AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1998

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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QWEST COMMUNICATIONS INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4813 84-1339282
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)

555 SEVENTEENTH STREET, SUITE 1000
DENVER, COLORADO 80202
(303) 291-1400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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ROBERT S. WOODRUFF, EXECUTIVE VICE PRESIDENT--FINANCE
QWEST COMMUNICATIONS INTERNATIONAL INC.
555 SEVENTEENTH STREET, SUITE 1000
DENVER, COLORADO 80202
(303) 291-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
DRAKE S. TEMPEST, ESQ. ERNEST J. PANASCI, ESQ.
GREGORY P. PATTI, JR., ESQ. KEVIN G. O'CONNELL, ESQ.
O'MELVENY & MYERS LLP SLIVKA ROBINSON WATERS & O'DORISIO,
CITICORP CENTER P.C.
153 EAST 53RD STREET, 54TH FLOOR 1099 18TH STREET, SUITE 2600
NEW YORK, NEW YORK 10022-4611 DENVER, COLORADO 80202-1926
(212) 326-2000 (303) 297-2600
(212) 326-2061 (FAX) (303) 297-2750 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and the
conditions to consummation of the merger (the "Merger") of a subsidiary of the
Registrant with and into Phoenix Network, Inc. ("Phoenix") pursuant to the
Merger Agreement described in the enclosed Proxy Statement/Prospectus have
been satisfied or waived.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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Common Stock ($.01 par
value)................. 836,446(2) N/A $21,315,006(3)
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Contingent Cash
Consideration Rights... $4,000,000 N/A $4,000,000 $7,468.00(4)

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(1) This Registration Statement relates to (i) the common stock, par value
$.01 per share (the "Common Stock"), of the Registrant issuable to holders
of the common stock, par value $.001 per share ("Phoenix Common Stock"),
of Phoenix (the "Phoenix Stockholders") in connection with the Merger and
(ii) the right of the Phoenix Stockholders to receive certain contingent
cash consideration, if any (the "Contingent Cash Consideration Rights"),
on a future date not later than promptly following the third anniversary
of the closing of the Merger.
(2) The estimated number of shares to be registered pursuant to this
Registration Statement is based on the number of shares of Common Stock
issuable to the Phoenix Stockholders in the Merger assuming that (i) the
maximum number of shares of Phoenix Common Stock to be acquired in the
Merger is 35,898,958, (ii) the Acquisition Value is $28,500,000 and (iii)
the Average Market Price is $36.00.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and 457(c) of the Securities Act of 1933, as
amended (the "Securities Act"), based on the product of the estimated
maximum number of shares of Phoenix Common Stock to be acquired in the
Merger (35,898,958) multiplied by $0.59375, the average of the high and
low prices of Phoenix Common Stock on February 10, 1998, as reported on
the American Stock Exchange.
(4) Pursuant to Rule 457(o) under the Securities Act, the registration fee is
calculated on the proposed maximum aggregate offering price of the Common
Stock and the Contingent Cash Consideration Rights. Pursuant to Rule
457(b) under the Securities Act, $4,266.00 of the registration fee was
paid on January 30, 1998 in connection with the filing of Phoenix's
Preliminary Schedule 14A relating to the Merger. Accordingly, the balance
of $3,202.00 is being paid with this filing.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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PHOENIX NETWORK, INC.
13952 DENVER WEST PARKWAY, BUILDING 53
GOLDEN, COLORADO 80402

February 12, 1998

To the Stockholders of Phoenix Network, Inc.:

You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Phoenix Network, Inc. ("Phoenix") to be held at 9:30 a.m.
on March 30, 1998, at 13952 Denver West Parkway, Building 53, Golden,
Colorado.

As described in the enclosed Proxy Statement/Prospectus, at the Annual
Meeting you will be asked to consider and vote upon a proposal to approve and
adopt the Amended and Restated Agreement and Plan of Merger dated as of
December 31, 1997 (the "Merger Agreement") among Phoenix, Qwest Communications
International Inc. ("Qwest") and Qwest 1997-5 Acquisition Corp. ("Qwest
Subsidiary"). Pursuant to the Merger Agreement, Qwest Subsidiary will merge
with and into Phoenix (the "Merger"), with Phoenix being the surviving
corporation of the Merger (the "Surviving Corporation"). In the Merger, each
outstanding share of Phoenix Common Stock will be converted into the right to
receive (i) shares of Qwest common stock and (ii) certain cash consideration
payable, if at all, promptly following the Contingent Cash Consideration Date
(as defined in the Merger Agreement). See "PLAN OF MERGER--Terms of the Merger
Agreement--Conversion of Phoenix Common Stock in the Merger" in the
accompanying Proxy Statement/Prospectus for a description of the circumstances
in which any cash consideration may be paid. As a result of the Merger, the
Surviving Corporation will become a wholly owned subsidiary of Qwest.

In connection with the Merger Agreement, Qwest and certain Phoenix
stockholders (including certain directors and executive officers) collectively
owning approximately 21% of the outstanding shares of Phoenix Common Stock on
the Phoenix Record Date (as defined in the accompanying Proxy
Statement/Prospectus) have entered into certain voting agreements dated as of
December 31, 1997, pursuant to which such stockholders have (i) agreed, among
other things, to vote to approve the Merger Agreement and the Merger and (ii)
granted Qwest an irrevocable proxy to vote such shares to approve the Merger
Agreement and the Merger. Accordingly, all of such shares are expected to be
voted to approve and authorize the Merger Agreement and the Merger.

Your Board of Directors has determined that each of the Merger Agreement and
the Merger is in the best interests of Phoenix and its stockholders and has
unanimously approved and authorized the Merger Agreement and the Merger. THE
BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND AUTHORIZATION OF THE MERGER
AGREEMENT AND THE MERGER.

You are urged to read in its entirety the accompanying Proxy
Statement/Prospectus, which provides you with a description of the terms of
the Merger Agreement and the Merger. A copy of the Merger Agreement is
attached as Exhibit A to the enclosed Proxy Statement/Prospectus.

In addition, at the Annual Meeting you will also be asked to consider and
vote upon the election of seven (7) directors to serve as directors of Phoenix
for the ensuing year and until their successors are elected, or until the
consummation of the Merger, whichever occurs earlier. In the event that the
Phoenix stockholders vote to approve and authorize the Merger Agreement and
the Merger, it is expected that Qwest and Phoenix will consummate the Merger
as quickly as possible after the Annual Meeting. Pursuant to the terms of the
Merger Agreement, upon consummation of the Merger the board of directors of
Qwest Subsidiary will become the board of directors of the Surviving
Corporation from and after the time of consummation of the Merger.
Accordingly, in the event that the Phoenix stockholders approve and authorize
the Merger Agreement and the Merger at the Annual Meeting, it

is expected that the directors elected at the Annual Meeting will serve as
directors of Phoenix for only a very short period of time, and those persons
will not serve as directors of Qwest, the Surviving Corporation or any other
subsidiary of Qwest. In the event that the Merger Agreement and the Merger are
not approved and authorized by the Phoenix stockholders or in the event that
the Merger is not consummated for any other reason, the directors elected at
the Annual Meeting will serve until the next Annual Meeting of Stockholders and
until their successors are elected. THE BOARD RECOMMENDS THAT YOU VOTE "FOR"
EACH NAMED NOMINEE FOR DIRECTOR.

IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. Failure to return a properly executed proxy card or vote at the
Annual Meeting would have the same effect as a vote against the Merger
Agreement and the Merger. Please do not send in your stock certificates at this
time. In the event the Merger is consummated, you will be sent a letter of
transmittal for that purpose promptly thereafter.

Sincerely,

/s/ Wallace M. Hammond

Wallace M. Hammond
Chief Executive Officer and
President

PHOENIX NETWORK, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 30, 1998

To the Stockholders of Phoenix Network, Inc.:

Notice is hereby given that the Annual Meeting of Stockholders of Phoenix
Network, Inc., a Delaware corporation ("Phoenix"), will be held at 9:30 a.m.,
local time, on March 30, 1998 at 13952 Denver West Parkway, Building 53,
Golden, Colorado, for the following purposes:

1. To consider and vote upon a proposal to approve and authorize an
Amended and Restated Agreement and Plan of Merger dated as of December 31,
1997 (the "Merger Agreement") among Phoenix, Qwest Communications
International Inc., a Delaware corporation ("Qwest"), and Qwest 1997-5
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Qwest ("Qwest Subsidiary"). Pursuant to the Merger Agreement, Qwest
Subsidiary will merge with and into Phoenix (the "Merger"), with Phoenix
being the surviving corporation of the Merger (the "Surviving
Corporation"). In the Merger, each outstanding share of Phoenix Common
Stock will be converted into the right to receive (i) shares of Qwest
common stock and (ii) certain cash consideration payable, if at all,
promptly following the Contingent Cash Consideration Date (as defined in
the Merger Agreement). As a result of the Merger, the Surviving Corporation
will become a wholly owned subsidiary of Qwest.

2. To elect seven (7) directors to serve as directors of Phoenix for the
ensuing year and until their successors are duly elected, or until the
consummation of the Merger, whichever occurs earlier.

3. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.

Only stockholders of record at the close of business on February 9, 1998 are
entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof.

The accompanying Proxy Statement/Prospectus describes the Merger Agreement,
the Merger and the directors nominated for election. TO ENSURE THAT YOUR VOTE
WILL BE COUNTED, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING. You may revoke your proxy in the manner
described in the accompanying Proxy Statement/Prospectus at any time before it
is voted at the Annual Meeting.

In the event that there are not sufficient votes to approve the Merger
Agreement and the Merger, it is expected that the Annual Meeting will be
postponed or adjourned in order to permit further solicitation of proxies by
Phoenix.

If the Merger is consummated, stockholders who deliver a written demand for
appraisal of their shares prior to the Annual Meeting, or at the Annual
Meeting but before the vote, who do not vote in

favor of approval of the Merger Agreement and who otherwise comply with the
requirements of Section 262 of the Delaware General Corporation Law, will be
entitled to statutory appraisal rights. A copy of Section 262 is attached as
Exhibit E to the accompanying Proxy Statement/Prospectus.

By Order of the Board of Directors

/s/ Ernest J. Panasci

Ernest J. Panasci
Secretary

Golden, Colorado
February 12, 1998

[LOGO] QWEST
PHOENIX NETWORK, INC.
PROXY STATEMENT

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QWEST COMMUNICATIONS INTERNATIONAL INC.
PROSPECTUS

This Proxy Statement/Prospectus is being furnished to holders (the "Phoenix
Stockholders") of shares of common stock, par value $.001 per share (the
"Phoenix Common Stock"), of Phoenix Network, Inc., a Delaware corporation
(together with its subsidiaries, "Phoenix"), in connection with the
solicitation of proxies by the Phoenix Board of Directors (the "Phoenix
Board") for use at the Annual Meeting of Phoenix Stockholders to be held on
March 30, 1998 at 9:30 a.m., local time, at 13952 Denver West Parkway,
Building 53, Golden, Colorado and at any adjournment or postponement thereof
(the "Phoenix Annual Meeting").

This Proxy Statement/Prospectus relates to the Amended and Restated
Agreement and Plan of Merger dated as of December 31, 1997 (the "Merger
Agreement") among Phoenix, Qwest Communications International Inc., a Delaware
corporation ("Qwest"), and Qwest 1997-5 Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Qwest ("Qwest Subsidiary").
Pursuant to the Merger Agreement, Qwest Subsidiary will merge with and into
Phoenix, with Phoenix being the surviving corporation of the Merger (the
"Surviving Corporation"). As a result of the Merger, the Surviving Corporation
will become a wholly owned subsidiary of Qwest. Subject to the terms of the
Merger Agreement, at the effective time of the Merger (the "Effective Time"),
each outstanding share of Phoenix Common Stock will be converted into the
right to receive (i) shares of common stock, par value $.01 per share ("Qwest
Common Stock"), of Qwest (the "Stock Consideration") and (ii) certain cash
consideration payable, if at all, promptly following the Contingent Cash
Consideration Date (as defined below) (the "Contingent Cash Consideration" and
together with the Stock Consideration, the "Merger Consideration"). See "PLAN
OF MERGER--Terms of the Merger Agreement--Conversion of Phoenix Common Stock
in the Merger" for a description of the Merger Consideration and the
circumstances in which any Contingent Cash Consideration may be paid.

This Proxy Statement/Prospectus also relates to the election by the Phoenix
Stockholders of seven directors to serve as directors of Phoenix for the
ensuing year and until their successors are elected, or until the consummation
of the Merger, whichever occurs earlier. Phoenix shall obtain resignations
from each of its directors and officers effective at or immediately following
the Effective Time. As a result, the directors elected at the Phoenix Annual
Meeting will not be directors of Qwest, the Surviving Corporation or any other
subsidiary of Qwest after the Effective Time. See "PROPOSAL 2--ELECTION OF
PHOENIX DIRECTORS" herein.

The Phoenix Board has determined that each of the Merger Agreement and the
Merger is in the best interests of Phoenix and the Phoenix Stockholders and
has unanimously approved and authorized the Merger Agreement and the Merger.
The decision of the Phoenix Board to enter into the Merger Agreement and to
recommend that Phoenix Stockholders vote in favor of the Merger Agreement and
the Merger is based upon its evaluation of a number of factors, including,
among others, the written opinion of J.C. Bradford & Co., L.L.C. ("J.C.
Bradford"), Phoenix's investment banker in connection with the Merger, that
the consideration to be received by the Phoenix Stockholders in the Merger is
fair to the Phoenix Stockholders from a financial point of view. See "PLAN OF
MERGER--Phoenix's Reasons for the Merger; Recommendation of the Phoenix Board"
and "--Opinion of Phoenix's Financial Advisor." It is highly uncertain whether
or when any Contingent Cash Consideration will be paid to the Phoenix
Stockholders pursuant to the terms of the Merger Agreement. Accordingly, for
the purposes of deciding whether to vote to approve and authorize the Merger
Agreement and the Merger, it is appropriate for the Phoenix Stockholders to
carefully consider what value, if any, to assign to the right to receive the
Contingent Cash Consideration. THE PHOENIX BOARD RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL AND AUTHORIZATION OF THE MERGER AGREEMENT AND THE MERGER AND
"FOR" EACH NAMED NOMINEE FOR DIRECTOR.
(continued on next page)

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SEE "RISK FACTORS" BEGINNING ON PAGE 24 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PHOENIX STOCKHOLDERS IN EVALUATING THE
PROPOSALS TO BE VOTED UPON AND IN EVALUATING AN INVESTMENT IN QWEST
COMMON STOCK.

