................ $1,054,261 $437,655
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 96,713 $ 46,338
Accrued network costs..................................... 9,487 22,154
Accrued refile costs...................................... 34,705 18,234
Accrued interest.......................................... 11,915 12,984
Other liabilities......................................... 19,823 17,020
Deferred revenue.......................................... 11,539 --
Short-term debt (See Note 8).............................. 2,838 12,658
---------- --------
Total current liabilities............................. 187,020 129,388
DEFERRED REVENUE............................................ 103,496 5,020
LONG-TERM DEBT (See Note 8)
Senior notes.............................................. 237,888 243,415
Other long-term debt...................................... 753 94,341
---------- --------
Total long-term debt.................................. 238,641 337,756
---------- --------
COMMITMENTS AND CONTINGENCIES (See Note 9)

Total liabilities..................................... 529,157 472,164

SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $2 par value, 55,000,000 shares authorized,
42,844,204 and 33,010,700 issued and outstanding,
respectively.............................................. 85,688 66,021
Additional paid-in capital.................................. 666,205 2,524
Accumulated deficit......................................... (219,666) (107,734)
Accumulated other comprehensive (loss) income............... (6,532) 4,688
Common stock held in treasury, 73,337 and 4,083,
respectively (See Note 10)................................ (591) (8)
---------- --------
Total shareholders' equity (deficit).................. 525,104 (34,509)
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)........ $1,054,261 $437,655
========== ========

See notes to consolidated financial statements.

F-3

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM

FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Per Share Information)

FEBRUARY 20,
1998 (DATE OF
YEAR ENDED YEAR ENDED INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ -------------

REVENUES................................................ $ 261,551 $ 97,117 $ 2,792
--------- -------- --------
OPERATING EXPENSES:
Cost of services (exclusive of items shown separately
below)................................................ 264,973 113,809 11,669
Selling, general and administrative................... 39,596 18,369 8,977
Depreciation and amortization......................... 33,445 13,849 1,409
--------- -------- --------
Total operating expenses.......................... 338,014 146,027 22,055
--------- -------- --------
LOSS FROM OPERATIONS.................................... (76,463) (48,910) (19,263)
--------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense...................................... (31,711) (29,475) (11)
Interest income....................................... 20,245 5,859 92
Currency exchange loss, net........................... (18,067) (15,418) (53)
Other, net............................................ (2,147) (555) --
--------- -------- --------
Total other income (expense)...................... (31,680) (39,589) 28
--------- -------- --------
LOSS BEFORE INCOME TAX BENEFIT AND EXTRAORDINARY ITEM... (108,143) (88,499) (19,235)
INCOME TAX BENEFIT--Net of valuation allowance
(See Note 12)......................................... -- -- --
--------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM.......................... (108,143) (88,499) (19,235)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
(See Note 8).......................................... (3,789) -- --
--------- -------- --------
NET LOSS................................................ $(111,932) $(88,499) $(19,235)
========= ======== ========
LOSS PER SHARE (See Note 4):
Loss before extraordinary item:
Basic and diluted................................... $ (2.67) $ (2.97) $ (2.61)
========= ======== ========
Extraordinary loss on early extinguishment of debt:
Basic and diluted................................... $ (0.10) $ -- $ --
========= ======== ========
Net loss:
Basic and diluted................................... $ (2.77) $ (2.97) $ (2.61)
========= ======== ========

See notes to consolidated financial statements.

F-4

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM

FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

ACCUMULATED COMMON
ADDITIONAL OTHER STOCK HELD
COMMON PAID-IN ACCUMULATED COMPREHENSIVE IN
STOCK CAPITAL DEFICIT INCOME (LOSS) TREASURY TOTAL
-------- ---------- ----------- ------------- ---------- ---------

Issuance of shares (18,885,207
shares).......................... $37,770 $ 37,770
Comprehensive loss:
Net loss......................... $ (19,235) (19,235)
Other comprehensive income:
Currency translation
adjustments.................. $ 654 654
---------
Total comprehensive loss......... (18,581)
------- -------- --------- -------- ----- ---------
BALANCE--December 31, 1998......... 37,770 -- (19,235) 654 -- 19,189
Issuance of shares (14,125,493
shares).......................... 28,251 $ 220 28,471
Issuance of warrants (See
Note 8).......................... 2,304 2,304
Repurchase of shares (4,083 shares)
(See Note 10).................... $ (8) (8)
Comprehensive loss:
Net loss......................... (88,499) (88,499)
Other comprehensive income:
Currency translation
adjustments.................. 4,034 4,034
---------
Total comprehensive loss......... (84,465)
------- -------- --------- -------- ----- ---------
BALANCE--December 31, 1999......... 66,021 2,524 (107,734) 4,688 (8) (34,509)
Issuance of shares (9,833,504
shares).......................... 19,667 663,681 683,348
Repurchase of shares (69,254
shares) (See Note 10)............ (583) (583)

Comprehensive loss:
Net loss......................... (111,932) (111,932)
Other comprehensive income
(loss):
Currency translation
adjustments.................. (12,225) (12,225)
Net unrealized gain from
available for sale
securities................... 1,005 1,005
---------
Total comprehensive loss......... (123,152)
------- -------- --------- -------- ----- ---------
BALANCE--December 31, 2000......... $85,688 $666,205 $(219,666) $ (6,532) $(591) $ 525,104
======= ======== ========= ======== ===== =========

See notes to consolidated financial statements.

F-5

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM
FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(In Thousands of U.S. Dollars)

FEBRUARY 20, 1998
YEAR ENDED YEAR ENDED (DATE OF INCEPTION)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
2000 1999 1998
------------ ------------ -------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(111,932) $ (88,499) $(19,235)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on disposal of property and equipment.............. 2,123 464 --
Gain on sale of property and equipment.................. (4,751) -- --
Depreciation and amortization........................... 33,445 13,849 1,409
Amortization of financing costs......................... 1,903 987 --
Extraordinary loss on early extinguishment of debt...... 3,789 -- --
Bad debt expense........................................ 4,772 870 --
Changes in operating assets and liabilities:
Restricted cash....................................... (5,079) (3,994) (1,518)
Accounts, unbilled and value-added tax refunds
receivables......................................... (86,318) (62,511) (5,838)
Prepaid expenses and other current assets............. (7,877) (6,266) (3,165)
Other assets.......................................... (5,893) (5,626) (898)
Accounts payable and accrued liabilities.............. 50,545 67,811 14,804
Deferred revenue, current............................. 10,672 -- --
Deferred revenue, non current......................... 86,343 5,020 --
--------- --------- --------
Net cash used in operating activities............. (28,258) (77,895) (14,441)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (221,308) (160,949) (15,191)
Investment in available for sale securities............... (197,181) -- --
Purchases of restricted investments held in escrow........ -- (145,817) --
Sales of property and equipment........................... 8,779 -- --
Receipts from maturity of restricted investments held in
escrow.................................................. 58,707 53,071 --
Increase in long-term investments......................... (30,798) (16) (4,675)
--------- --------- --------
Net cash used in investing activities............. (381,801) (253,711) (19,866)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt................. 29,726
Proceeds from issuance of long-term debt.................. 10,304 339,185 --
Proceeds from issuance of common stock and warrants....... 683,348 30,775 37,770
Proceeds from subscription of stock....................... -- 465 --
Cash paid for financing costs............................. (104,320) (15,191) --
Payments on short-term debt............................... (38,397) -- --
Payments on long-term debt................................ -- (1,776) --
Purchase of treasury stock................................ (583) (8) --
Restricted cash related to financing activities........... (13,838) -- --
--------- --------- --------
Net cash provided by financing activities......... 566,240 353,450 37,770
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (22,523) 2,476 721
--------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 133,658 24,320 4,184
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... 28,504 4,184 --
--------- --------- --------
End of period............................................. $ 162,162 $ 28,504 $ 4,184
========= ========= ========

See notes to consolidated financial statements.