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THE SECURITIES ISSUABLE IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to Phoenix Stockholders on or about February 13, 1998.

THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS FEBRUARY 12, 1998

(continued from cover page)

Consummation of the Merger is subject to certain conditions, including
approval and authorization of the Merger Agreement and the Merger by the
affirmative vote of at least a majority of the votes eligible to be cast at
the Phoenix Annual Meeting by the Phoenix Stockholders. Each share of Phoenix
Common Stock is entitled to one vote.

In connection with the Merger Agreement, Qwest and certain Phoenix
Stockholders (including certain directors and executive officers) collectively
owning approximately 21% of the outstanding shares of Phoenix Common Stock on
the Phoenix Record Date have entered into certain voting agreements dated as
of December 31, 1997, pursuant to which such stockholders have (i) agreed,
among other things, to vote to approve the Merger Agreement and the Merger and
(ii) granted Qwest an irrevocable proxy to vote such shares to approve the
Merger Agreement and the Merger. Accordingly, all of such shares are expected
to be voted to approve and authorize the Merger Agreement and the Merger. See
"PLAN OF MERGER--The Voting Agreements."

ALL INFORMATION CONCERNING QWEST CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY QWEST AND ALL INFORMATION
CONCERNING PHOENIX CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS (INCLUDING,
WITHOUT LIMITATION, (I) INFORMATION CONCERNING THE MINIMUM USAGE FEES OWED BY
PHOENIX TO MCI COMMUNICATIONS CORPORATION ("MCI") AND SPRINT COMMUNICATIONS
COMPANY, L.P. ("SPRINT COMMUNICATIONS"), RESPECTIVELY, THAT WILL AFFECT THE
AGGREGATE AMOUNT OF STOCK CONSIDERATION THAT WILL BE REQUIRED TO BE PAID BY
QWEST TO THE PHOENIX STOCKHOLDERS IN THE MERGER AND (II) INFORMATION
CONCERNING THE LITIGATION AND RELATED RIGHTS OF INDEMNIFICATION THAT WILL
AFFECT THE AGGREGATE AMOUNT OF CONTINGENT CASH CONSIDERATION, IF ANY, THAT
WILL BE REQUIRED TO BE PAID BY QWEST TO THE PHOENIX STOCKHOLDERS PROMPTLY
FOLLOWING THE CONTINGENT CASH CONSIDERATION DATE) HAS BEEN FURNISHED BY
PHOENIX.

QWEST AND PHOENIX EXPRESS NO VIEW AS TO WHETHER PHOENIX WILL BE REQUIRED BY
MCI AND/OR SPRINT COMMUNICATIONS TO MAKE PAYMENTS IN RESPECT OF CERTAIN
MINIMUM USAGE FEES OWED BY PHOENIX TO SUCH ENTITIES. PURSUANT TO THE TERMS OF
THE MERGER AGREEMENT, SUCH PAYMENTS, IF REQUIRED, WILL REDUCE THE AGGREGATE
AMOUNT OF STOCK CONSIDERATION TO BE PAID BY QWEST TO THE PHOENIX STOCKHOLDERS
IN THE MERGER. FOR A DESCRIPTION OF THE MINIMUM USAGE FEES OWED BY PHOENIX TO
MCI AND SPRINT COMMUNICATIONS, SEE "BUSINESS OF PHOENIX--MCI AND SPRINT
PAYABLES" AND FOR A DESCRIPTION OF THE TERMS OF THE MERGER AGREEMENT RELATING
TO SUCH MINIMUM USAGE FEES, SEE "PLAN OF MERGER--TERMS OF THE MERGER
AGREEMENT--CONVERSION OF PHOENIX COMMON STOCK IN THE MERGER--STOCK
CONSIDERATION." QWEST AND PHOENIX ALSO EXPRESS NO VIEW AS TO THE OUTCOME OF
THE LITIGATION WITH RESPECT TO WHICH PHOENIX MAY BECOME LIABLE OR THE ABILITY
OF PHOENIX TO ENFORCE ANY RIGHT OF INDEMNIFICATION IN CONNECTION THEREWITH,
EACH OF WHICH WILL AFFECT THE AGGREGATE AMOUNT OF CONTINGENT CASH
CONSIDERATION, IF ANY, THAT QWEST WILL BE REQUIRED TO PAY TO THE PHOENIX
STOCKHOLDERS PROMPTLY FOLLOWING THE CONTINGENT CASH CONSIDERATION DATE, WHICH
WILL OCCUR, IF AT ALL, PROMPTLY FOLLOWING THE CONTINGENT CASH CONSIDERATION
DATE. FOR A DESCRIPTION OF THE LITIGATION UPON WHICH THE PAYMENT OF THE
CONTINGENT CASH CONSIDERATION DEPENDS, AND FOR A DESCRIPTION OF THE
SUBSTANTIAL LIMITATIONS ON QWEST'S OBLIGATION TO ENFORCE THE VAN ESSEN
INDEMNIFICATION AND HOLD HARMLESS AGREEMENT (AS DEFINED HEREIN), UPON WHICH
THE PAYMENT OF THE CONTINGENT CASH CONSIDERATION ALSO DEPENDS, SEE "BUSINESS
OF PHOENIX--LEGAL PROCEEDINGS." FOR A DESCRIPTION OF THE TERMS OF THE MERGER
AGREEMENT RELATING TO SUCH LITIGATION, SEE "PLAN OF MERGER--TERMS OF THE
MERGER AGREEMENT--CONVERSION OF PHOENIX COMMON STOCK IN THE MERGER--CONTINGENT
CASH CONSIDERATION." IT IS HIGHLY UNCERTAIN WHETHER OR WHEN ANY CONTINGENT
CASH CONSIDERATION WILL BE PAID TO THE PHOENIX STOCKHOLDERS PURSUANT TO THE
TERMS OF THE MERGER AGREEMENT. ACCORDINGLY, FOR THE PURPOSES OF DECIDING
WHETHER TO VOTE TO APPROVE AND AUTHORIZE THE MERGER AGREEMENT AND THE MERGER,
IT IS APPROPRIATE FOR THE PHOENIX STOCKHOLDERS TO CAREFULLY CONSIDER WHAT
VALUE, IF ANY, TO ASSIGN TO THE RIGHT TO RECEIVE THE CONTINGENT CASH
CONSIDERATION.

AVAILABLE INFORMATION

Qwest and Phoenix are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such information may be obtained at the
prescribed rates from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a Web site (http://www.sec.gov) that contains certain reports, proxy
statements and other information regarding Qwest and Phoenix. Qwest Common
Stock is traded on the Nasdaq National Market and Phoenix Common Stock is
traded on the American Stock Exchange (the "AMEX"). Material filed by Qwest
may also be inspected at the offices of the National Association of Securities
Dealers, Inc., Market Listing Section, 1735 K Street, N.W., Washington, D.C.
20006 and material filed by Phoenix may also be inspected at the offices of
the AMEX, 86 Trinity Place, New York, New York 10006.

THIS PROXY STATEMENT/PROSPECTUS IS PART OF A REGISTRATION STATEMENT ON FORM
S-4 (TOGETHER WITH ANY AMENDMENTS OR SUPPLEMENTS THERETO, THE "REGISTRATION
STATEMENT") FILED BY QWEST PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") WITH RESPECT TO THE OFFERING OF QWEST COMMON STOCK IN
CONNECTION WITH THE MERGER (THE "ISSUANCE"). THE PROXY STATEMENT/PROSPECTUS
DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT,
CERTAIN PARTS OF WHICH ARE OMITTED IN ACCORDANCE WITH THE RULES AND
REGULATIONS OF THE COMMISSION. THE REGISTRATION STATEMENT AND ANY AMENDMENTS
THERETO, INCLUDING EXHIBITS FILED AS A PART THEREOF, ALSO ARE AVAILABLE FOR
INSPECTION AND COPYING AS SET FORTH ABOVE. STATEMENTS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS OR IN ANY DOCUMENT INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR OTHER
DOCUMENT REFERRED TO HEREIN OR THEREIN ARE NOT NECESSARILY COMPLETE, AND IN
EACH INSTANCE REFERENCE IS MADE TO THE COPY OF SUCH CONTRACT OR OTHER DOCUMENT
FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH SUCH STATEMENT BEING
QUALIFIED IN ALL RESPECTS BY SUCH REFERENCE.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following reports previously filed with the Commission by Phoenix
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:

1. Phoenix's Annual Report on Form 10-K, as amended on Forms 10-K/A, for
the fiscal year ended December 31, 1996;

2. Phoenix's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, as amended on Form 10-Q/A;

3. Phoenix's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997;

4. Phoenix's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997; and

5. Phoenix's Current Reports on Form 8-K filed on January 24, 1997, April
25, 1997, July 10, 1997, July 17, 1997, September 2, 1997, January 8, 1998
and February 9, 1998.

The information relating to Phoenix contained in this Proxy
Statement/Prospectus does not purport to be comprehensive and should be read
together with the information in the documents incorporated by reference. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy

Statement/Prospectus to the extent that a statement contained herein (or in
any other subsequently filed document that also is, or is deemed to be,
incorporated by reference herein) modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof except as so modified or superseded. All information appearing in
this Proxy Statement/Prospectus is qualified in its entirety by the
information and consolidated financial statements (including notes thereto)
appearing in the documents incorporated or deemed to be incorporated herein by
reference, except to the extent set forth in the immediately preceding
statement.

THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS, OTHER
THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF PHOENIX COMMON STOCK TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO: SECRETARY
OF PHOENIX NETWORK, INC., 13952 DENVER WEST PARKWAY, BUILDING 53, GOLDEN,
COLORADO 80402, TELEPHONE NUMBER (303) 215-5500. TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE MARCH 23, 1998.

No person is authorized to give any information or to make any
representations with respect to the matters described in this Proxy
Statement/Prospectus other than those contained herein or in the documents
incorporated by reference herein. Any information or representations with
respect to such matters not contained herein or therein must not be relied
upon as having been authorized by Qwest or Phoenix. This Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Proxy Statement/Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change
in the affairs of Qwest or Phoenix since the date hereof or that the
information in this Proxy Statement/Prospectus or in the documents
incorporated by reference herein is correct as of any time subsequent to the
date hereof or thereof.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Proxy Statement/Prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act that include, among others, (i) statements concerning the
benefits expected to result from the Merger, (ii) Qwest's plans to complete
the Qwest Network (as defined herein), (iii) expectations as to funding
Qwest's capital requirements, (iv) anticipated expansion of Carrier Services
and Commercial Services (each as defined herein) and (v) other statements of
expectations, beliefs, future plans and strategies, anticipated developments
and other matters that are not historical facts. Management cautions the
reader that these forward-looking statements are subject to risks and
uncertainties, including financial, regulatory environment, and trend
projections, that could cause actual events or results to differ materially
from those expressed or implied by the statements. Such risks and
uncertainties include those risks, uncertainties and risk factors identified,
among other places, under "RISK FACTORS," "QWEST'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "PHOENIX'S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." The most important factors that could prevent Qwest from
achieving its stated goals include, but are not limited to, failure by Qwest
to (x) manage effectively, cost efficiently and on a timely basis the
construction of the route segments, (y) enter into additional customer
contracts to sell dark fiber or provide high-volume capacity and otherwise
expand its telecommunications customer base on the Qwest Network and (z)
obtain and maintain all necessary rights-of-way. See "RISK FACTORS." Neither
Qwest nor Phoenix undertakes any obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.