F-6

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM

FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest in 2000, 1999 and 1998 was $35,953, $16,491 and $0,
respectively.

SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING, INVESTING AND FINANCING
ACTIVITIES:

At December 31, 2000, 1999 and 1998, equipment purchases of approximately
$59,721, $39,720 and $17,315, respectively, and other assets of $1,669 at
December 31, 2000 and $0 at December 31, 1999 and 1998, are included in accounts
payable and accrued network costs.

During 2000, Carrier1 acquired property and equipment of $13,000 in exchange
for an indefeasible right of use which increased deferred revenue by a similar
amount.

During 1999, Carrier1 acquired property and equipment of $7,944 by entering
into a capital lease. In addition, Carrier1 acquired $15,746 of equipment by
entering into a long-term financing agreement with a vendor.

See notes to consolidated financial statements.

F-7

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

1. NATURE OF OPERATIONS

Carrier1 International S.A., its subsidiaries in Europe and its subsidiary
in the United States (collectively "Carrier1"), operate in the
telecommunications industry offering voice, data services. Carrier1 offers these
services primarily to other telecommunications service providers. Carrier1
International S.A. ("SA") is a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg and has adopted a fiscal year end of December 31.

2. ORGANIZATION

In February 1998, the investors of Carrier1 purchased a shelf company
registered in the United Kingdom which was ultimately renamed Carrier1 UK
Limited ("UK"). Subsequently, UK formed subsidiaries in Switzerland, Germany,
the United States and the United Kingdom. In August 1998, SA was formed.
Subsequently, SA formed subsidiaries in France, the Netherlands, Germany,
Austria and Luxembourg. Both UK and SA were 99.995% owned by Carrier One, LLC
("LLC"), a Delaware limited liability company. In December 1998, LLC reorganized
the ownership structure of all of its subsidiaries. SA, in exchange for all of
the outstanding shares of UK, issued 15,365,207 shares of common stock to LLC.

The effects of the reorganization have been accounted for as a
reorganization of entities under common control similar to a pooling of
interests. This reorganization has been reflected in Carrier1's consolidated
financial statements as if the post-reorganization structure had been in effect
since the date of inception since all of the entities are under common control.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("U.S. GAAP")
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. Estimates are used when accounting for such items as
revenue, long-term customer contracts, allowances for uncollectible receivables,
cost of services, depreciation and amortization, and taxes.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of Carrier1 are prepared in accordance
with U.S. GAAP. The consolidated financial statements include all companies in
which Carrier1, directly or indirectly, has more than 50% of the voting rights
or over which it exercises control. All material intercompany balances and
transactions have been eliminated.

Joint ventures and those companies over which Carrier1 is able to exercise
significant influence, generally defined as having between 20% and 50% of the
voting rights but over which it does not

F-8

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
exercise control, are accounted for using the equity method. Investments in
which less than 20% of the voting rights are obtained are accounted for using
the cost method.

RECLASSIFICATIONS

Certain reclassifications have been made to conform prior years' balances to
the current year's presentation. These reclassifications had no effect on
reported earnings.

FOREIGN CURRENCY TRANSLATION

As of and for the year ended December 31, 1999 and the period from
February 20, 1998 (date of inception) to December 31, 1998, the U.S. dollar was
Carrier1's functional and reporting currency. The financial statements of
Carrier1's non-U.S. subsidiaries, where the local currency is the functional
currency, are translated into U.S. dollars using exchange rates in effect at
period end for assets and liabilities and average exchange rates during each
reporting period for results of operations. Adjustments resulting from the
translation of functional currencies into the reporting currency are reflected
as an increase or decrease in accumulated other comprehensive income, a separate
component of shareholders' equity (deficit).

Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the respective functional
currency are included in results of operations as incurred.

During the third quarter of 2000, Carrier1 determined that the functional
currency of the Luxembourg holding company, SA, had clearly changed from the
U.S. dollar to the Euro due to significant changes in economic facts and
circumstances underlying the Carrier1's business. The functional currencies of
Carrier1's subsidiaries have not changed and, in all instances, are the
respective local currencies.

Carrier1 applied this change as of the beginning of the third quarter, on a
prospective basis. As a result of the change, transactions entered into by SA
that are denominated in currencies other than the Euro are now translated into
Euros in accordance with Statement of Financial Accounting Standard ("SFAS")
No. 52, "Foreign Currency Translation."

The net effect of this change in functional currency for the six months
ended December 31, 2000 was to increase the net currency exchange loss and the
net loss reported in the statement of operations for the year ended
December 31, 2000 by approximately $789 and to reduce the negative currency
translation adjustment component of other comprehensive income (loss) reported
in the consolidated statements of changes in shareholders' equity (deficit) for
the year ended December 31, 2000 by approximately $789. Also as a result of the
change, both basic and diluted loss per share for the year ended December 31,
2000 were increased by $0.02.

F-9

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE

Voice and certain Data Services:

Carrier1 recognizes revenue on telecommunication services, generally
measured in terms of traffic minutes processed or transmission capacity provided
to customers, in the period that the service is provided. Revenue is presented
net of discounts.

Bandwidth and Infrastructure Sales:

Revenue attributable to leases of constructed but unlit fiber (dark fiber)
pursuant to indefeasible rights-of-use ("IRUs") that qualify for sales-type
lease accounting, and were entered into prior to June 30, 1999, were recognized
at the time of delivery and acceptance of the fiber by the customer. An IRU that
does not meet the criteria for a sales-type lease is accounted for as an
operating lease, and the cash received is recognized as revenue over the term of
the IRU.

Effective July 1, 1999, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 43, "Real Estate Sales, an interpretation of SFAS
No. 66" ("FIN 43"). Under FIN 43, certain sale and long-term right-of-use
agreements of dark fiber and capacity entered into after June 30, 1999, are
required to be accounted for in the same manner as sales of real estate with
property improvements or integral equipment. Dark fiber is considered integral
equipment and, accordingly, a lease must include a provision for title to
transfer to the lessee in order for the lease transaction to be accounted for as
a sales-type lease. Failure to satisfy the requirements of the FASB
Interpretation results in the deferral of revenue recognition for these
agreements over the term of the agreement.

The adoption of FIN 43 did not have an impact on Carrier1's balance sheet,
income statement or statement of cash flows. Prior to the adoption of FIN 43,
Carrier1 recognized revenue of approximately $3.2 million and cost of services
of approximately $1.9 million from one bandwidth IRU contract that was treated
as a sales-type lease. Carrier1 currently recognizes these IRUs of dark fiber as
operating leases with the exception of one contract, which was treated as a
sales-type lease agreement.

Carrier1 is obligated under the dark fiber IRUs to maintain its network in
efficient working order and in accordance with industry standards. Customers are
obligated for the term of the agreement to pay for their allocable share of the
costs for operating and maintaining the network. Carrier1 recognizes this
revenue monthly as services are provided.

Accounting practice and guidance with respect to the treatment of dark fiber
sales and IRU agreements continue to evolve. Any changes in the accounting
treatment could effect the way Carrier1 accounts for revenue and expenses
associated with these transactions in the future.

Cost of services includes voice refile costs, leased capacity, right-of-way
costs, access charges, interconnection fees and other costs directly
attributable to the network. Depreciation of network assets is included in the
income statement in the depreciation and amortization line item.

Some of Carrier1's sales contracts are considered multiple-element
arrangements under U.S. GAAP. Revenue is allocated to the elements of each
contract based on the fair values of the elements. The fair values of the
elements are based on verifiable and objectively determinable evidence.

F-10

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE

Basic loss per share is computed using the weighted average number of shares
outstanding during the period. Diluted loss per share is computed by including
the warrants, stock options and stock subscriptions considered to be dilutive
common stock equivalents, unless deemed anti-dilutive.

CASH AND CASH EQUIVALENTS

Cash equivalents consist primarily of interest bearing certificates of
deposit of highly-rated European banks. Carrier1 considers all highly-liquid
investments with a maturity of 90 days or less at the time of purchase to be
cash equivalents. The carrying amount reported in the accompanying balance
sheets for cash equivalents approximates fair value due to the short-term
maturity of these instruments.

RESTRICTED CASH

At December 31, 2000 and 1999, $24,429 and $5,512, respectively, of cash was
pledged as collateral on outstanding lines and letters of credit and guarantees
to telecommunication companies that provide refile services to Carrier1.

RESTRICTED INVESTMENTS HELD IN ESCROW AND AVAILABLE-FOR-SALE SECURITIES

Carrier1 has classified its investments as available-for-sale-securities or
held-to-maturity securities. The held-to-maturity securities are reported at
amortized cost and the available-for-sale securities are reported at fair value,
with unrealized gains and losses excluded from earnings but reported in a
separate component of shareholders' equity (deficit) net of the effect of income
taxes until they are sold. At the time of sale, any gains or losses, calculated
by the specific identification method, will be recognized as a component of
operating results. Carrier1 held no securities classified as trading at
December 31, 2000 and 1999.

Restricted investments held in escrow in connection with the terms of a
long-term debt agreement (see Note 8) are classified as held-to-maturity as
Carrier1 has the positive intent and ability to hold the securities to maturity.

CONCENTRATIONS OF CREDIT RISK

Carrier1 sells its products primarily to telecommunication companies in 13
countries of which Germany and the United Kingdom represent the two largest
markets, generally without requiring any collateral. In 2000, no single customer
accounted for a significant amount of Carrier1's sales, and there were no
significant accounts receivable from a single customer. Carrier1 reviews a
customer's credit history, through internal and external analyses, before
extending credit and establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends,
and other information. Specifically, the current trend in the telecommunication
industry has caused increased credit risk due to liquidity problems within the
industry.

F-11

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation.
Cost includes the charges received from the equipment and software suppliers for
turnkey installation, customization and network set-up costs. Depreciation is
recorded commencing with the first full month that the assets are in service.
The straight-line depreciation method is applied using the assets' estimated
useful lives as follows:

Owned fiber network.......................... 20 years
Switching equipment, routers and network 5 years
management equipment including related
software...................................
Computer and data center equipment........... 3 years
Furniture and fixtures....................... 5 years
Leasehold improvements....................... Lesser of lease term or estimated useful life

Indefeasible right-of-use investments ("IRUs"), which are treated as capital
leases, are amortized over their estimated useful lives, not to exceed 15 years
even in those cases where the right of use has been acquired for a longer period
of time because management believes that, due to anticipated advances in
technology, Carrier1's IRUs are not likely to be productive assets beyond
15 years. Maintenance, repairs, and reengineering costs are charged to expense
as incurred. When property and equipment is sold in the ordinary course of
business, cost and accumulated depreciation are eliminated from the accounts,
and revenue and cost of sales are recorded. When equipment is otherwise sold or
disposed, gains or losses are recorded in other income (expense).

CAPITALIZED INTEREST

Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. In 2000,
1999 and 1998, $4,507, $1,491 and $0 of interest cost was capitalized,
respectively.

LONG-LIVED ASSETS

Carrier1 reviews the carrying value of its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value of
these assets may not be recoverable. In the event that events or circumstances
indicate that the cost of any long-lived assets may be impaired, an evaluation
of recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down is
necessary. The write-down would be measured as the difference between the
discounted estimated future operating cash flows from such asset and the
carrying value.

F-12

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER ASSETS

At December 31, 2000 and 1999, other assets included deferred financing
costs of $8,749 and $14,204, respectively (net of accumulated amortization of
$1,886 and $987, respectively), incurred in connection with the issuance of the
senior notes, the Nortel financing facility, and the interim credit facility. In
March 2000, the Nortel and interim credit facilities were repaid, resulting in a
write-off of $1,635 and $2,154 of deferred financing costs, respectively (see
Note 8). Amortization of deferred financing costs is recognized as interest
expense. Also included in other assets are licenses of $2,813 and $3,554,
respectively (net of accumulated amortization of $408 and $40, respectively).

NONMONETARY EXCHANGES

Carrier1 accounts for swaps of IRUs for fiber and fiber wavelength capacity
as nonmonetary exchanges. These swaps are accounted for based on the fair value
of the assets or services exchanged where the swap is considered the culmination
of the earnings process, since the assets or services exchanged are not
considered to be similar.

PENSION PLANS

Carrier1 maintains various plans for providing employee pension benefits,
which conform to laws and practices in the countries concerned. Retirement
benefit plans are generally funded by contributions by both the employees and
the companies. Independent entities operate the retirement benefit schemes.
Where this is not the case, appropriate liabilities are recorded in the
financial statements. Currently, all of Carrier1's significant pension plans are
defined contribution plans.

TAXES

Taxes are provided based on reported income and include taxes on capital as
well as non-recoverable tax withheld on dividends, management fees and royalties
received or paid. Such taxes are calculated in accordance with the tax
regulations in effect in each country. Carrier1 provides for deferred taxes
using the comprehensive liability method. Provision is made in respect of all
temporary differences arising between the tax values of assets and liabilities
and their values in the consolidated financial statements. Valuation allowances
are established against deferred tax assets to the extent that it is more likely
than not that these assets will not be realized. Deferred tax balances are
adjusted for subsequent changes in tax rates or for new taxes imposed. Deferred
tax liabilities are included under provisions.

STOCK-BASED COMPENSATION PLANS

Carrier1 records compensation expense for its stock-based compensation plans
in accordance with the intrinsic value method prescribed by APB 25, "Accounting
for Stock Issued to Employees." Intrinsic value is the amount by which the
estimated market value of the underlying stock exceeds the exercise price of the
stock option on the measurement date, generally the date of grant.

F-13

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 2000 and 1999, the carrying amounts of Carrier1's financial
instruments approximate their fair value, except for notes payable and certain
other long-term debt. The fair values of the dollar and euro notes payable were
determined using quoted market prices. Fair value for the seller financing for
the German Network was estimated using discounted cash flows analyses based on
Carrier1's estimated borrowing rate at December 31, 1999. Based on these
methods, fair values of these financial instruments are as follows:

BOOK VALUE FAIR VALUE
---------- ----------

DECEMBER 31, 2000
Notes payable:
Dollar.................................................... $160,000 $111,200
Euro...................................................... 79,842 55,490

DECEMBER 31, 1999
Senior Notes payable:
Dollar.................................................... $160,000 $160,800
Euro...................................................... 85,541 90,887
Other long-term debt:
Seller financing.......................................... $ 15,746 $ 14,296

TREASURY STOCK

Carrier1's repurchases of shares of common stock are recorded at cost as
treasury stock and result in a reduction of shareholders' equity (deficit). When
treasury shares are reissued, Carrier1 uses a first-in, first-out method and any
difference between the repurchase cost and the reissuance price is treated as
additional paid-in capital. For retirements of treasury shares, the excess of
purchase price over par or stated value is recorded as a reduction of the amount
in treasury stock and in additional paid-in capital. There were no reissuances
or retirements of treasury shares in 2000 or 1999. As of December 31, 2000, the
acquisition of treasury stock has been a result of employees' departures from
Carrier1.