TABLE OF CONTENTS

PAGE
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AVAILABLE INFORMATION..................................................... i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... i
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS.......................... ii
SUMMARY................................................................... 1
Phoenix Annual Meeting.................................................. 1
Proposal 1--Approval and Adoption of the Merger Agreement and the
Merger................................................................. 2
Business of Qwest Communications International Inc. .................... 2
Business of Phoenix Network, Inc........................................ 3
The Merger Agreement.................................................... 4
The Voting Agreements................................................... 11
Recommendation of Phoenix Board......................................... 12
Opinion of Phoenix's Financial Advisor.................................. 12
Regulatory Approvals.................................................... 12
Accounting Treatment of the Merger...................................... 13
Certain Federal Income Tax Consequences................................. 13
Appraisal Rights........................................................ 13
Risk Factors............................................................ 13
Comparative Per Share Data.............................................. 14
Comparative Market Price Information.................................... 15
Selected Historical and Unaudited Pro Forma Condensed Financial Data.... 16
Selected Pro Forma Financial Data (Unaudited)........................... 17
Selected Historical Financial Data of Qwest............................. 18
Selected Historical Financial Data of Phoenix........................... 20
Proposal 2--Election of Directors....................................... 21
Nominees................................................................ 21
Term; Effect of Merger.................................................. 21
Vote Required........................................................... 21
Recommendation of Phoenix Board......................................... 21
PHOENIX ANNUAL MEETING.................................................... 22
Date, Time, Place and Purpose........................................... 22
Record Date; Shares Entitled to Vote.................................... 22
Quorum; Vote Required................................................... 22
Proxies................................................................. 23

PROPOSAL 1--APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER

RISK FACTORS.............................................................. 24
Risk Factors Relating to the Merger Consideration....................... 24
Risk Factors Relating to Qwest and Its Business......................... 25
Risk Factors Relating to Phoenix and Its Business....................... 32
PLAN OF MERGER............................................................ 40
Background of the Merger................................................ 40
Phoenix's Reasons for the Merger; Recommendation of the Phoenix Board... 42
Qwest's Reasons for the Merger.......................................... 43
Opinion of Phoenix's Financial Advisor.................................. 43
Terms of the Merger Agreement........................................... 46

iii

PAGE
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Certain Federal Income Tax Consequences................................. 62
Accounting Treatment of the Merger...................................... 65
Appraisal Rights........................................................ 65
The Voting Agreements................................................... 68
Interests of Certain Persons in the Merger.............................. 69
INDUSTRY OVERVIEW......................................................... 70
General................................................................. 70
Long Distance Network Services.......................................... 71
Telecommunications Technology........................................... 71
Telecommunications Markets.............................................. 72
BUSINESS OF QWEST......................................................... 74
Recent Developments..................................................... 74
Opportunities........................................................... 75
Strategy................................................................ 76
The Qwest Network....................................................... 78
Carrier Services........................................................ 82
Commercial Services..................................................... 83
Network Construction Services........................................... 85
Sales and Marketing..................................................... 85
Competition............................................................. 86
Properties.............................................................. 87
Employees............................................................... 88
Legal Proceedings....................................................... 88
REGULATION................................................................ 89
General Regulatory Environment.......................................... 89
Federal Regulation...................................................... 90
International Settlements............................................... 93
State Regulation........................................................ 94
Local Regulation........................................................ 95
Other................................................................... 95
SELECTED HISTORICAL FINANCIAL DATA OF QWEST............................... 96
QWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 99
Overview................................................................ 99
Results of Operations................................................... 102
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996..................................................... 102
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995... 104
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994... 105
Liquidity and Capital Resources......................................... 106
Impact of Inflation..................................................... 110
Announcement of Fiscal 1997 Results..................................... 110
MANAGEMENT OF QWEST....................................................... 111
Directors and Executive Officers........................................ 111
Other Management........................................................ 111
Executive Compensation.................................................. 116
Stock Option Grant...................................................... 117
Option Exercises and Holdings........................................... 118

PAGE
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Growth Share Plan....................................................... 118
Equity Incentive Plan................................................... 120
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements........................................................... 122
Director Compensation................................................... 124
Compensation Committee Interlocks and Insider Participation............. 125
PRINCIPAL STOCKHOLDER..................................................... 126
CERTAIN TRANSACTIONS...................................................... 126
BENEFICIAL OWNERSHIP OF QWEST COMMON STOCK................................ 128
DESCRIPTION OF QWEST CAPITAL STOCK........................................ 129
Authorized and Outstanding Capital Stock................................ 129
Common Stock............................................................ 129
Authorized Qwest Preferred Stock........................................ 129
Certain Charter and Statutory Provisions................................ 130
Transfer Agent and Registrar............................................ 130
BUSINESS OF PHOENIX....................................................... 131
General................................................................. 131
Company Strategy........................................................ 131
Acquisitions............................................................ 131
Operations.............................................................. 132
Products and Services................................................... 132
Customers............................................................... 132
Marketing and Sales..................................................... 132
Customer Service........................................................ 134
Employees............................................................... 134
MCI and Sprint Payables................................................. 134
Phoenix Credit Facility................................................. 135
Government Regulation................................................... 136
Properties.............................................................. 139
Legal Proceedings....................................................... 139
PHOENIX SELECTED FINANCIAL DATA........................................... 142
PHOENIX'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 144
Introduction............................................................ 144
Supplier Relationships.................................................. 144
Results of Operations................................................... 145
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996..................................................... 145
1996 Compared to 1995................................................... 146
1995 Compared to 1994................................................... 147
Liquidity and Capital Resources......................................... 148
Seasonality............................................................. 150
Tax Benefit............................................................. 150
COMPARATIVE MARKET PRICE INFORMATION...................................... 151
COMPARATIVE RIGHTS OF PHOENIX STOCKHOLDERS AND QWEST STOCKHOLDERS......... 152
PRO FORMA COMBINED FINANCIAL STATEMENTS................................... 153

PROPOSAL 2--ELECTION OF PHOENIX DIRECTORS

PAGE
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NOMINEES.................................................................. 160
MANAGEMENT OF PHOENIX..................................................... 161
Directors and Executive Officers........................................ 161
Phoenix Board Committees and Meetings................................... 162
Compliance With Section 16(a) of the Securities Exchange Act of 1934.... 163
PHOENIX EXECUTIVE COMPENSATION............................................ 164
Compensation of Directors............................................... 164
Compensation of Executive Officers...................................... 165
Compensation Committee Report........................................... 168
Compensation Committee Interlocks and Insider Participation............. 170
Performance Measurement Comparison...................................... 171
BENEFICIAL OWNERSHIP OF PHOENIX STOCK..................................... 172
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF PHOENIX................. 173
Indemnification Agreements.............................................. 173
Acquisition of ACI...................................................... 173
Preferred Stock Conversions............................................. 173
Investment Banking Services............................................. 174
PHOENIX INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......................... 174
LEGAL OPINION............................................................. 174
TAX OPINION............................................................... 174
EXPERTS................................................................... 174
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
GLOSSARY.................................................................. G-1
EXHIBIT A--MERGER AGREEMENT............................................... A-1
EXHIBIT B--OPINION OF J.C. BRADFORD....................................... B-1
EXHIBIT C--FORM OF AMENDED AND RESTATED VOTING AGREEMENT AND PROXY........ C-1
EXHIBIT D--VAN ESSEN INDEMNIFICATION AND HOLD HARMLESS AGREEMENT.......... D-1
EXHIBIT E--SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DEL-
AWARE........................................................... E-1

SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including the financial statements and the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus. A glossary of relevant
terms used in the telecommunications business is included at the end of this
Proxy Statement/Prospectus. References to "Phoenix" mean Phoenix Network, Inc.
and its subsidiaries, and references to "Qwest" mean Qwest Communications
International Inc. and its predecessors, together with Qwest's subsidiaries,
including Qwest Corporation ("QC") and Qwest Communications Corporation
("QCC"). All references to Qwest Common Stock, unless otherwise indicated,
shall be deemed to refer to Qwest Common Stock after giving effect to the Qwest
Stock Split. "Qwest Stock Split" means the two-for-one stock split announced on
January 20, 1998 by Qwest's Board of Directors, payable on February 24, 1998 as
a dividend to the holders of record of Qwest Common Stock on February 2, 1998.

PHOENIX ANNUAL MEETING

Date, Time, Place and Purpose. The Phoenix Annual Meeting will be held on
March 30, 1998, at 9:30 a.m., local time, at 13952 Denver West Parkway,
Building 53, Golden, Colorado, or at any postponement or adjournment thereof,
for the following purposes:

1. To consider and vote upon a proposal to approve and authorize the
Merger Agreement among Phoenix, Qwest and Qwest Subsidiary. Pursuant to the
Merger Agreement, Qwest Subsidiary will merge with and into Phoenix, with
Phoenix being the Surviving Corporation of the Merger. In the Merger, each
outstanding share of Phoenix Common Stock will be converted into the right
to receive the Merger Consideration. As a result of the Merger, the
Surviving Corporation will become a wholly owned subsidiary of Qwest.

2. To elect seven (7) directors to serve as directors of Phoenix for the
ensuing year and until their successors are duly elected, or until the
consummation of the Merger, whichever occurs earlier.

3. To transact such other business as may properly come before the
Phoenix Annual Meeting or any adjournment or postponement thereof.

THE PHOENIX BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND
THE MERGER ARE ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, PHOENIX AND
THE PHOENIX STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED AND AUTHORIZED THE MERGER
AGREEMENT AND THE MERGER. THE PHOENIX BOARD RECOMMENDS THAT THE PHOENIX
STOCKHOLDERS VOTE "FOR" APPROVAL AND AUTHORIZATION OF THE MERGER AGREEMENT AND
THE MERGER AND "FOR" EACH NAMED NOMINEE FOR DIRECTOR AT THE PHOENIX ANNUAL
MEETING.

IT IS HIGHLY UNCERTAIN WHETHER OR WHEN ANY CONTINGENT CASH CONSIDERATION WILL
BE PAID TO THE PHOENIX STOCKHOLDERS PURSUANT TO THE TERMS OF THE MERGER
AGREEMENT. ACCORDINGLY, FOR THE PURPOSES OF DECIDING WHETHER TO VOTE TO APPROVE
AND AUTHORIZE THE MERGER AGREEMENT AND THE MERGER, IT IS APPROPRIATE FOR THE
PHOENIX STOCKHOLDERS TO CAREFULLY CONSIDER WHAT VALUE, IF ANY, TO ASSIGN TO THE
RIGHT TO RECEIVE THE CONTINGENT CASH CONSIDERATION.

See "PHOENIX ANNUAL MEETING--Date, Time, Place and Purpose" and the Sections
of this Proxy Statement/Prospectus entitled "PROPOSAL 1--APPROVAL AND
AUTHORIZATION OF THE MERGER AGREEMENT AND THE MERGER" AND "PROPOSAL 2--ELECTION
OF DIRECTORS".

Record Date; Shares Entitled to Vote. Only stockholders of record of Phoenix
Common Stock at the close of business on February 9, 1998 (the "Phoenix Record
Date") are entitled to notice of and to vote at the Phoenix Annual Meeting. At
the close of business on the Phoenix Record Date, 35,898,958 shares of Phoenix
Common Stock were outstanding, each of which entitles the registered holder
thereof to one vote. See "PHOENIX ANNUAL MEETING--Record Date; Shares Entitled
to Vote."

Quorum; Vote Required. The presence in person or by proxy of holders
representing a majority of the voting power of the Phoenix Common Stock
entitled to vote is necessary to constitute a quorum for the transaction of
business at the Phoenix Annual Meeting. Approval by the Phoenix Stockholders of
the Merger Agreement and the Merger requires the affirmative vote of the
holders of a majority of the outstanding shares of the Phoenix Common Stock.
The affirmative vote of holders of a plurality of the votes of the Phoenix
Common Stock entitled to vote is required to elect the directors. See "PHOENIX
ANNUAL MEETING--Quorum; Vote Required." The directors and executive officers of
Phoenix and their respective affiliates collectively owned approximately 17% of
the outstanding shares of Phoenix Common Stock on the Phoenix Record Date.

Proxies. Phoenix Common Stock represented by properly executed proxies
received at or prior to the Phoenix Annual Meeting that have not been revoked
will be voted at the Phoenix Annual Meeting in accordance with the instructions
contained therein. Phoenix Common Stock represented by properly executed
proxies for which no instruction is given will be voted "FOR" approval and
authorization of the Merger Agreement and the Merger and "FOR" election of each
nominee for director. See "PHOENIX ANNUAL MEETING--Proxies."

Shares Voting for Approval. In connection with the Merger Agreement, Qwest
and certain Phoenix Stockholders (including certain directors and executive
officers) collectively owning approximately 21% of the outstanding shares of
Phoenix Common Stock on the Phoenix Record Date have entered into certain
voting agreements dated as of December 31, 1997, pursuant to which such
stockholders have (i) agreed, among other things, to vote to approve the Merger
Agreement and the Merger and (ii) granted Qwest an irrevocable proxy to vote
such shares to approve the Merger Agreement and the Merger. Accordingly, all of
such shares are expected to be voted to approve and authorize the Merger
Agreement and the Merger. See "PLAN OF MERGER--The Voting Agreements" and the
form of Amended and Restated Voting Agreement and Proxy set forth at Exhibit C
to this Proxy Statement/Prospectus.

PROPOSAL 1--APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE MERGER

BUSINESS OF QWEST COMMUNICATIONS INTERNATIONAL INC.

Qwest is a facilities-based provider of multi-media communications services
to interexchange carriers and other communications entities ("Carrier
Services") and to businesses and consumers ("Commercial Services"), and it
constructs and installs fiber optic communications systems for interexchange
carriers and other communications entities, as well as for its own use
("Network Construction Services"). Qwest is expanding its existing long
distance network into an approximately 16,000 route-mile coast-to-coast,
technologically advanced, fiber optic telecommunications network (the "Qwest
Network"). Qwest will employ, throughout substantially all of the Qwest
Network, a self-healing SONET four-fiber ring architecture equipped with the
most advanced commercially available fiber and transmission electronics
manufactured by Lucent Technologies ("Lucent") and Northern Telecom Inc.
("Nortel"), respectively. The Qwest Network's advanced fiber and transmission

electronics are expected to provide Qwest with lower installation, operating
and maintenance costs than older fiber systems generally in commercial use
today. In addition, Qwest has entered into construction contracts for the sale
of dark fiber along the route of the Qwest Network, which will reduce Qwest's
net cost per fiber mile with respect to the fiber it retains for its own use.
As a result of these cost advantages, Qwest believes it will be well-positioned
to capture market share and take advantage of the rapidly growing demand for
data transmission, multimedia and long haul voice capacity.

Under Qwest's current plan, the Qwest Network will extend approximately
16,000 route miles coast-to-coast and connect approximately 125 metropolitan
areas that represent approximately 80% of the originating and terminating long
distance traffic in the United States. Construction of the Qwest Network is
scheduled to be completed by the end of the second quarter of 1999. Through a
combination of the Qwest Network and leased facilities, Qwest will continue to
offer interstate services in all 48 contiguous states. The Qwest Network will
connect to international cable heads for trans-Atlantic and trans-Pacific
transmission and cross-border points to Canada and Mexico. Qwest recently
extended its network to the United Kingdom through an exchange of capacity for
two 155 megabit circuits that will carry international data and voice traffic
between London and New York. Qwest also is extending its network approximately
1,400 route miles into Mexico through dark fiber to be owned by Qwest on the
fiber optic system of a third party. Completion of the Mexican network is
scheduled for late 1998.