NEW ACCOUNTING PRONOUNCEMENTS

The Company adopted the provisions of SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133, and No. 138, ACCOUNTING FOR CERTAIN
DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, and as interpreted by the
FASB and the Derivatives Implementation Group through "Statement 133
Implementation Issues," as of January 1, 2001. Carrier1 has determined that
there are no significant derivative instruments or any embedded derivative
instruments that require bifurcation. Thus, management has determined that the
provisions

F-14

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
as amended will not have a material effect on Carrier1.

4. LOSS PER SHARE

The following details the loss per share calculations for the years ended
December 31, 2000 and 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998:

PERIOD FROM
FEBRUARY 20, 1998
YEAR ENDED YEAR ENDED (DATE OF INCEPTION)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
2000 1999 1998
------------ ------------ -------------------

Loss before extraordinary item...................... $ (108,143) $ (88,499) $ (19,235)
========== ========== =========
Extraordinary loss on early extinguishment of
debt.............................................. $ (3,789) $ -- $ --
========== ========== =========
Net loss............................................ $ (111,932) $ (88,499) $ (19,235)
========== ========== =========
Total number of shares used to compute basic and
diluted loss per share............................ 40,455,000 29,752,000 7,367,000
========== ========== =========

LOSS PER SHARE:
Loss before extraordinary item:
Basic and diluted................................. $ (2.67) $ (2.97) $ (2.61)
========== ========== =========
Extraordinary loss:
Basic and diluted................................. $ (0.10) $ -- $ --
========== ========== =========
Net loss:
Basic and diluted................................. $ (2.77) $ (2.97) $ (2.61)
========== ========== =========

Potential dilutive securities have been excluded from the computation for
the years ended December 31, 2000 and 1999 and the period from February 20, 1998
(date of inception) to December 31, 1998 as their effect is anti-dilutive. Had
Carrier1 been in a net income position for the years ended December 31, 2000 or
1999 or the period from February 20, 1998 (date of inception) to December 31,
1998, the number of weighted-average shares used to compute diluted earnings per
share would have included an additional 2,383,072, 4,288,000 and 2,822,000
shares, respectively, related to outstanding warrants, stock options and stock
subscriptions (determined using the treasury stock method at the estimated
average market value).

5. INVESTMENTS

At December 31, 2000 and 1999, restricted investments held in escrow are
classfied as held-to-maturity and had an aggregate amortized cost of $29,951 and
$90,177, respectively. As of December 31, 2000, the carrying amount of these
investments approximates their estimated fair value

F-15

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

5. INVESTMENTS (CONTINUED)
due to their short-term nature. As of December 31, 1999 gross unrealized holding
gains totaled $1,561 and the estimated fair value was $91,738. There were no
sales of held-to-maturity securities during 2000 or 1999. At December 31, 2000,
Carrier1's restricted investments held in escrow had remaining contractual
maturities of less than one year.

At December 31, 2000, Carrier1's available-for-sale securities consisted of
euro-denominated corporate bonds with a cost of $197,181, gross unrealized
holding gains of $1,005, and a fair value of $198,186 and were classified as
current. At December 31, 1999, Carrier1 did not hold any investments classified
as available-for-sale. There were no sales of available-for-sale securities
during 2000 or 1999.

The fair value of Carrier1's available-for-sale securities, by contractual
maturity, at December 31, 2000 is as follows:

Less than 1 year............................................ $ 56,475
1 to 2 years................................................ 113,240
2 to 3 years................................................ 28,471
--------
$198,186
========

6. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2000 and 1999 consist of the
following:

2000 1999
-------- --------

Network equipment........................................... $168,597 $ 81,220
Owned fiber network......................................... 124,682 --
Indefeasible right-of-use investments....................... 98,201 49,099
Leasehold improvements...................................... 25,694 10,333
Furniture, fixtures and office equipment.................... 16,534 8,652
Construction in progress.................................... 36,682 78,549
-------- --------
470,390 227,853
Less: accumulated depreciation and amortization............. (47,196) (14,110)
-------- --------
Property and equipment, net............................... $423,194 $213,743
======== ========

F-16

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

7. INVESTMENTS--OTHER

In February 1999, Carrier1 entered into a joint investment with
Viatel, Inc. and Metromedia Fiber Network Inc. to form a non-public company (the
"Developer") to jointly build a national fiber optic telecommunications network
in Germany. Viatel, Inc. has a 50% interest in the investment, while Metromedia
Fiber Network, Inc. and Carrier1 each have a 25% interest in the joint
investment. Carrier1 accounts for this investment under the equity method of
accounting. Upon completion of construction, the Developer will continue to
provide management services to the investors and Carrier1 will own its own
separate German broadband network, including, to the extent possible, its own
divisible and transferable rights in all permits, easements, rights of way and
other third party approvals. In connection with the terms of this agreement,
Carrier1 contributed $4,050 for incremental costs and their pro rata share of
$2,500 for pre-development costs, during the fourth quarter of 1998. Upon
signing a definitive agreement, Carrier1 provided an irrevocable standby letter
of credit in the amount of $64,800 as security for the construction costs of the
network, which, in addition to the deposit payment made, covers Carrier1's
portion of the estimated construction costs. At December 31, 2000, Carrier1
estimates its remaining share of the development costs to be approximately
$33,784.

In the event the agreement is terminated, each party (other than the
defaulting party) is entitled to maintain its ownership interest in any
intellectual property rights, technology, plans, permits and approvals (to the
extent such permits and approvals are issued in the name of such party) and
other intangible property, as well as in any actual construction completed and
materials ordered.

In February 2000, Carrier1 provided a E20 million (currently $18,786) letter
of credit to the joint investment to fund Carrier1's share of additional project
costs for the German Network. The letter of credit is fully collateralized by
restricted cash.

During 2000, Carrier1 entered into a commercial agreement with Servecast.com
Limited ("Servecast") to provide network distribution services. In addition,
Carrier1 made a E3.5 million (currently $3,253) investment in Servecast.

8. DEBT

LONG-TERM DEBT

On February 19, 1999, Carrier1 issued $160,000 and E85 million (currently
$79,842) of 13 1/4% senior notes (the "Notes") with detachable warrants with a
scheduled maturity of February 15, 2009. Each dollar warrant is initially
exercisable to purchase 6.71013 shares of common stock and each euro warrant is
initially exercisable to purchase 7.53614 shares of common stock, resulting in
an aggregate number of 1,714,193 shares to be issued under such warrants.
Holders will be able to exercise the warrants at a per share price equal to the
greater of $2.00 per share and the minimum par value required by Luxembourg law
(currently 50 Luxembourg francs), subject to adjustment.

Carrier1 has the right to redeem any of the Notes beginning on February 15,
2004. The initial redemption price is 106.625% of their principal amount, plus
accrued interest. The redemption price will decline each year after 2004 and
will be 100% of their principal amount, plus accrued interest, beginning on
February 15, 2007. In addition, before February 15, 2002, Carrier1 may redeem up
to

F-17

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

8. DEBT (CONTINUED)
35% of the aggregate amount of either series of Notes with the proceeds of sales
of its capital stock at 113.25% of their principal amount. Carrier1 may make
such redemption only if after any such redemption, an amount equal to at least
65% of the aggregate principal amount of such Notes originally issued remains
outstanding.

The Notes contain covenants that restrict Carrier1's ability to enter into
certain transactions including, but not limited to, incurring additional
indebtedness, creating liens, paying dividends, redeeming capital stock, selling
assets, issuing or selling stock of restricted subsidiaries, or effecting a
consolidation or merger.

As required by the terms of the Notes, in 1999, Carrier1 used approximately
$49,154 of the net proceeds to purchase a portfolio of U.S. government
securities and approximately E26.9 million ($29,797) of the net proceeds to
purchase a portfolio of European government securities, and pledged these
portfolios for the benefit of the holders of the respective series of Notes to
collateralize and fund the first five interest payments.

Other long-term debt as of December 31, 2000 and 1999 consists of the
following:

2000 1999
-------- --------

Seller financing............................................ $ -- $90,749
Network fiber capital lease................................. 753 3,592
---- -------
$753 $94,341
==== =======

On June 25, 1999, Carrier1 entered into a financing facility with Nortel
Networks Inc. ("Nortel"), a major equipment supplier. The Nortel facility
allowed Carrier1 to borrow money to purchase network equipment from Nortel and,
in limited amounts, other suppliers. Under this facility, Carrier1 was able to
borrow up to $75,000 or the actual amount paid or payable by Carrier1 for
network equipment supplied prior to December 31, 1999, whichever was less.
Advances under this facility bore interest at a floating rate tied to LIBOR, and
interest payments were payable periodically from the date of the relevant
advance. Advances were to be repaid in equal installments beginning on
March 31, 2001. At December 31, 1999, Carrier1 had borrowed approximately
$75,000 under this facility with the borrowings bearing interest at a weighted
average rate of 11.04% per annum. In March 2000, Carrier1 repaid the outstanding
balance of the facility, approximately $77,206 including accrued interest as
part of an initial public offering. This debt retirement resulted in an
after-tax extraordinary loss of $1,635 or $0.04 per share.

At December 31, 1999, Carrier1 had $15,749 of other long-term indebtedness
attributable to seller financing of fiber optic cable for Carrier1's German
network. Pursuant to the terms of the financing agreement, the seller was to
provide financing for the entire amount of the purchase with the contract value
to be repaid over three years in equal installments beginning on December 31,
2001 together with interest, or was to allow Carrier1 to make payment in full by
December 31, 2000 without interest. During 2000, an additional $10,304 of
indebtedness was incurred related to this facility. This outstanding balance of
$26,053 was repaid during the third quarter of 2000.

F-18

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

8. DEBT (CONTINUED)
Approximately $753 of other long-term indebtedness at December 31, 2000 is
attributable to a lease of capacity Carrier1 entered into on April 1, 1999. The
lease requires Carrier1 to make monthly payments of $274, including operating
and maintenance costs, for 36 months, after which Carrier1 will obtain a 15-year
IRU in the fiber underlying the lease. Carrier1 will be required to pay an
annual operating and maintenance fee for the term of the IRU. Minimum lease
payments under this arrangement are due as follows:

FISCAL YEAR ENDING DECEMBER 31:
2001........................................................ $ 3,038
2002........................................................ 759
Amounts representing interest............................... (206)
-------
3,591
Less current portion of capital lease obligation............ (2,838)
-------
$ 753
=======

SHORT-TERM DEBT

At December 31, 2000 and 1999, short-term debt consists of the following:

2000 1999
-------- --------

Interim credit facility..................................... $ -- $10,081
Current portion of capital lease obligation................. 2,838 2,577
------ -------
$2,838 $12,658
====== =======

On December 21, 1999, Carrier1 entered into an interim credit facility
arrangement with Morgan Stanley Senior Funding, Inc. and Citibank N.A. as lead
arrangers. The facility allowed Carrier1 to draw up to a maximum amount of
$200,000, or its equivalent in euros, for purposes of refinancing the $75,000
Nortel facility, financing acquisition and installation of telecommunications
equipment and other general corporate purposes. The facility was available until
November 20, 2000 and had a scheduled maturity of December 20, 2000. Advances
were to bear interest at LIBOR plus a margin as determined by reference to
factors including value of security delivered by Carrier1 and any default in
payment. At December 31, 1999, the interest rate was 6.72%. Interest payments
were payable periodically from the date of the relevant advance and at maturity.
During the first quarter of 2000, Carrier1 incurred additional indebtedness of
E30 million (approximately $29,726) related to this facility. In March 2000,
Carrier1 repaid the outstanding balance of the facility as part of an initial
public offering, paying approximately $38,974 including accrued interest. This
debt retirement resulted in an after-tax extraordinary loss of $2,154 or $0.06
per share.

F-19

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

9. COMMITMENTS AND CONTINGENCIES

LEASES

Lessee:

Carrier1 leases certain network capacity, office space, equipment, vehicles
and operating facilities under noncancelable operating leases. Certain leases
contain renewal options and many leases for office space and network capacity
require Carrier1 to pay additional amounts for operating and maintenance costs.
As of December 31, 2000, future minimum lease payments under operating leases
with remaining terms in excess of one year are as follows:

FISCAL YEAR ENDING DECEMBER 31:
2001........................................................ $ 19,546
2002........................................................ 16,440
2003........................................................ 15,198
2004........................................................ 12,957
2005........................................................ 10,360
Thereafter.................................................. 52,208
--------
Total minimum lease payments................................ $126,709
========

Total rental expense under operating leases was $35,745, $24,712 and $5,171,
respectively, during the years ended December 31, 2000 and 1999 and the period
from February 20, 1998 (date of inception) to December 31, 1998.

Lessor:

Future minimum rental receipts from noncancelable operating leases,
including IRUs and bandwidth contracts, are as follows:

FISCAL YEAR ENDING DECEMBER 31:
2001........................................................ $ 14,105
2002........................................................ 19,142
2003........................................................ 6,927
2004........................................................ 7,156
2005........................................................ 6,522
Thereafter.................................................. 63,259
--------
Total minimum receipts...................................... $117,111
========

PURCHASE AND SUPPLY COMMITMENTS

During the period from February 20, 1998 (date of inception) to
December 31, 1998, Carrier1 entered into an agreement to purchase a Multiple
Investment Unit ("MIU") that gives Carrier1 rights to a portion of a
Trans-Atlantic cable scheduled for completion in May 2001. As of December 31,
2000,

F-20

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Carrier1 estimates its remaining share of development and construction costs to
be approximately $4,143. Carrier1 has also entered into various contracts with
vendors to provide network set-up and maintenance services.

On August 17, 1999, Carrier1 signed a contract to swap dark fiber on
Carrier1's German Network for dark fiber covering substantially all of the major
cities in France. Subsequently, an amendment to the contract decreased the
number of strands to two, which Carrier1 made available during 2000. The French
fiber infrastructure will become available in phases throughout 2000 and 2001.
Each party will provide certain network maintenance services for the other party
in their respective countries.

On April 1, 2000, Carrier1 signed a contract under which Nortel will provide
first line maintenance, technical support and spares management service for
3 years for a total cost of $8,600.

Carrier1 obtained an extensive UK network as part of an agreement with
360networks, Inc. (formerly Worldwide Fiber, Inc.) (``360networks"), a related
party, that was announced during the second quarter of 2000. In this agreement,
Carrier1 has agreed to purchase approximately $85,000 of infrastructure and
bandwidth capacity from 360networks and 360networks in turn has agreed to
purchase approximately $150,000 of infrastructure and bandwidth capacity from
Carrier1. As a part of this agreement, 360networks will provide Carrier1 with
Trans-Atlantic and North American capacity, as well as dark fiber on its
diversely-routed 1,150-kilometer UK network.

On November 17, 2000, Carrier1 signed a contract to acquire duct space
between certain German cities under a 18-year IRU for a total estimated cost of
E10.7 million (currently $10,051). Additionally, the agreement provides for the
right to use an undefined number of system equipment rooms. Carrier1 will
compensate the owner for maintenance and support services. Carrier1 expects to
receive the ducts during the first half of 2001.