Qwest believes that demand from interexchange carriers and other
communications entities for advanced, high bandwidth voice, data and video
transmission capacity will increase over the next several years due to
regulatory and technical changes and other industry developments. These
anticipated changes and developments include: (i) continued growth in capacity
requirements for high-speed data transmission, ATM and Frame Relay services,
Internet and multi-media services and other new technologies and applications;
(ii) continued growth in demand for existing long distance services; (iii)
entry into the market of new communications providers; (iv) requirements of the
four principal nationwide carriers AT&T Corporation ("AT&T"), MCI, Sprint
Communications, Inc. ("Sprint") and WorldCom, Inc. ("WorldCom") to replace or
augment portions of their older systems and (v) reform in regulation of
domestic access charges and international settlement rates, which Qwest expects
will lower long distance rates and fuel primary demand for long distance
services. See "INDUSTRY OVERVIEW," "BUSINESS OF QWEST" AND "REGULATION."

For a description of certain recent developments relating to Qwest and its
business, see "BUSINESS OF QWEST--Recent Developments" and "QWEST'S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Announcement of Fiscal 1997 Results."

Qwest's principal executive offices are located at 1000 Qwest Tower, 555
Seventeenth Street, Denver, Colorado 80202, and its telephone number is (303)
291-1400.

BUSINESS OF PHOENIX NETWORK, INC.

Phoenix is a facilities-based reseller of telecommunications services which
sells to small to medium-sized commercial accounts. Phoenix signs up customers
for long distance and other telecommunications services and places them either
on its own network or on the network of the nation's largest facilities-based
carriers. In addition to "1 plus" domestic long distance service, Phoenix
offers its customers a wide range of value-added products and services,
including inbound "800" service, dedicated access and private line service,
Internet access, calling cards, international call-back, conference calling,
debit cards and customized management reports. See "BUSINESS OF PHOENIX."
Phoenix's principal executive offices are located at 13952 Denver West Parkway,
Building 53, Golden, Colorado 80402, and its telephone number is (303) 215-
5500.

THE MERGER AGREEMENT

The Merger. Subject to the terms and conditions of the Merger Agreement,
Qwest Subsidiary will merge with and into Phoenix at the Effective Time, at
which time the separate corporate existence of Qwest Subsidiary will cease, and
Phoenix will become the Surviving Corporation of the Merger.

Conversion of Phoenix Common Stock in the Merger.

General. In connection with the Merger, all outstanding shares of Phoenix
Common Stock will be acquired for (i) that number of shares of Qwest Common
Stock having an aggregate market value equal to $28.5 million, subject to
certain adjustments and limitations described below, which is referred to below
as the Stock Consideration, and (ii) certain cash consideration, if any,
payable promptly following the Contingent Cash Consideration Date in an
aggregate maximum amount of $4.0 million in cash, contingent upon the outcome
of certain litigation described below, plus interest at the rate of 7.0% per
annum, compounded annually, from the closing date of the Merger (the "Closing
Date") to, but excluding, the Contingent Cash Consideration Date, which is
referred to below as the Contingent Cash Consideration. The Stock Consideration
and the Contingent Cash Consideration are collectively referred to below as the
Merger Consideration. The Merger Consideration will be paid to persons who are
the record holders of Phoenix Common Stock immediately prior to be Effective
Time of the Merger.

Stock Consideration. The Stock Consideration to be issued by Qwest in the
Merger will be determined by dividing (i) the quotient obtained by dividing the
Acquisition Value (as defined below) by the Effective Time Adjusted Average
Market Price (as defined below) by (ii) the Aggregate Number (as defined
below).

Contingent Cash Consideration. The Contingent Cash Consideration, if any, to
be paid by Qwest in cash promptly following the Contingent Cash Consideration
Date will be determined by dividing (i) the sum of (1)(A) $4,000,000 minus (B)
the LDDS Liability (as defined below) plus (C) any amounts recovered by any of
Qwest and its subsidiaries on or before the Contingent Cash Consideration Date
under the Van Essen Indemnification and Hold Harmless Agreement dated January
16, 1996 (the "Van Essen Indemnification and Hold Harmless Agreement"), by and
among Phoenix, Phoenix Network Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Phoenix ("PNAC"), Automated Communications, Inc., a
Colorado corporation and a wholly-owned subsidiary of Phoenix ("ACI"), and Judy
Van Essen Kenyon ("Van Essen") (net of all out-of-pocket costs, fees and
expenses, including, without limitation, the fees and disbursements of counsel
and the expenses of litigation, incurred in collecting such amounts, in each
case to the extent not reimbursed pursuant to the Van Essen Indemnification and
Hold Harmless Agreement) plus (2) interest on the amount determined in
accordance with the preceding clause (1) at a rate of 7% per annum, compounded
annually, from the Closing Date to, but excluding, the Contingent Cash
Consideration Date by (ii) the Aggregate Number; provided that, if there has
not occurred a settlement or other final, nonappealable resolution of the
litigation styled LDDS/WorldCom, Inc. and Dial-Net, Inc. v. Automated
Communications, Inc. and Judy Van Essen Kenyon, C.A. No. 3:93-CV-463 (WS)
(U.S.D.C. S.D. Miss) (the "LDDS Litigation"), on or prior to the Contingent
Cash Consideration Date, the Contingent Cash Consideration shall be an amount
equal to zero dollars ($0).

Definitions. For the purposes of the Merger Agreement, the following terms
have the meanings assigned to them below:

of such agreement (the "Sprint Payable") and (B) Section 3 of the Carrier
Agreement between Phoenix and MCI with respect to the difference between
Phoenix's Usage Charges (as defined therein) and its Annual Commitment (as
defined therein) during the term of such agreement (the "MCI Payable"). For
a description of the Sprint Payable and the MCI Payable see "BUSINESS OF
PHOENIX--MCI and Sprint Payables."

"Aggregate Number" means the sum of (a) the number of shares of Phoenix
Common Stock outstanding immediately prior to the Effective Time and (b)
the number of shares of Phoenix Common Stock that would be issued if all
warrants or other rights that are not exercised, exchanged, cancelled or
otherwise terminated in accordance with Section 7.1(j) of the Merger
Agreement were exercised or exchanged in accordance with their terms
immediately prior to the Effective Time. Section 7.1(j) of the Merger
Agreement provides that all options, warrants and other rights to acquire
capital stock of Phoenix that are not exercised as of the Effective Time
will be cancelled or otherwise terminated, except that warrants and other
rights to acquire up to 398,723 shares of Phoenix Common Stock in the
aggregate may remain outstanding at the Effective Time if (a) Phoenix shall
have used commercially reasonable efforts to cause the cancellation or
other termination of such warrants or the exercise or exchange of such
other rights and (b) only shares of Qwest Common Stock (and no equity
securities of the Surviving Corporation or any other person) shall be
issuable upon exercise or exchange, as the case may be, of such warrants or
other rights after the Effective Time.

"Average Market Price" per share of any class of stock on any date means
the average of the daily closing prices of the shares of such stock for the
fifteen (15) consecutive trading days commencing twenty (20) trading days
before such date.

"Contingent Cash Consideration Date" means the date that is the earlier
of (1) the third anniversary of the Closing Date and (2) the date as of
which Qwest shall have determined, in the exercise of its reasonable
judgment and after having exercised commercially reasonable efforts to
obtain recovery under the Van Essen Indemnification and Hold Harmless
Agreement, that it is not reasonably likely in the circumstances that Qwest
and its Subsidiaries shall recover substantial additional amounts under
such agreement on or before the third anniversary of the Closing Date (net
of all out-of-pocket costs, fees and expenses, including, without
limitation, the fees and disbursements of counsel and the expenses of
litigation, incurred in connection with collecting such amounts, in each
case to the extent not reimbursed or likely to be reimbursed pursuant to
the Van Essen Indemnification and Hold Harmless Agreement on or before the
third anniversary of the Closing Date); provided that in no event shall any
of Qwest and its Subsidiaries be required to exercise more than
commercially reasonable efforts with respect to such recovery.

"Effective Time Adjusted Average Market Price" means (i) the Average
Market Price per share of Qwest Common Stock at the Effective Time if such
Average Market Price is equal to or greater than $26.25 and equal to or
less than $33.75, (ii) $26.25 if the Average Market Price per share of
Qwest Common Stock at the Effective Time is equal to or greater than $23.75
and less than $26.25, (iii) $33.75 if the Average Market Price per share of
Qwest Common Stock at the Effective Time is equal to or less than $36.25
and greater than $33.75, (iv) $26.25 less fifty percent (50%) of the amount
by which the Average Market Price per share of Qwest Common Stock at the
Effective Time is less than $23.75 if such Average Market Price is less
than $23.75, or (v) the sum of (x) $33.75 and (y) fifty percent (50%) of
the amount by which the Average Market Price per share of Qwest Common
Stock at the Effective Time is greater than $36.25 if such Average Market
Price is greater than $36.25.

the LDDS Litigation or (2) any other Action (as defined in the Merger
Agreement) based, in whole or in part, upon facts involved in the LDDS
Litigation, in each case, including, without limitation, any damages, or
any fees, expenses or other disbursements of counsel. For a description of
the LDDS Litigation, including the substantial limitations on Qwest's
obligation to enforce the Van Essen Indemnification and Hold Harmless
Agreement, see "BUSINESS OF PHOENIX--Legal Proceedings."

Uncertainty of Value of Merger Consideration. The amount and the value of the
Stock Consideration and of the Contingent Cash Consideration, if any, are
subject to risk and uncertainty. The timing of the payment of the Contingent
Cash Consideration, if any, is also subject to uncertainty. Accordingly, the
value of the Merger Consideration that may be realized by the Phoenix
Stockholders is uncertain. Certain principal elements of this uncertainty are
summarized below.

The amount of the Stock Consideration to be received by the Phoenix
Stockholders depends, among other things, on (i) the Acquisition Value, which
is reduced by any amount that Phoenix is required to pay to MCI and Sprint
Communications in respect of certain minimum usage fees, and (ii) the average
of the daily closing prices of the Qwest Common Stock for the fifteen
consecutive trading days commencing twenty trading days prior to the Closing
Date. See "PLAN OF MERGER--Terms of the Merger Agreement--Conversion of Phoenix
Common Stock in the Merger--Stock Consideration." In addition, the value of the
Stock Consideration that any Phoenix Stockholder may be able to realize upon
the sale of the Qwest Common Stock received in the Merger will depend
principally on the market price per share of Qwest Common Stock at the time of
sale. The market price of the Qwest Common Stock at any time reflects
perceptions of market participants as to the business, operations, results and
prospects of Qwest, general market and economic conditions and other factors.

With respect to the Acquisition Value, which affects the value of the Stock
Consideration, Qwest and Phoenix express no view as to whether Phoenix will be
required by MCI and Sprint Communications to make payments in respect of
certain minimum usage fees owed by Phoenix to such entities. Pursuant to the
terms of the agreements between Phoenix and each of MCI and Sprint
Communications, Phoenix is obligated to pay approximately $420,000 to MCI and
$1.275 million to Sprint Communications in respect of such minimum usage fees.
Pursuant to the terms of the Merger Agreement, such payments, if required, will
reduce the Acquisition Value and, accordingly, the Stock Consideration to be
paid by Qwest to the Phoenix Stockholders in the Merger. Phoenix Stockholders
may receive updated information with respect to the Acquisition Value by
calling the toll free number referred to below. Although Phoenix is currently
attempting to re-negotiate the amount of such payments, there can be no
assurance that Phoenix will be successful in reducing its obligations to MCI or
Sprint Communications. For a description of the minimum usage fees owed by
Phoenix to MCI and Sprint Communications, see "BUSINESS OF PHOENIX--MCI and
Sprint Payables" and for a description of the terms of the Merger Agreement
relating to such minimum usage fees, see "PLAN OF MERGER--Terms of the Merger
Agreement--Conversion of Phoenix Common Stock in the Merger--Stock
Consideration."

the outcome of the LDDS Litigation or the ability of Phoenix, Qwest or any
other person to enforce any right of indemnification under the Van Essen
Indemnification and Hold Harmless Agreement. The potential liability of Phoenix
and its subsidiaries, based on the damages asserted by WorldCom, exceeds $4
million, and includes (1) compensatory damages of approximately $3,020,000; (2)
attorneys' fees in excess of $700,000; (3) punitive damages in an unspecified
amount; and (4) pre-judgment interest. Qwest and Phoenix express no view as to
whether Van Essen now has, or in the future will have, the financial capability
to perform her obligations under the Van Essen Indemnification and Hold
Harmless Agreement. The obligations of Van Essen to indemnify Phoenix under the
Van Essen Indemnification and Hold Harmless Agreement are unsecured, although
certain shares of Phoenix Common Stock have been deposited in escrow in support
of Van Essen's indemnification obligations. Pursuant to the terms of the Merger
Agreement, Qwest is obligated to exercise no more than commercially reasonable
efforts to recover any amounts under the Van Essen Indemnification and Hold
Harmless Agreement and only amounts so recovered on or prior to the third
anniversary of the Closing Date will be included in calculating the Contingent
Cash Consideration, if any. IF THERE IS NO SETTLEMENT OR OTHER FINAL,
NONAPPEALABLE RESOLUTION OF THE LDDS LITIGATION ON OR PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE, THE LIABILITY IS ASSUMED TO BE $4 MILLION AND
THE CONTINGENT CASH CONSIDERATION WILL BE $0. IN ANY CASE, ANY AMOUNTS
RECOVERED BY ANY OF QWEST OR ITS SUBSIDIARIES AFTER THE THIRD ANNIVERSARY OF
THE CLOSING DATE WILL BE RETAINED BY QWEST AND WILL NOT BE DISTRIBUTED TO THE
PHOENIX STOCKHOLDERS. In addition, in exercising commercially reasonable
efforts Qwest is not required to incur expenses in excess of that which it
reasonably expects to recover by reason of such efforts, and no person other
than Qwest has been selected to monitor Qwest's recovery efforts. For a
description of the LDDS Litigation and a description of the substantial
limitations on Qwest's obligation to enforce the Van Essen Indemnification and
Hold Harmless Agreement, see "BUSINESS OF PHOENIX--Legal Proceedings" and for a
description of the terms of the Merger Agreement relating to such litigation,
see "PLAN OF MERGER--Terms of the Merger Agreement--Conversion of Phoenix
Common Stock in the Merger."