On December 8, 2000, Carrier1 entered into a binding letter of intent to
exchange various capacities and ducts with a French company. Carrier1 will
provide two ducts on its Milan Metro Ring for total consideration of
E6.0 million ($5,636). Carrier1 expects to deliver the ducts in phases through
November 2001. Carrier1 will receive a 23-year IRU for a duct on three segments
in France for total consideration of E11.5 million ($10,802) and a 15-year IRU
for one fiber pair between Italy and Switzerland for total consideration of
E1.5 million ($1,409). The contract also provides for annual payments for annual
right-of-way and maintenance by Carrier1. In addition, the agreement grants
Carrier1 several capacities on short-term leases.

In the ordinary course of business, Carrier1 enters into purchase
commitments for property and equipment. As of December 31, 2000 outstanding
purchase commitments totaled $35,332.

10. SHAREHOLDERS' EQUITY

During 2000, Carrier1 repurchased 69,254 shares of its own stock at an
aggregate cost of $583, while in 1999, Carrier1 repurchased 4,083 shares of its
own stock at an aggregate cost of $8.

F-21

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

10. SHAREHOLDERS' EQUITY (CONTINUED)
On March 1, 2000, Carrier1 completed its initial public offering of
8,625,000 shares of common stock (including the underwriters' overallotment of
1,125,000 shares) at a price of E87 per share (approximately $87.42 per share).
Carrier1 received proceeds of approximately $681,606, net of underwriting
discounts and commissions, listing fees, and offering-related expenses.
Carrier1's shares are quoted and traded in the Federal Republic of Germany on
the Neuer Markt segment of the Frankfurt Stock Exchange. In the United States of
America, Carrier1's shares are traded in the form of American Depository Shares
("ADS's"). Each ADS represents the right to receive 0.2 shares of common stock.
The ADS's are quoted and traded on the NASDAQ National Market.

11. INCENTIVE COMPENSATION PLANS

In February 1998, the employee stock option plan (the "1998 Option Plan")
was adopted. This plan provides for the issuance of options to purchase Class A
or Class B shares of LLC based on certain criteria as defined in the plan
document. The aggregate number of options to be issued under the 1998 Option
Plan is the lesser of 4,444,444 options or 11.1% of the number of shares
purchased by the current owners of LLC. The per-share exercise price for the
options may not be less than $1 per share. Options vest over a period of five
years and expire if not exercised within 10 years of the grant. In connection
with the creation of the 1998 Option Plan, employees were required to agree to
reduce the percentage of the bonus to which they are eligible under Carrier1's
cash bonus plan (the "Cash Bonus Plan").

In connection with the recapitalization of Carrier1 during December 1998,
Carrier1 canceled the 1998 Option Plan and replaced it with the new 1999 Share
Option Plan (the "1999 Option Plan"), under which SA and related companies of
the consolidated Carrier1 group (the "Related Corporations") may grant to any
employee of Carrier1 or Related Corporations options in equity securities (the
"Options") issued by Carrier1. This effectively reduced the number of
outstanding shares of Carrier1 by half and, therefore, reduced the number of
options under the 1998 Share Option Plan by half and increased the per share
exercise price value to $2 per share.

The 1999 Option Plan is administered by the Board of Directors (the "Board")
and may be administered by a committee appointed by the Board, and authorizes
the Board or such committee to issue Options in such forms and on such terms as
determined by the Board or such committee. The Board or such committee may
determine the number of Options to grant, provided that the number of shares of
Carrier1 issued pursuant to the 1999 Option Plan is no greater than the lesser
of (a) 2,222,222 shares and (b) the number of shares representing 11.1% of the
shares held by purchasers purchasing shares pursuant to a securities purchase
agreement dated as of March 1, 1999. The per-share exercise price for the
Options may not be less than $2. Options granted under the 1999 Option Plan vest
in five equal annual installments beginning on the first anniversary of the
commencement of employment. Options expire if not exercised within 10 years of
the grant, or on an earlier date as specified by the Board or the committee. If
the employment of a participant is terminated for any reason, all unvested
Options immediately expire and vested Options must be exercised within a certain
period of time as specified by the plan document. During 1999, Carrier1

F-22

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

11. INCENTIVE COMPENSATION PLANS (CONTINUED)
canceled the options granted under the 1998 Option Plan and issued replacement
options under the 1999 Option Plan.

As of September 9, 1999, the number of shares granted exceeded the amount
authorized under the plan by 37,940 options. The Board approved the overrun and
increased the number of shares available under the 1999 Option Plan to
2,747,222.

In addition, Carrier1 granted two directors options to purchase a total of
40,000 shares at an exercise price of $2.00 per share during 1999.

Concurrently with its initial public offering in March 2000, Carrier1
approved the 2000 Share Option Plan (the "2000 Option Plan") under which SA and
the Related Corporations may grant to employees of Carrier1 options in equity
securities issued by Carrier1.

The 2000 Option Plan is administered by the Board and may be administered by
a committee appointed by the Board, and authorizes the Board or such committee
to issue Options in such forms and on such terms as determined by the Board or
such committee. Options granted under this plan vest in four equal annual
installments beginning on the first anniversary of the grant date and expire if
not exercised within 10 years of the grant date, or on an earlier date as
specified by the Board or the committee. If the employment of an grantee is
terminated for any reason, all unvested Options immediately expire and vested
Options may at the option of Carrier1 either be redeemed by Carrier1 at current
market value, less exercise price, or retained and exercised until the
expiration of the options.

As of December 31, 2000, no shares were available for grant under the 2000
and 1999 Option Plan.

The status of Carrier1's stock option plans, reflecting the effects of the
option replacement in 1999, is summarized below as of December 31, 2000:

WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------

Outstanding at December 31, 1998............................ 2,022,221 $ 2.00
Granted................................................... 456,997 12.55
Canceled.................................................. (750) 2.00
--------- ------
Outstanding at December 31, 1999............................ 2,478,468 3.95
Granted................................................... 2,964,878 21.57
Canceled.................................................. (59,900) 32.12
--------- ------
Outstanding at December 31, 2000............................ 5,383,446 $14.06
========= ======
Options exercisable at December 31, 2000.................... 939,007 $ 3.07
========= ======

F-23

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

11. INCENTIVE COMPENSATION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 2000:

OPTIONS OUTSTANDING
- --------------------------------------------------------------
WEIGHTED-
AVERAGE OPTIONS EXERCISABLE
REMAINING -----------------------------
CONTRACTUAL WEIGHTED- WEIGHTED-
NUMBER LIFE AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ----------- -------------- ----------- --------------

$2.00 2,287,718 7.2 $ 2.00 896,187 $ 2.00
$10.00 105,500 8.7 10.00 21,100 10.00
$15.00 1,891,794 10.0 15.00 -- 15.00
$33.75 1,500 9.7 33.75 -- 33.75
$37.50 912,084 9.6 37.50 -- 37.50
$40.34 184,850 9.0 40.34 21,720 40.34
--------- ---- ------ ------- ------
$2.00-$40.34 5,383,446 8.7 $14.06 939,007 $ 3.07
========= ==== ====== ======= ======

As required by SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), Carrier1 has determined the pro-forma information as if Carrier1
had accounted for stock options under the fair value method of SFAS 123. The
weighted-average fair value of options granted during the year 2000 for exercise
prices below and equal to the market value at grant date was $24.30 and $10.52,
respectively. In the year 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998, all options were granted at exercise prices
equal to market value with a weighted-average fair value of $3.12 and $0.15 per
option, respectively. During the year ended December 31, 2000, the fair value of
option grants was estimated on the date of grant using the following
assumptions: dividend yield of 0%, risk-free interest rate range of 5.12% to
6.68%, expected option life of 3 years, and volatility factor of 100%. During
the year ended December 31, 1999, the fair value of option grants is estimated
on the date of grant using the following assumptions: dividend yield of 0%,
risk-free interest rate range of 5.5% to 5.8%, expected option life of 3 years,
and volatility factor of 25%. During the period from February 20, 1998 (date of
inception) to December 31, 1998, the fair value of option grants was estimated
on the date of grant using the minimum value option-pricing model, as allowed
under SFAS 123 for nonpublic companies, for pro-forma footnote purposes with the
following assumptions used: dividend yield of 0%, risk-free interest rate of
5.53%, and expected option life of 5 years.