The right to receive the Contingent Cash Consideration represents a general
obligation of Qwest, is not secured by a security interest, mortgage or lien on
any property, and does not represent an interest in any trust fund, escrow
fund, segregated fund or account or any similar vehicle held by Qwest or by a
third party for the benefit of the Phoenix Stockholders. In addition, the right
to receive the Contingent Cash Consideration is a personal right of each
Phoenix Stockholder of record immediately prior to the Effective Time of the
Merger and may not be assigned, sold or otherwise transferred to any other
person, other than pursuant to the laws of inheritance. Qwest is not required
to (other than pursuant to the laws of inheritance), but in its sole discretion
may, record or otherwise recognize any assignment, sale or other transfer of
the right to receive the Contingent Cash Consideration. Qwest will pay the
Contingent Cash Consideration, if any, promptly following the Contingent Cash
Consideration Date to the Phoenix Stockholders of record immediately prior to
the Effective Time unless in any case Qwest shall elect to record an
assignment, sale or other transfer of such right to any transferee, in which
case the Contingent Cash Consideration, if any, will be paid to such transferee
promptly following the Contingent Cash Consideration Date. It is highly
uncertain whether or when any Contingent Cash Consideration will be paid to the
Phoenix Stockholders pursuant to the terms of the Merger Agreement.
Accordingly, for the purposes of deciding whether to vote to approve and
authorize the Merger Agreement and the Merger, it is appropriate for the
Phoenix Stockholders to carefully consider what value, if any, to assign to the
right to receive the Contingent Cash Consideration. Stockholders.

Consideration would be if the Merger were consummated on Friday, February 27,
1998 (for calls to the toll free number during the seven day period ending on
Friday, February 27, 1998) and on each subsequent Friday (for calls to the toll
free number during the seven day period ending on such Friday). Phoenix
Stockholders may call the same toll free number from Saturday, March 21, 1998
until Monday, March 30, 1998 to hear a tape recorded message stating what the
Average Market Price, Effective Time Adjusted Average Market Price and Stock
Consideration would be if the Merger were consummated on Monday, March 30,
1998, which is the date of the Phoenix Annual Meeting. The tape recorded
message will not give any information regarding the amount, if any, of the
Contingent Cash Consideration or the likely date of payment, if any, of the
Contingent Cash Consideration. The payment of the Contingent Cash Consideration
is dependent on the outcome of the LDDS Litigation and Qwest's ability to
enforce the Van Essen Indemnification and Hold Harmless Agreement, neither of
which is expected to be resolved prior to the Phoenix Annual Meeting. See "RISK
FACTORS--Risk Factors Relating to the Merger Consideration."

Table of Illustrative Values of Stock Consideration. The following Table 1
illustrates the value of the Stock Consideration issuable in the Merger,
assuming that the Aggregate Number is 36,277,291, that the Average Market Price
is within a range from $22.50 to $40.00, and that the Acquisition Value is
either $26,800,000 or $28,500,000. Phoenix does not expect that the Aggregate
Number will vary materially from 36,277,291, but the Average Market Price may
be less than $22.50 or greater than $40.00. Phoenix expects that the
Acquisition Value will not be less than $26,800,000 and will be less than or
equal to $28,500,000. The columns in the following Table 1 present (a) the
Average Market Price of Qwest Common Stock at the Effective Time within a range
from $22.50 to $40.00, (b) the Effective Time Adjusted Average Market Prices
that correspond to the Average Market Prices presented in the table, (c) the
fractions of one share of Qwest Common Stock that would be issued for one share
of Phoenix Common Stock at the Average Market Prices and corresponding
Effective Time Adjusted Average Market Prices presented in the table, in each
case depending on whether the illustrative Acquisition Value is $26,800,000 or
$28,500,000, as the case may be, and (d) the illustrative values of the Stock
Consideration to be received in the merger for one share of Phoenix Common
Stock, which illustrative values are determined by multiplying the Average
Market Prices presented in the table by the corresponding fractions of one
share of Qwest Common Stock that would be issued in the Merger at those Average
Market Prices, in each case depending on whether the illustrative Acquisition
Value is $26,800,000 or $28,500,000. In general, the value of the Stock
Consideration issuable in the Merger increases as the Average Market Price and
the Acquisition Value increases and the value of the Stock Consideration
decreases as the Average Market Price and the Acquisition Value decreases. THE
VALUES OF STOCK CONSIDERATION SHOWN IN THE FOLLOWING TABLE 1 ARE ILLUSTRATIVE
ONLY AND DO NOT REPRESENT THE ACTUAL AMOUNT PER SHARE OF PHOENIX COMMON STOCK
THAT MIGHT BE REALIZED BY ANY PHOENIX STOCKHOLDER ON OR AFTER THE CLOSING DATE.
THE AMOUNT ANY PHOENIX STOCKHOLDER WILL BE ABLE TO REALIZE UPON THE SALE IN THE
MARKET OF THE STOCK CONSIDERATION RECEIVED BY SUCH PHOENIX STOCKHOLDER IN THE
MERGER WILL DEPEND PRINCIPALLY UPON THE MARKET PRICE PER SHARE OF QWEST COMMON
STOCK AT THE TIME OF SALE.

TABLE 1

ILLUSTRATIVE VALUES OF STOCK CONSIDERATION
(PER SHARE OF PHOENIX COMMON STOCK)

ILLUSTRATIVE ACQUISITION VALUE ILLUSTRATIVE ACQUISITION VALUE
= =
$26,800,000 $28,500,000
------------------------------------------ ------------------------------------------
(A) (B) (C) (D) (C) (D)
QWEST EFFECTIVE TIME STOCK CONSIDERATION ILLUSTRATIVE VALUE OF STOCK CONSIDERATION ILLUSTRATIVE VALUE OF
AVERAGE ADJUSTED (QWEST SHARES STOCK CONSIDERATION (QWEST SHARES STOCK CONSIDERATION
MARKET AVERAGE ISSUABLE PER 1 (STOCK CONSIDERATION X ISSUABLE PER 1 (STOCK CONSIDERATION X
PRICE MARKET PRICE PHOENIX SHARE) AVERAGE MARKET PRICE) PHOENIX SHARE) AVERAGE MARKET PRICE)
- ------- -------------- ------------------- ---------------------- ------------------- ----------------------

$40.00 $35.625 0.0207 $0.8295 0.0221 $0.8821
$38.75 $ 35.00 0.0211 $0.8179 0.0224 $0.8698
$37.50 $34.375 0.0215 $0.8059 0.0229 $0.8570
$36.25 $ 33.75 0.0219 $0.7935 0.0233 $0.8438
$35.00 $ 33.75 0.0219 $0.7661 0.0233 $0.8147
$33.75 $ 33.75 0.0219 $0.7388 0.0233 $0.7856
$32.50 $ 32.50 0.0227 $0.7388 0.0242 $0.7856
$31.25 $ 31.25 0.0236 $0.7388 0.0251 $0.7856
$30.00 $ 30.00 0.0246 $0.7388 0.0262 $0.7856
$28.75 $ 28.75 0.0257 $0.7388 0.0273 $0.7856
$27.50 $ 27.50 0.0269 $0.7388 0.0286 $0.7856
$26.25 $ 26.25 0.0281 $0.7388 0.0299 $0.7856
$25.00 $ 26.25 0.0281 $0.7036 0.0299 $0.7482
$23.75 $ 26.25 0.0281 $0.6684 0.0299 $0.7108
$22.50 $25.625 0.0288 $0.6487 0.0307 $0.6898
- -------------------------------------------------------------------------------------------------------------

Table of Illustrative Values of Contingent Cash Consideration. The following
Table 2 illustrates the value of the Contingent Cash Consideration, assuming
that the Aggregate Number is 36,277,291 and the Contingent Cash Consideration
multiplied by the Aggregate Number is within a range from zero to $4,000,000 at
the time the Contingent Cash Consideration, if any, is paid. THE VALUES OF THE
CONTINGENT CASH CONSIDERATION SHOWN IN THE FOLLOWING TABLE 2 ARE ILLUSTRATIVE
ONLY AND DO NOT REPRESENT THE ACTUAL AMOUNT PER SHARE OF PHOENIX COMMON STOCK
THAT MIGHT BE REALIZED BY ANY PHOENIX STOCKHOLDER ON OR AFTER THE CONTINGENT
CASH CONSIDERATION DATE. THE VALUES ILLUSTRATED ARE NOT VALUES AS OF THE
CLOSING DATE BUT ARE VALUES AS OF THE TIME THE CONTINGENT CASH CONSIDERATION,
IF ANY, IS PAID. IN ADDITION, THE RIGHT TO RECEIVE THE CONTINGENT CASH
CONSIDERATION IS PERSONAL TO EACH PHOENIX STOCKHOLDER OF RECORD IMMEDIATELY
PRIOR TO THE EFFECTIVE TIME OF THE MERGER, AND ACCORDINGLY THE PRESENT VALUE,
IF ANY, OF SUCH RIGHT CANNOT BE REALIZED BY THE ASSIGNMENT, SALE OR OTHER
TRANSFER OF SUCH RIGHT UNLESS QWEST, IN ITS SOLE DISCRETION, AGREES TO PERMIT
AND RECORD SUCH ASSIGNMENT, SALE OR OTHER TRANSFER. IT IS HIGHLY UNCERTAIN
WHETHER OR WHEN ANY CONTINGENT CASH CONSIDERATION WILL BE PAID TO THE PHOENIX
STOCKHOLDERS PURSUANT TO THE TERMS OF THE MERGER AGREEMENT. ACCORDINGLY, FOR
THE PURPOSES OF DECIDING WHETHER TO VOTE TO APPROVE AND AUTHORIZE THE MERGER
AGREEMENT AND THE MERGER, IT IS APPROPRIATE FOR THE PHOENIX STOCKHOLDERS TO
CAREFULLY CONSIDER WHAT VALUE, IF ANY, TO ASSIGN TO THE RIGHT TO RECEIVE THE
CONTINGENT CASH CONSIDERATION.

TABLE 2
ILLUSTRATIVE VALUES OF CONTINGENT CASH CONSIDERATION
(PER SHARE OF PHOENIX COMMON STOCK)

ILLUSTRATIVE AMOUNT OF AGGREGATE CONTINGENT CASH CONSIDERATION
---------------------------------------------------------------
$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000
---------------------------------------------------------------

Contingent Cash
Consideration: $ $0 0.0276 $ 0.0551 $ 0.0827 $ 0.1103

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

of the Contingent Cash Consideration, as shown for purposes of illustration in
Table 2 above. The illustrative values of the Merger Consideration shown in the
following Table 3 have been calculated by adding certain illustrative values of
Stock Consideration that were selected from Table 1 to the illustrative values
of Contingent Cash Consideration shown in Table 2. The values of Stock
Consideration were reflected from Table 1 for illustrative purposes only, and
without any intention of suggesting that any one possible value or selection of
possible values is any more or less likely to be realized in the Merger than
any other possible value or selection of possible values. In general, the total
value of the Merger Consideration increases as the Stock Consideration and the
Contingent Cash Consideration increase, and the total value of the Merger
Consideration decreases as the Stock Consideration and the Contingent Cash
Consideration decrease. There is no necessary relationship between the Stock
Consideration and the Contingent Cash Consideration, and one component of the
Merger Consideration (i.e., the Stock Consideration or the Contingent Cash
Consideration) may increase or decrease by an amount that is offset, in whole
or in part, by a decrease or an increase in the value of the other component.
THE VALUES OF THE MERGER CONSIDERATION SHOWN IN THE FOLLOWING TABLE 3 ARE
ILLUSTRATIVE ONLY AND DO NOT REPRESENT THE ACTUAL AMOUNT PER SHARE OF PHOENIX
COMMON STOCK THAT MIGHT BE REALIZED BY ANY PHOENIX STOCKHOLDER ON OR AFTER THE
CLOSING DATE AND THE CONTINGENT CASH CONSIDERATION DATE, AS DESCRIBED IN THE
BOLD SENTENCES PRIOR TO EACH OF THE PREVIOUS TWO ILLUSTRATIVE TABLES. THE VALUE
OF THE STOCK CONSIDERATION IS CALCULATED AS OF THE EFFECTIVE TIME (BASED ON THE
AVERAGE MARKET PRICE OF QWEST COMMON STOCK AS OF THE EFFECTIVE TIME) AND THE
CONTINGENT CASH CONSIDERATION IS CALCULATED AS OF THE DATE OF PAYMENT. IT IS
HIGHLY UNCERTAIN WHETHER OR WHEN ANY CONTINGENT CASH CONSIDERATION WILL BE PAID
TO THE PHOENIX STOCKHOLDERS PURSUANT TO THE TERMS OF THE MERGER AGREEMENT.
ACCORDINGLY, FOR THE PURPOSES OF DECIDING WHETHER TO VOTE TO APPROVE AND
AUTHORIZE THE MERGER AGREEMENT AND THE MERGER, IT IS APPROPRIATE FOR THE
PHOENIX STOCKHOLDERS TO CAREFULLY CONSIDER WHAT VALUE, IF ANY, TO ASSIGN TO THE
RIGHT TO RECEIVE THE CONTINGENT CASH CONSIDERATION. PHOENIX STOCKHOLDERS WHO
ELECT TO ASSIGN NO VALUE TO THE RIGHT TO RECEIVE THE CONTINGENT CASH
CONSIDERATION SHOULD DISREGARD THE ILLUSTRATIVE VALUES SHOWN IN TABLE 2 ABOVE
AND IN THE FOLLOWING TABLE 3 AND SHOULD ASSUME THAT TABLE 1 ABOVE, WHICH
ILLUSTRATES THE VALUES OF THE STOCK CONSIDERATION, ALSO ILLUSTRATES THE VALUES
OF THE ENTIRE MERGER CONSIDERATION.

TABLE 3
ILLUSTRATIVE VALUES OF MERGER CONSIDERATION
(PER SHARE OF PHOENIX COMMON STOCK)

ILLUSTRATIVE VALUES OF CONTINGENT CASH CONSIDERATION/2/
ILLUSTRATIVE VALUES OF STOCK ------------------------------------------------------------
CONSIDERATION/1/ $0 $0.0276 $0.0551 $0.0827 $0.1103
- ---------------------------- ----------- ------------------------------------------------

$0.8821........... $ 0.8821 $ 0.9097 $ 0.9372 $ 0.9648 $ 0.9924
$0.8570........... $ 0.8570 $ 0.8846 $ 0.9121 $ 0.9397 $ 0.9673
$0.8438........... $ 0.8438 $ 0.8714 $ 0.8989 $ 0.9265 $ 0.9541
$0.8295........... $ 0.8295 $ 0.8570 $ 0.8846 $ 0.9122 $ 0.9397
$0.8059........... $ 0.8059 $ 0.8335 $ 0.8610 $ 0.8886 $ 0.9162
$0.7934........... $ 0.7934 $ 0.8210 $ 0.8486 $ 0.8762 $ 0.9037
$0.7856........... $ 0.7856 $ 0.8132 $ 0.8407 $ 0.8683 $ 0.8959
$0.7388........... $ 0.7388 $ 0.7663 $ 0.7939 $ 0.8215 $ 0.8490
$0.7108........... $ 0.7108 $ 0.7384 $ 0.7659 $ 0.7935 $ 0.8211
$0.6898........... $ 0.6898 $ 0.7174 $ 0.7449 $ 0.7725 $ 0.8001
$0.6684........... $ 0.6684 $ 0.6960 $ 0.7235 $ 0.7511 $ 0.7787
$0.6487........... $ 0.6487 $ 0.6762 $ 0.7038 $ 0.7314 $ 0.7589

- --------
1. Illustrative values of Stock Consideration are derived from Table 1 above,
which illustrates the value of the Stock Consideration issuable in the
Merger based upon the assumptions stated therein with respect to the Average
Market Price of Qwest Common Stock and the Acquisition Value. The
illustrative values were reflected from the two columns entitled
"Illustrative Values of Stock Consideration" in Table 1 above under the more
general headings "Illustrative Acquisition Value = $26,800,000" and
"Illustrative Acquisition Value = $28,500,000," respectively.
2. Illustrative values of Contingent Cash Consideration are derived from Table
2 above, which illustrates the value of the Contingent Cash Consideration,
if any, paid promptly following the Contingent Cash Consideration Date based
upon the assumptions stated therein.

Fractional Shares. No fractional shares of Qwest Common Stock will be issued
in the Merger. In lieu of any such fractional shares, each Phoenix Stockholder
who otherwise would be entitled to receive a fractional share of Qwest Common
Stock pursuant to the Merger Agreement will be paid an amount in cash, without
interest, in an amount equal to such fractional part of (i) the closing price
of a share of Qwest Common Stock on the Closing Date or (ii) the aggregate net
sale proceeds of Excess Shares sold by the Exchange Agent (as defined in the
Merger Agreement) following the Effective Time. "Excess Shares" means the
excess of (A) the number of whole shares of Qwest Common Stock delivered to the
Exchange Agent by Qwest pursuant to Section 1.1(a) of the Merger Agreement over
(B) the aggregate number of whole shares of Qwest Common Stock to be
distributed to holders of Phoenix Capital Stock pursuant to Section 1.1(d) of
the Merger Agreement.

Certificate of Incorporation and Bylaws. The Merger Agreement provides that
the certificate of incorporation and bylaws of Qwest Subsidiary as in effect
immediately prior to the Effective Time will become the certificate of
incorporation and bylaws, respectively, of the Surviving Corporation.

Directors and Officers. The Merger Agreement provides that at the Effective
Time, the board of directors and officers of Qwest Subsidiary will be the
initial board of directors and initial officers, respectively, of the Surviving
Corporation. Phoenix shall obtain resignations from each of its directors and
officers effective at or immediately following the Effective Time. AS A RESULT,
THE DIRECTORS ELECTED AT THE PHOENIX ANNUAL MEETING WILL NOT BE DIRECTORS OF
THE SURVIVING CORPORATION AFTER THE EFFECTIVE TIME.

The Merger Agreement also contains certain representations and warranties,
covenants, conditions and provisions relating to non-solicitation and
termination of the Merger Agreement. See "PLAN OF MERGER--Terms of the Merger
Agreement" and the Merger Agreement, which is attached as Exhibit A to this
Proxy Statement/Prospectus and is incorporated by reference herein.

THE VOTING AGREEMENTS

Contemporaneously with the execution of the Merger Agreement, Qwest entered
into voting agreements and proxies (each such agreement and proxy, a "Voting
Agreement") with twenty principal stockholders of Phoenix beneficially owning
7,377,139 shares of Phoenix Common Stock in the aggregate, which shares
constitute approximately 21% of all outstanding shares of Phoenix Common Stock
on the Phoenix Record Date. Each such Voting Agreement provides for, among
other things, (a) the agreement of such principal stockholder to cause all
shares of Phoenix Common Stock beneficially owned by such principal stockholder
as of the date of the Merger Agreement to be counted for purposes of
determining the existence of a quorum at the Phoenix Annual Meeting, to cause
all such shares to be voted against any action or agreement that would result
in a breach of the Merger Agreement, impede or delay the conclusion of the
Transactions (as defined in the Merger Agreement) or materially reduce the
benefits of the Transactions to Qwest or Qwest Subsidiary and to cause all such
shares to be voted to approve the Merger Agreement and the Merger and against
any Business Combination Transaction (as defined in the Merger Agreement) other
than the Transactions and (b) grant to Qwest and Qwest Subsidiary of an
irrevocable proxy in connection therewith. Each such principal stockholder has
agreed in its Voting Agreement not to transfer any shares of Phoenix Common
Stock subject to the Voting Agreement. Each Voting Agreement will terminate the
day following the termination date under the Merger Agreement; provided that
Qwest may by written notice delivered from time to time terminate all or any of
its rights under any such Voting Agreement and the proxy granted pursuant
thereto. The form of the Voting Agreements is attached as Exhibit C to this
Proxy Statement/Prospectus and is incorporated by reference herein.

RECOMMENDATION OF PHOENIX BOARD

The Phoenix Board has determined that the Merger is fair to and in the best
interests of Phoenix and Phoenix Stockholders and has approved and authorized
the Merger Agreement and the Merger. The Phoenix Board recommends that Phoenix
Stockholders vote in favor of the Merger Agreement and the Merger. The decision
of the Phoenix Board to enter into the Merger Agreement and to recommend that
Phoenix Stockholders vote in favor of the Merger Agreement and the Merger is
based upon its evaluation of a number of factors including, among others, the
oral opinion (subsequently confirmed in writing) of J.C. Bradford, Phoenix's
investment banker in connection with the Merger, that the consideration to be
received by the Phoenix Stockholders in the Merger is fair to the Phoenix
Stockholders from a financial point of view. See "PLAN OF MERGER--Phoenix's
Reasons for the Merger; Recommendations of the Phoenix Board" and "--Opinion of
Phoenix's Financial Advisor."

In considering the recommendation of the Phoenix Board with respect to the
Merger Agreement and the Merger, Phoenix Stockholders should be aware that
certain members of Phoenix management and the Phoenix Board have interests in
the Merger that are different from their interests generally as Phoenix
Stockholders. Wallace M. Hammond, President and Chief Executive Officer and a
director of Phoenix, and Jon Beizer, Senior Vice President and Chief Financial
Officer of Phoenix, will be paid severance upon consummation of the Merger in
the amounts of $875,000 (less any amounts paid to Mr. Hammond as salary after
January 31, 1998, which is approximately $25,000 per month) and $225,000,
respectively, pursuant to the change of control provisions of their respective
employment agreements. Upon consummation of the Merger, Mr. Hammond and Mr.
Beizer also will be paid approximately $26,538 and $8,759, respectively, in
respect of accrued paid time off pursuant to the terms of their respective
employment agreements, and Mr. Hammond will be reimbursed for reasonable
relocation expenses in an amount not to exceed $20,000. In addition, Charles C.
McGettigan, a director of Phoenix, is a Managing Director of McGettigan, Wick &
Co., Inc. ("McGettigan Wick"). McGettigan Wick will receive a fee of $125,000
upon consummation of the Merger for past services rendered and for providing
advice and counsel to the Phoenix Board regarding the financial terms of the
Merger. See "PLAN OF MERGER--Interests of Certain Persons in the Merger."

OPINION OF PHOENIX'S FINANCIAL ADVISOR

On January 5, 1998, J.C. Bradford informed the Phoenix Board of its oral
opinion (subsequently confirmed in writing) to the effect that, as of such
date, the consideration to be received by Phoenix Stockholders in the Merger is
fair to such holders from a financial point of view. The full text of the
written opinion of J.C. Bradford which sets forth assumptions made, factors
considered and limitations on the review undertaken by J.C. Bradford, is
included as Exhibit B to this Proxy Statement/Prospectus. J.C. Bradford
reaffirmed its opinion on January 29, 1998 and February 10, 1998, respectively.
Phoenix Stockholders are urged to read J.C. Bradford's opinion carefully in its
entirety. See "PLAN OF MERGER--Opinion of Phoenix's Financial Advisor."

REGULATORY APPROVALS

The consummation of the Merger is subject to certain regulatory requirements,
including expiration or termination of the applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The HSR Act provides that certain merger and acquisition transactions
(including the Merger) may not be consummated until notifications and certain
information have been given to the Antitrust Division of the U.S. Department of
Justice (the "Antitrust Division") and the U.S. Federal Trade Commission (the
"FTC") and certain waiting period requirements have been satisfied. At any time
before or after the consummation of the Merger, the Antitrust Division, the FTC
or another third party could seek to enjoin or rescind the Merger on antitrust
grounds. In addition,

at any time before or after the consummation of the Merger, and notwithstanding
that the waiting period under the HSR Act has expired, any state could take
action under state antitrust laws that it deems necessary or desirable in the
public interest. In addition, consummation of the Merger is subject to the
receipt by Qwest and Phoenix of any necessary regulatory approvals from the
Federal Communications Commission (the "FCC") and any necessary material
regulatory approvals from the public utilities commissions, public service
commissions and other comparable regulatory agencies of several states. See
"PLAN OF MERGER--Terms of the Merger Agreement--Conditions to the Merger" and
"PLAN OF MERGER--Regulatory Approvals."

ACCOUNTING TREATMENT OF THE MERGER

It is expected that the Merger will be accounted for using the purchase
method of accounting. See "PLAN OF MERGER--Accounting Treatment of the Merger."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Merger is intended to constitute a reorganization for federal income tax
purposes within the meaning of Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"), so that no gain or loss would be recognized
to a particular Phoenix Stockholder on the receipt of the Stock Consideration
in partial exchange for Phoenix Common Stock. Gain, however, could be
recognized with respect to the Contingent Cash Consideration or upon the
receipt of cash in lieu of the fractional share interests in Qwest Common
Stock. Grant Thornton LLP has provided an opinion to Phoenix as to certain
federal income tax consequences of the Merger. See "PLAN OF MERGER--Certain
Federal Income Tax Consequences."

APPRAISAL RIGHTS

Under the General Corporation Law of the State of Delaware ("DGCL") holders
of Phoenix Common Stock who, prior to the Phoenix Annual Meeting, properly
demand appraisal and do not vote in favor of the Merger have the right under
certain circumstances, if the Merger is nonetheless consummated, to require the
Surviving Corporation to purchase their shares for their "fair value." To
exercise such appraisal rights, such stockholders must comply with all
applicable procedural requirements. See "PLAN OF MERGER--Appraisal Rights." The
full text of Section 262 of the DGCL is set forth as Exhibit E to this Proxy
Statement/Prospectus. It is a condition to the closing of the Merger that the
number of shares of Phoenix Common Stock with respect to which demand for
appraisal has been received by Phoenix at or before the Phoenix Annual Meeting
shall be less than 5.25% of the Aggregate Number.

RISK FACTORS

The Qwest Common Stock to be issued in connection with the Merger involve
certain risk factors that should be carefully considered by the Phoenix
Stockholders. See "RISK FACTORS--Risk Factors Relating to Qwest and Its
Business." Phoenix's business also involves certain risk factors that should be
considered by the Phoenix Stockholders in determining whether to approve and
authorize the Merger Agreement and the Merger. See "RISK FACTORS--Risk Factors
Relating to Phoenix and Its Business." For a description of the uncertainty of
the value of the Stock Consideration and Contingent Cash Consideration and the
uncertainty of the timing of the receipt of the Contingent Cash Consideration,
if any, to be received by the Phoenix Stockholders in the Merger, see "RISK
FACTORS--Risk Factors Relating to Merger Consideration."