Had compensation cost for Carrier1's stock option plans been determined
under SFAS 123, based on the fair market value at the grant dates, Carrier1's
pro-forma net loss and net loss per share for the

F-24

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

11. INCENTIVE COMPENSATION PLANS (CONTINUED)
years ended December 31, 2000 and 1999 and the period from February 20, 1998
(date of inception) to December 31, 1998 would have been reflected as follows:

2000 1999 1998
--------- -------- --------

Net loss:
As reported............................................... $(111,932) $(88,499) $(19,235)
========= ======== ========
Pro forma................................................. $(118,436) $(88,778) $(19,461)
========= ======== ========
Basic net loss per share:
As reported............................................... $ (2.77) $ (2.97) $ (2.61)
========= ======== ========
Pro forma................................................. $ (2.93) $ (2.98) $ (2.64)
========= ======== ========

In March 1998, Carrier1 established the Cash Bonus Plan to provide incentive
compensation to certain officers and employees. Individuals are eligible to
receive an annual cash bonus ranging from 10% to 25% of their annual salary
based on the terms of their employment agreement. Bonuses are payable at the
discretion of the Board of Directors based upon Carrier1 achieving specific
goals.

Employees were also entitled to subscribe to purchase shares (the "Stock
Purchase Plan") in LLC at the price of $1 per Class A share up to a maximum
investment of approximately $68 per employee. The purchase offer was valid until
September 1, 1998 with payment due before October 1, 1998. Under the Stock
Purchase Plan, certain employees committed to purchase approximately 1,424,000
Class A shares with an aggregate value of approximately $1,424. Management has
determined that no compensation expense is required to be recognized in
connection with this plan since the estimated market value of the stock was less
than the price paid by employees. As a result of the reorganization of Carrier1
in December 1998, Carrier1 amended the Stock Purchase Plan so that employees
will be issued shares of common stock of Carrier1 rather than shares of LLC.
This effectively reduced the number of shares to be issued under the previous
plan by half and increased the par value of the shares to $2 per share. Carrier1
collected the amounts due from employees under the Stock Purchase Plan at
December 31, 1998 during 1999 and issued the related shares in 1999. During the
year ended December 31, 1999, employees committed to purchase approximately
2,354,000 additional shares, with an aggregate value of approximately $5,300,
including 400,000 shares that were sold in 1999 at $2.00 per share to LLC for
the benefit of two directors. During 2000, employees did not commit to purchase
any shares under the Stock Purchase Plan.

F-25

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

12. INCOME TAXES

The income tax benefit for the years ended December 31, 2000 and 1999 and
the period from February 20, 1998 (date of inception) to December 31, 1998
consists of the following:

2000 1999 1998
-------- -------- --------

Current..................................................... $ -- $ -- $ --
Deferred.................................................... 30,430 24,037 5,378
-------- -------- -------
30,430 24,037 5,378
Valuation allowance......................................... (30,430) (24,037) (5,378)
-------- -------- -------
Total....................................................... $ -- $ -- $ --
======== ======== =======

Carrier1 has tax loss carryforwards of approximately $59,845 and $29,415 at
December 31, 2000 and 1999, respectively. The ability of Carrier1 to fully
realize deferred tax assets related to these tax loss carryforwards in future
years is contingent upon its success in generating sufficient levels of taxable
income before the statutory expiration periods for utilizing such net operating
losses lapses. Net operating losses expire as follows: 2003--$289; 2004--$801;
2005--$3,917; 2006--$13,613; 2007--$19,341; 2009--$3; 2010--$189; 2013--$183.
Net operating losses totaling $21,509 do not expire. Due to its limited history,
Carrier1 was unable to conclude that realization of such deferred tax assets in
the near future was more likely than not. Accordingly, a valuation allowance was
recorded to offset the full amount of such assets.

Deferred income tax assets result primarily from net operating loss
carryforwards. Other components of deferred income tax assets and liabilities
are not significant as of December 31, 2000 and 1999.

13. RELATED PARTY TRANSACTIONS

During the years ended December 31, 2000 and 1999 and the period from
February 20, 1998 (date of inception) to December 31, 1998, Carrier1 reimbursed
certain companies, which are shareholders in LLC, for expenses incurred in
connection with the formation of Carrier1 and the negotiation of certain
agreements entered into by Carrier1. Such reimbursements totaled $136, $96 and
$339, respectively, during 2000, 1999 and 1998 and were expensed as selling,
general and administrative expenses.

During 1999, Carrier1 entered into a transmission peering arrangement with
an entity that is 21% beneficially owned by a combination of Providence Equity
Partners L.P., the majority unitholder of LLC, and Providence Equity Partners II
L.P., another unitholder of LLC. Under the terms of the agreement, the parties
agree to carry certain levels of each other's traffic on their network without
charge for one year. This agreement is automatically renewable unless it is
terminated by either party with appropriate notice as required by the agreement.

During 1999, Carrier1 loaned an officer of the company approximately $68.
The loan bears interest at 12% per annum and will be repaid in five equal annual
installments of principal and interest of approximately $19 beginning July 1,
2001.

F-26

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

13. RELATED PARTY TRANSACTIONS (CONTINUED)
During November 1999, Carrier1 invested in DigiPlex S.A. (``DigiPlex",
formerly Hubco S.A.), a company incorporated to build facilities in which
Carrier1 will house and manage both its own and its customers'
telecommunications equipment. As of December 31, 2000, Carrier1 has invested
approximately $27,750 in DigiPlex. An affiliate of Providence Equity Partners
L.P., the majority unitholder of LLC, is also an investor in DigiPlex. This
investment is accounted for at cost and is reported as investments in related
parties.

In December 1999, Carrier1 entered into an agreement with an affiliate of
360networks under which it will sell bandwidth capacity in the form of IRUs
beginning in March 2001. Under the agreement, 360networks also has the option to
swap excess Trans-Atlantic capacity for capacity on Carrier1's German Network
once it has purchased a certain amount of German Network capacity. A fund
managed by Providence Equity Partners L.P. invests in 360networks. In addition,
one of Carrier1's directors is also a director of 360networks.

14. EMPLOYEE BENEFIT PLANS

Carrier1 contributes to defined contribution pension plans in accordance
with the laws and practices of the countries in which it operates. During the
years ended December 31, 2000 and 1999 and the period from February 20, 1998
(date of inception) to December 31, 1998, Carrier1 recorded pension expense
totaling $1,275, $770 and $267, respectively.

15. SEGMENT AND RELATED INFORMATION

Carrier1 has identified two reportable operating segments: voice services
and data services. The voice services segment provides long distance voice
telecommunications services to competitive fixed-line operators, other carriers,
wireless operators, resellers and multi-national corporations. The data services
segment provides telecommunications services to Internet service providers and
other telecommunications companies.

Carrier1's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Carrier1 evaluates performance
of segments based on its fixed cost contribution, which is defined as segment
revenues less direct variable costs incurred directly by the segment. Certain
direct costs, such as network and transmission costs, are shared by the segments
and are not allocated by management to the segments. Fixed cost contribution is
a non U.S. GAAP measure of financial performance. Shared costs and assets are
not allocated to the segments. There were no intersegment transactions during
the years ended December 31, 2000 and 1999 or the period from February 20, 1998
(date of inception) to December 31, 1998.