COMPARATIVE PER SHARE DATA

The following table sets forth selected comparative per share data for Qwest
and for Phoenix on both an historical and unaudited pro forma combined basis
giving effect to (i) the proposed acquisition by Qwest of all of the issued and
outstanding shares of capital stock of Phoenix, as if the acquisition had
occurred on January 1, 1996, and (ii) the acquisition by Qwest of all of the
issued and outstanding shares of capital stock, and capital stock issued at the
closing of the acquisition in October 1997, of SuperNet, Inc. ("SuperNet"), as
if the acquisition had occurred on January 1, 1996. Neither Qwest, SuperNet nor
Phoenix has paid cash dividends. Accordingly, no information is provided with
respect to pro forma combined or pro forma equivalent cash dividends. All share
and per share information with respect to Qwest included herein gives effect to
the Qwest 2 for 1 stock split to be effected in the form of a stock dividend to
Qwest shareholders of record on February 2, 1998, payable on February 24, 1998.
These tables should be read in conjunction with the historical financial
statements of Qwest, SuperNet and Phoenix, including the respective notes
thereto, and the unaudited pro forma combined financial information, including
the notes thereto, appearing elsewhere in this Proxy Statement/Prospectus and
documents incorporated by reference herein. The following information is not
necessarily indicative of the results of operations or combined financial
position that would have been achieved had the transaction been in effect as of
the beginning of the periods presented and should not be construed as
representative of future operations.

AT SEPTEMBER 30, 1997 AT DECEMBER 31, 1996
--------------------- --------------------

Book value per share
Qwest historical............... $1.79 $0.06
Phoenix historical............. $0.56 $0.70
Qwest/Phoenix pro forma
combined...................... $1.91 $0.21
Phoenix pro forma
equivalent(1)................. $0.05 $0.01

FOR THE NINE
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ ------------------

Net income (loss) per share
Qwest historical..................... $ 0.01 $(0.04)
Phoenix historical................... $(0.29) $(0.68)
Qwest/Phoenix pro forma combined..... $(0.05) $(0.16)
Phoenix pro forma equivalent(1)...... -- --

- --------
(1) The Phoenix pro forma equivalent represents the Qwest/Phoenix combined book
value or net income (loss) per common share multiplied by an assumed
exchange ratio of .028 shares of Qwest Common Stock for each share of
Phoenix Common Stock. The assumed exchange ratio assumes that the
Acquisition Value is $26,800,000 and the Effective Time Adjusted Average
Market Price is $26.25. The actual Acquisition Value and Effective Time
Adjusted Average Market Price, and thus the actual exchange ratio, may be
different.

COMPARATIVE MARKET PRICE INFORMATION

Qwest Common Stock is quoted on the Nasdaq National Market under the symbol
"QWST." Phoenix Common Stock is quoted on the AMEX under the symbol "PHX." The
table below sets forth, for the periods indicated, the high and low sales
prices per share of common stock as reported on the Nasdaq National Market for
Qwest Common Stock and as reported on the AMEX for Phoenix Common Stock. All
share and per share information with respect to Qwest included herein gives
effect to the Qwest Stock Split. For current price information, the Phoenix
Stockholders are urged to consult publicly available sources.

QWEST QWEST PHOENIX PHOENIX
HIGH LOW HIGH LOW
-------- -------- ------- -------

FISCAL 1998 (ENDING DECEMBER 31, 1998):
First Quarter (through February 10, 1998)..... $36.8125 $30.1875 $0.6875 $0.4375
FISCAL 1997 (ENDING DECEMBER 31, 1997):
Fourth Quarter................................ $32.875 $23.75 $1.6875 $0.375
Third Quarter................................. $25.50 $13.625 $3.50 $1.125
Second Quarter................................ $14.75 $13.625 $3.875 $1.625
First Quarter................................. N/A N/A $4.50 $2.50
FISCAL 1996 (ENDED DECEMBER 31, 1996):
Fourth Quarter................................ N/A N/A $4.9375 $3.375
Third Quarter................................. N/A N/A $5.9375 $4.50
Second Quarter................................ N/A N/A $5.875 $2.875
First Quarter................................. N/A N/A $4.00 $3.4375

On January 5, 1998, the last full trading day prior to the announcement of
the execution of the Merger Agreement, the closing price per share of Qwest
Common Stock, as reported on the Nasdaq National Market, was $32.75. On
February 10, 1998, the most recent practicable trading day prior to the
printing of this Proxy Statement/Prospectus, the closing price per share of
Qwest Common Stock, as reported on the Nasdaq National Market, was $36.00.

On January 5, 1998, the last full trading day prior to the announcement of
the execution of the Merger Agreement, the reported American Stock Exchange
Composite Transactions closing price per share of Phoenix Common Stock was
$0.50. On February 10, 1998, the most recent practicable trading day prior to
the printing of this Proxy Statement/Prospectus, the reported American Stock
Exchange Composite Transactions closing price per share of Phoenix Common Stock
was $0.5625. On the Phoenix Record Date, there were approximately 1,252 Phoenix
Stockholders of record.

No cash dividends were declared or paid by Phoenix during any of the periods
presented above.

Qwest has not declared or paid cash dividends on Qwest Common Stock since the
Initial Public Offering (as defined herein), and Qwest anticipates that any
future earnings will be retained for investment in its business. Any payment of
cash dividends in the future will be at the discretion of the board of
directors of Qwest (the "Qwest Board") and will depend upon, among other
things, Qwest's earnings, financial condition, capital requirements, extent of
indebtedness and contractual restrictions with respect to the payment of
dividends.

See "COMPARATIVE MARKET PRICE INFORMATION."

SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED FINANCIAL DATA

The selected consolidated financial data of Qwest and Phoenix as of the end
of and for each of the years in the five-year period ended December 31, 1996
have been taken or derived from the respective audited historical consolidated
financial statements of Qwest and Phoenix. The selected historical unaudited
consolidated financial data of Qwest and Phoenix as of and for the nine-month
periods ended September 30, 1997 and 1996 have been taken or derived from the
respective unaudited interim financial statements of Qwest and Phoenix. The
unaudited interim financial statements of Qwest and Phoenix, respectively,
reflect all adjustments, consisting of normal recurring accruals, that
management of Qwest and Phoenix, respectively, considers necessary for a fair
presentation of the results of operations for such periods. Results of
operations for interim periods are not necessarily indicative of the results of
operations for a full year.

The selected unaudited pro forma combined financial data give effect to (i)
the proposed acquisition by Qwest of all the issued and outstanding shares of
capital stock of Phoenix, as if the acquisition had occurred on January 1,
1996, (ii) the acquisition by Qwest of all issued and outstanding shares of
capital stock, and capital stock issued at the closing of the acquisition in
October 1997, of SuperNet, as if the acquisition had occurred on January 1,
1996, (iii) the issuance by Qwest of $555,890,000 aggregate principal amount at
maturity of 9.47% Senior Discount Notes (the "Senior Discount Notes"), and (iv)
the issuance by Qwest of $450,505,000 aggregate principal amount at maturity of
8.29% Senior Discount Notes (the "New Senior Discount Notes"). No pro forma
operating statement effects of the Senior Discount Notes or the New Senior
Discount Notes have been presented. The selected unaudited pro forma combined
financial data are not necessarily indicative of the results of operations or
financial position of the combined companies future operating results or
financial position.

The selected historical consolidated financial data, the selected historical
unaudited consolidated financial data and the selected unaudited pro forma
combined financial data of Qwest and Phoenix, respectively, should be read in
conjunction with the discussions under "QWEST'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "PHOENIX'S
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," and the Historical Consolidated Financial Statements and the
unaudited interim financial statements of Qwest and Phoenix, respectively, and
the Unaudited Pro Forma Combined Financial Statements, included elsewhere in
this Proxy Statement/Prospectus.

SELECTED PRO FORMA FINANCIAL DATA
(UNAUDITED)

NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------

STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ 335,845 $555,381
Operating expenses................................ 340,808 545,191
Depreciation and amortization..................... 26,272 20,404
---------- --------
Operating loss.................................... (31,235) (10,214)
Other income, net................................. 912 3,231
---------- --------
Loss before income taxes.......................... (30,323) (6,983)
Income tax (benefit) expense...................... (2,626) 2,410
---------- --------
Net income loss................................... $ (27,697) $ (9,393)
Net loss per share................................ $ (0.16) $ (0.05)
Shares used in calculating per share data......... 177,337 188,911

AS OF
SEPTEMBER 30,
1997
-------------

BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 809,637
Property and equipment, net....................... 453,972
Total assets...................................... 1,617,489
Long-term debt, including current portion......... 943,309
Total liabilities................................. 1,221,838
Total stockholder's equity........................ 395,651

SELECTED HISTORICAL FINANCIAL DATA OF QWEST

NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
-------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS)

STATEMENT OF OPERATIONS
DATA:
Revenue:
Carrier
services(1)(2)(3)..... $ 41,561 53,064 50,240 67,789 57,573 45,106 39,062
Commercial services.... -- 969 8,712 20,412 34,265 25,475 38,033
-------- ------- ------- ------- ------- ------- --------
41,561 54,033 58,952 88,201 91,838 70,581 77,095
Network construction
services(4)........... 11,751 15,294 11,921 36,901 139,158 59,255 413,226
-------- ------- ------- ------- ------- ------- --------
Total revenue.......... 53,312 69,327 70,873 125,102 230,996 129,836 490,321
-------- ------- ------- ------- ------- ------- --------
Operating expenses......
Telecommunications
services.............. 31,557 41,240 48,239 81,215 80,368 62,399 65,310
Network construction
services.............. 9,730 15,515 9,369 32,754 87,542 37,661 282,472
Selling, general and
administrative(5)..... 10,270 15,622 21,516 37,195 45,755 34,230 59,987
Growth share plan(6)... 2,000 2,600 -- -- 13,100 -- 69,320
Depreciation and
amortization.......... 5,020 5,270 2,364 9,994 16,245 11,890 13,114
-------- ------- ------- ------- ------- ------- --------
Total operating
expenses.............. 58,577 80,247 81,488 161,158 243,010 146,180 490,203
-------- ------- ------- ------- ------- ------- --------
Earnings (loss) from
operations............. (5,265) (10,920) (10,615) (36,056) (12,014) (16,344) 118
Gain on sale of contract
rights(7).............. -- -- -- -- -- -- 9,296
Gain on sale of
telecommunications
service agreements(2).. -- -- -- -- 6,126 6,126 --
Gain on sale of
network(1)............. -- 126,521 -- -- -- -- --
Interest income
(expenses), net........ (2,687) (3,127) (28) (2,466) (4,373) (3,106) (2,974)
Other income (expense),
net.................... (610) (763) (42) 55 60 113 (1,986)
-------- ------- ------- ------- ------- ------- --------
Earnings (loss) before
income taxes........... (8,562) 111,711 (10,685) (38,467) (10,201) (13,211) 4,454
Income tax expense
(benefit).............. (1,988) 43,185 (3,787) (13,336) (3,234) (4,310) 2,191
-------- ------- ------- ------- ------- ------- --------
Net earnings (loss)..... $ (6,574) 68,526 (6,898) (25,131) (6,967) (8,901) 2,263
======== ======= ======= ======= ======= ======= ========
Earnings (loss) per
share(8)............... $ (0.04) 0.39 (0.04) (0.14) (0.04) (0.05) 0.01
Weighted average number
of shares
outstanding(8)......... 176,316 176,316 176,316 176,316 176,316 176,316 187,890
OTHER FINANCIAL DATA:
EBITDA(9)............... $ (855) (824) (6,338) (26,007) 6,912 (2,742) 11,246
Net cash provided by
(used in) operating
activities............. $ 1,377 (7,125) 3,306 (56,635) 32,524 (9,340) (60,072)
Net cash provided by
(used in) investing
activities............. $(11,202) 107,496 (41,712) (58,858) (52,622) (44,353) (196,304)
Net cash provided by
(used in) financing
activities............. $ 11,549 (95,659) 34,264 113,940 25,519 56,338 436,202
Capital
expenditures(10)....... $ 11,000 3,794 40,926 48,732 85,842 49,573 271,332

AS OF DECEMBER 31, 1996 AS OF SEPTEMBER 30, 1997
----------------------- ------------------------

OPERATING DATA:
Route miles of conduit
installed.................... 3,650 7,900
Route miles of dark fiber
installed.................... 1,800 2,800
Route miles of lit fiber
installed.................... 900 2,800
Switches...................... 5 5
Minutes of Use(11)............ 382,000,000 433,000,000

AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------ ------ ------- ------- ------- -------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 2,467 7,179 3,037 1,484 6,905 4,129 186,731
Property and equipment,
net..................... $34,628 23,666 63,009 114,748 186,535 154,389 444,816
Total assets............. $52,735 60,754 89,489 184,178 264,259 225,520 908,478
Long-term debt, including
current portion......... $27,600 2,141 27,369 90,063 134,461 127,094 284,728
Total liabilities........ $51,482 48,675 64,908 157,703 254,817 207,946 539,627
Total stockholders'
equity.................. $ 1,253 12,079 24,581 26,475 9,442 17,574 368,851