Summarized financial information concerning Carrier1's reportable segments
as of December 31, 2000 and 1999, and for the years ended December 31, 2000 and
1999 and the period from February 20,

F-27

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

15. SEGMENT AND RELATED INFORMATION (CONTINUED)
1998 (date of inception) to December 31, 1998 is shown in the following table.
The "Other" column includes unallocated shared network and corporate-related
assets which are all assets other than network equipment that has been
identified as relating to a specific segment. As of December 31, 2000 and 1999,
network equipment with a cost basis of $65,377 and $42,857, respectively, has
been identified as relating to a specific segment and network equipment of
$96,759 and $38,363, respectively, is shared by the segments. The remaining
assets, including but not limited to IRU investments and construction in
progress, are not allocated to segments since such assets are considered to be
either shared or corporate-related. Capital expenditures consist of purchases of
property and equipment and equity investments.

YEAR ENDED DECEMBER 31, 2000:

VOICE DATA
SERVICES SERVICES OTHER CONSOLIDATED
-------- -------- ---------- ------------

Revenues.......................................... $220,227 $41,324 -- $ 261,551
Fixed cost contribution........................... 19,657 34,484 -- 54,141
Identifiable assets............................... 29,204 21,710 $1,003,347 1,054,261
Depreciation and amortization..................... 6,684 2,151 24,610 33,445
Capital expenditures.............................. 2,108 20,412 261,911 284,431

YEAR ENDED DECEMBER 31, 1999:

VOICE DATA
SERVICES SERVICES OTHER CONSOLIDATED
-------- -------- ---------- ------------

Revenues.......................................... $ 87,619 $ 9,498 -- $ 97,117
Fixed cost contribution........................... 12,614 7,561 -- 20,175
Identifiable assets............................... 33,984 3,482 $ 400,189 437,655
Depreciation and amortization..................... 4,406 614 8,829 13,849
Capital expenditures.............................. 28,587 2,262 164,527 195,376

PERIOD FROM FEBRUARY 20, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998:

VOICE DATA
SERVICES SERVICES OTHER CONSOLIDATED
-------- --------- -------- ------------

Revenues........................................... $ 2,735 $ 57 -- $ 2,792
Fixed cost contribution............................ 61 57 -- 118
Depreciation and amortization...................... 483 125 $ 801 1,409
Capital expenditures............................... 10,082 1,926 25,160 37,168

F-28

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

15. SEGMENT AND RELATED INFORMATION (CONTINUED)
The following table reconciles the fixed cost contribution for reportable
segments to the loss before income tax benefit and extraordinary item for the
years ended December 31, 2000 and 1999 and the period from February 20, 1998
(date of inception) to December 31, 1998:

2000 1999 1998
--------- -------- --------

Total fixed cost contribution for reportable segments....... $ 54,141 $ 20,175 $ 118
Unallocated amounts:
Unallocated cost of services (exclusive of items shown
separately below)....................................... (57,563) (36,867) (8,995)
Selling, general and administrative expenses.............. (39,596) (18,369) (8,977)
Depreciation and amortization............................. (33,445) (13,849) (1,409)
Other income (expense).................................... (31,680) (39,589) 28
--------- -------- --------
Loss before income tax benefit and extraordinary item....... $(108,143) $(88,499) $(19,235)
========= ======== ========

Unallocated cost of services include network and transmission costs that are
shared by the voice and Internet and bandwidth services segments.

The following table provides detail of the other identifiable assets as of
December 31, 2000 and 1999 in the table shown above:

2000 1999
---------- --------

Cash and cash equivalents (including restricted cash and
available-for-sale securities)............................ $ 384,777 $ 34,016
Receivables................................................. 145,568 65,520
Prepaid expenses and other current assets................... 19,334 9,873
Restricted investments...................................... 29,951 90,177
Investment in related party and others...................... 31,008 4,691
Other noncurrent assets..................................... 20,429 19,635
Property and equipment:
Unallocated network equipment............................. 103,220 38,363
Owned fiber network....................................... 124,682 --
Indefeasible right-of-use investments..................... 98,201 49,099
Leasehold improvements.................................... 25,694 10,333
Furniture, fixtures and office equipment.................. 16,534 8,652
Construction in progress.................................. 36,682 78,549
Accumulated depreciation and amortization................. (32,733) (8,719)
---------- --------
Total other identifiable assets............................. $1,003,347 $400,189
========== ========

F-29

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

15. SEGMENT AND RELATED INFORMATION (CONTINUED)
GEOGRAPHIC INFORMATION

The following table provides detail of Carrier1's revenues for the years
ended December 31, 2000 and 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998 and long-lived assets as of December 31, 2000
and 1999 on a geographic basis. Revenues have been allocated based on the
location of the customer. IRU investments are included based on the entity that
owns the investment. Carrier1 did not earn any revenues in its country of
domicile, Luxembourg.

REVENUES LONG-LIVED ASSETS
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------

Germany.................................... $ 67,543 $40,235 $ 878 $196,448 $ 91,115 $10,369
Switzerland................................ 35,353 6,240 108 120,346 72,052 14,186
United Kingdom............................. 75,573 26,549 1,768 47,428 25,582 7,399
United States.............................. 24,756 3,299 -- 6,379 4,582 3,006
Netherlands................................ 23,034 7,985 38 13,747 9,713 725
France..................................... 11,434 6,627 -- 20,187 3,924 407
Luxembourg................................. -- -- -- 39,822 14,294 --
Other countries............................ 23,858 6,182 -- 30,274 16,807 585
-------- ------- ------ -------- -------- -------
$261,551 $97,117 $2,792 $474,631 $238,069 $36,677
======== ======= ====== ======== ======== =======

MAJOR CUSTOMERS

During the year ended December 31, 1999 and the period from February 20,
1998 (date of inception) to December 31, 1998, Carrier1 earned 14% and 69%,
respectively, of its revenues from major customers. During the year ended
December 31, 2000, no individual customer accounted for more than 10% of
revenues. During 1999, revenues earned from one major customer in the voice
services segment amounted to approximately 14% of total revenues. During 1998,
revenues earned from one major customer amounted to approximately 46% of total
revenues, to another major customer, approximately 13% of total revenues, and to
a third major customer, approximately 10% of total revenues, all of which were
revenues from customers in the voice services segment.

16. SUBSEQUENT EVENTS

In January 2001, Carrier1 invested an additional $4,324 in DigiPlex, a
related party (see Note 13).

F-30

CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 2000 AND 1999 AND PERIOD FROM FEBRUARY 20, 1998

(DATE OF INCEPTION) TO DECEMBER 31, 1998

(In Thousands of U.S. Dollars, Except Share Information)

16. SUBSEQUENT EVENTS (CONTINUED)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

(In Thousands of U.S. Dollars)

ADDITIONS
-------------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE AT
BEGINNING OF AND TO OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- -------------------------------------- ------------ -------- -------- ------------- ----------
(COLUMN A) (COLUMN B) (COLUMN C) (COLUMN D) (COLUMN E)

2000:
Reserves deducted from assets to which
they apply:
Allowance for doubtful accounts
receivable........................ $ 840 $ 4,772 $ -- $ 47 $ 5,659
Valuation allowance for deferred tax
assets............................ $29,415 $30,430 $ -- $ -- $59,845
1999:
Reserves deducted from assets to which
they apply:
Allowance for doubtful accounts
receivable........................ $ -- $ 870 $ -- ($ 30) $ 840
Valuation allowance for deferred tax
assets............................ $ 5,378 $24,037 $ -- $ -- $29,415
1998:
Reserves deducted from assets to which
they apply:
Valuation allowance for deferred tax
assets............................ $ -- $ 5,378 $ -- $ -- $ 5,378

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

(1) Deductions consist entirely of currency translation adjustments.

F-31