- --------
(1) In November 1993, Qwest sold substantially all of its then owned fiber
optic network capacity and related equipment and assets to a third-party
purchaser for $185.0 million (the "1993 Capacity Sale"). After deducting
the carrying value of the assets sold and direct costs associated with the
1993 Capacity Sale, Qwest recognized a gain of approximately $126.5
million. See "QWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS OF QWEST."
(2) In July 1996, Qwest sold the telecommunications service agreements of its
dedicated line customer business on leased capacity to an unrelated third
party for $5.5 million and had received $4.5 million of the purchase price
in cash as of December 31, 1996. As a result of the sale, Qwest recognized
a gain of approximately $6.1 million. See "QWEST MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(3) Qwest acquired the Microwave System through its purchase of Qwest
Transmission Inc. in January 1995, and the acquired company contributed
$13.2 million to total revenue for the year ended December 31, 1995.
(4) In 1996 and 1997, Qwest entered into construction contracts for sales of
dark fiber with Frontier, WorldCom and GTE whereby Qwest agreed to sell
dark fiber along the route of the Qwest Network for a purchase price of
approximately $952.0 million. As a result of the activity under these
agreements, Qwest recorded Network Construction Services revenue of
approximately $121.0 million in 1996 and approximately $374.0 million in
the nine months ended September 30, 1997. See "BUSINESS OF QWEST--The
Qwest Network--Dark Fiber Sales."
(5) Selling, general and administrative expenses include the following
nonrecurring expenses incurred by Qwest: (i) $5.6 million in 1993 to
provide for the transfer of customers to leased capacity as a result of
the 1993 Capacity Sale; (ii) $2.0 million in 1994 to relocate its
corporate headquarters from San Francisco to Denver and consolidate its
administrative functions in Denver; and (iii) $1.6 million and $2.6
million for the nine months ended September 30, 1996 and the twelve months
ended December 31, 1996, respectively, to restructure its operations,
including the direct sales group.
(6) Growth Share Plan expenses reflect compensation expense related to the
estimated increase in the value of the growth shares outstanding. Upon
completion of Qwest's initial public offering in June 1997 (the "Initial
Public Offering") certain Growth Shares vested in full, which resulted in
the issuance in July 1997 of 2,591,532 shares of Qwest Common Stock, as
adjusted to give effect to the Qwest Stock Split, as described in note
(8), below, net of cash payments of approximately $21.9 million related to
tax withholdings. See "QWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and note 15 to the
Consolidated Financial Statements of Qwest.
(7) In March 1997, Qwest sold certain contract rights related to the 1993
Capacity Sale for $9.0 million. As of September 30, 1997, Qwest has
received $9.0 million in consideration and has reduced its liability for
associated costs by approximately $0.7 million. See "QWEST'S MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(8) Earnings (loss) per share and weighted average number of shares
outstanding are adjusted to give effect for all periods presented to the
Qwest 2 for 1 Stock Split to be effected in the form of a stock dividend
to Qwest shareholders of record on February 2, 1998, payable on February
24, 1998, and to reflect an increase in the authorized capital stock of
Qwest and a stock dividend of 172,980,000 shares, as adjusted for the
Qwest Stock Split, effected prior to the Initial Public Offering.
(9) EBITDA represents net earnings (loss) before interest, income taxes,
depreciation and amortization, certain nonrecurring expenses described in
note 5 above, gain on sale of contract rights in 1997, gain on sale of
telecommunications service agreements in 1996 and gain on the 1993
Capacity Sale (which are nonrecurring). EBITDA includes earnings from the
construction contracts for the sale of dark fiber that Qwest will use to
provide cash for the construction cost of the Qwest Network. EBITDA does
not represent cash flow for the periods presented and should not be
considered as an alternative to net earnings (loss) as an indicator of
Qwest's operating performance or as an alternative to cash flows as a
source of liquidity and may not be comparable with EBITDA as defined by
other companies. Qwest believes that EBITDA is commonly used by financial
analysts and others in the telecommunications industry. Without the effect
on Growth Share Plan expense, EBITDA would have been $20.0 million, $1.8
million and $1.1 million for the years ended December 31, 1996, 1993 and
1992, respectively, and $80.6 million for the nine months ended September
30, 1997.
(10) Capital expenditures include expenditures for property and equipment,
accrued capital expenditures, capital expenditures financed with the
equipment credit facility and initial obligations under capital leases.
(11) Represents total minutes of use for the year ended December 31, 1996 and
the nine months ended September 30, 1997.

SELECTED HISTORICAL FINANCIAL DATA OF PHOENIX(3)

NINE MONTHS
ENDED
SEPTEMBER 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
-------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS
DATA:
Revenue................ $36,502 $53,905 $74,405 $75,855 $ 99,307 $78,234 $59,932
Gross profit........... 9,150 14,524 21,755 22,079 25,869 21,558 15,990
Depreciation and
amortization.......... 254 538 678 1,126 4,358 3,240 2,961
Operating income
(loss)................ (542) (1,865) 2 (2,390) (12,307) (4,768) (6,981)
Income (loss) before
income taxes.......... (555) (2,042) (344) (2,554) (12,844) (5,167) (7,778)
Net income (loss)...... $ (555) $(1,548) $ (483) $(3,054) $(12,844) $(5,167) $(7,778)
Net income (loss) per
common share(1)....... $ (0.08) $ (0.15) $ (0.05) $ (0.24) $ (0.68) $ (.30) $ (.29)
Shares used in
calculating per share
data.................. 10,212 12,107 13,576 15,335 20,673 20,097 27,581
SUPPLEMENTAL OPERATING
DATA:
EBITDA(2).............. $ (288) $(1,615) $ 680 $ (244) $ (5,246) $ (545) $(4,020)

AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------

BALANCE SHEET DATA:
Total assets........... $11,340 $17,317 $17,568 $33,028 $45,794 $51,283 $40,965
Long-term obligations,
less current portion.. -- -- -- -- 2,213 2,122 1,704
Stockholders' equity
(deficit)............. (2,825) 3,668 4,512 19,188 18,172 25,730 16,535

- --------
(1) Net loss attributable to common shares takes into effect cumulative
preferred dividends.
(2) As used herein, "EBITDA" is defined as operating income (loss) plus
depreciation, amortization, loss on abandonment of fixed assets and
expenses related to acquisition, relocation and aborted bond offerings.
EBITDA is commonly used to measure performance of telecommunication
companies because of (i) the importance of maintaining cash flow in excess
of debt-service obligations due to the capital and acquisition-intensive
nature of the telecommunications industry, and (ii) the non-cash effect on
earnings of generally high levels of both amortization and depreciation
expenses associated with capital equipment and acquisitions common in this
industry. EBITDA does not purport to represent cash provided by operating
activities as reflected in Phoenix's consolidated statements of cash flow,
is not a measure of financial performance under generally accepted
accounting principles and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. See "PHOENIX'S MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(3) Effective January 1, 1996, Phoenix acquired all of the outstanding stock of
Automated Communications, Inc.

PROPOSAL 2--ELECTION OF DIRECTORS

NOMINEES

There are seven nominees for the seven positions on the Phoenix Board: Thomas
H. Bell, James W. Gallaway, Merrill L. Magowan, Wallace M. Hammond, David
Singleton, Max E. Thornhill and Charles C. McGettigan. Each of such persons is
currently a member of the Phoenix Board.

TERM; EFFECT OF MERGER

Each elected director will serve until the next Annual Meeting of
Stockholders and until their successors are elected, or until the consummation
of the Merger, whichever occurs earlier. Assuming that the Phoenix Stockholders
vote to approve and authorize the Merger Agreement and the Merger, it is
expected that Qwest and Phoenix will consummate the Merger as quickly as
possible after the Annual Meeting. Pursuant to the terms of the Merger
Agreement, upon consummation of the Merger, the board of directors of Qwest
Subsidiary will become the board of directors of the Surviving Corporation from
and after the time of consummation of the Merger. Accordingly, in the event
that the Phoenix Stockholders approve and authorize the Merger Agreement and
the Merger at the Annual Meeting, it is expected that the directors elected at
the Annual Meeting will serve for only a very short period of time. In the
event that the Merger Agreement and the Merger are not approved and authorized
by the Phoenix Stockholders or in the event that the Merger is not consummated
for any other reason, the directors elected at the Annual Meeting will serve
until the next Annual Meeting of Stockholders and until their successors are
elected.

VOTE REQUIRED

The election of directors requires the affirmative vote of a plurality of the
votes of Phoenix Common Stock.

RECOMMENDATION OF PHOENIX BOARD

The Phoenix Board recommends that the Phoenix Stockholders vote "FOR" each
named nominee for director.

See the Section of this Proxy Statement/Prospectus entitled "PROPOSAL 2--
ELECTION OF DIRECTORS."

PHOENIX ANNUAL MEETING

DATE, TIME, PLACE AND PURPOSE

The Phoenix Annual Meeting will be held on March 30, 1998 at 9:30 a.m.,
local time, at 13952 Denver West Parkway, Building 53, Golden, Colorado, or at
any postponement or adjournment thereof, to (i) consider and vote on the
approval and authorization of the Merger Agreement and the Merger, (ii) elect
seven directors to serve for the ensuing year or until the Merger is
consummated, whichever period is shorter and (iii) transact such other
business as may properly come before the Phoenix Annual Meeting or any
adjournment or postponement thereof.

THE PHOENIX BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND
THE MERGER ARE ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, PHOENIX
AND THE PHOENIX STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED AND AUTHORIZED THE
MERGER AGREEMENT AND THE MERGER. THE PHOENIX BOARD RECOMMENDS THAT THE PHOENIX
STOCKHOLDERS VOTE "FOR" APPROVAL AND AUTHORIZATION OF THE MERGER AGREEMENT AND
THE MERGER AND "FOR" EACH NAMED NOMINEE FOR DIRECTOR AT THE PHOENIX ANNUAL
MEETING.

RECORD DATE; SHARES ENTITLED TO VOTE

Only holders of record of Phoenix Common Stock at the close of business on
February 9, 1998, the Phoenix Record Date, are entitled to notice of and to
vote at the Phoenix Annual Meeting. As of the close of business on the Phoenix
Record Date, 35,898,958 shares of Phoenix Common Stock were outstanding, each
of which entitles the registered holder thereof to one vote. The directors and
executive officers of Phoenix and their respective affiliates collectively
owned approximately 17% of the outstanding shares of Phoenix Common Stock on
the Phoenix Record Date.

QUORUM; VOTE REQUIRED

The presence in person or by proxy of holders representing a majority of the
voting power of the Phoenix Common Stock entitled to vote is necessary to
constitute a quorum for the transaction of business at the Phoenix Annual
Meeting. Approval and authorization by the Phoenix Stockholders of the Merger
Agreement and the Merger requires the affirmative vote of the holders of a
majority of the votes eligible to be cast by the holders of Phoenix Common
Stock. Approval by the Phoenix Stockholders of the nominees for directors
requires the affirmative vote of a plurality of the votes of the Phoenix
Common Stock present in person or represented by proxy at the Phoenix Annual
Meeting and entitled to vote on the election of such directors. IF HOLDERS OF
PHOENIX COMMON STOCK DO NOT VOTE TO APPROVE THE MERGER AGREEMENT AND THE
MERGER, THE MERGER CANNOT BE CONSUMMATED.

A properly executed proxy marked "ABSTAIN" or an abstention at the Phoenix
Annual Meeting will be counted for purposes of determining whether there is a
quorum and will be counted towards the tabulation of votes cast on each
proposal presented to the Phoenix Stockholders and will have the same effect
as a negative vote. Shares represented by broker non-votes (i.e., shares held
by brokers or nominees which are represented at a meeting but with respect to
which the broker or nominee is not empowered to vote on a particular proposal)
although counted for purposes of determining whether there is a quorum at the
Phoenix Annual Meeting, will not be counted for any purpose in determining
whether the Merger Agreement and the Merger have been approved and authorized
and will therefore have the effect of a vote against the Merger Agreement and
the Merger. Shares of Phoenix Common Stock represented by broker non-votes
will have no effect either for or against the vote with respect to the
election of directors.

In connection with the Merger Agreement, Qwest and certain Phoenix
Stockholders (including certain directors and executive officers) collectively
owning approximately 21% of the outstanding

shares of Phoenix Common Stock on the Phoenix Record Date have entered into
certain voting agreements dated as of December 31, 1997, pursuant to which
such stockholders have (i) agreed, among other things, to vote to approve the
Merger Agreement and the Merger and (ii) granted Qwest an irrevocable proxy to
vote such shares to approve the Merger Agreement and the Merger. Accordingly,
all of such shares are expected to be voted to approve and authorize the
Merger Agreement and the Merger.

In connection with the Merger Agreement, Qwest and certain Phoenix
stockholders (including certain directors and executive officers) collectively
owning approximately 21% of the outstanding shares of Phoenix Common Stock on
the Phoenix Record Date have entered into the Voting Agreements, pursuant to
which such stockholders have (i) agreed, among other things, to vote to
approve the Merger Agreement and the Merger and (ii) granted Qwest an
irrevocable proxy to vote such shares to approve the Merger Agreement and the
Merger. Accordingly, all of such shares are expected to be voted to approve
and authorize the Merger Agreement and the Merger. See "PLAN OF MERGER--The
Voting Agreements."

PROXIES

Phoenix Common Stock represented by properly executed proxies received at or
prior to the Phoenix Annual Meeting that have not been revoked will be voted
at the Phoenix Annual Meeting in accordance with the instructions contained
therein. Phoenix Common Stock represented by properly executed proxies for
which no instruction is given will be voted "FOR" approval and authorization
of the Merger Agreement, the Merger and election of the directors. Phoenix
Stockholders are requested to complete, sign, date and return promptly the
enclosed proxy card in the postage-prepaid envelope provided for this purpose
to ensure that their shares are voted. A Phoenix Stockholder may revoke a
proxy at any time before it is voted by signing and returning a later-dated
proxy with respect to the same shares, by filing with the Secretary of Phoenix
a written revocation bearing a later date or by attending and voting in person
at the Phoenix Annual Meeting. Mere attendance at the Phoenix Annual Meeting
will not in and of itself revoke a proxy.

If the Phoenix Annual Meeting is postponed or adjourned for any reason, at
any subsequent reconvening of the Phoenix Annual Meeting all proxies (except
for any proxies that have theretofore effectively been revoked or withdrawn)
will be voted in the same manner as such proxies would have been voted at the
original convening of the Phoenix Annual Meeting, notwithstanding that such
proxies may have been effectively voted on the same or any other matter at a
previous meeting.

The cost of solicitation of proxies for the Phoenix Annual Meeting will be
paid by Phoenix. In addition to solicitation by mail, proxies may be solicited
in person by directors, officers and employees of Phoenix or Phoenix's
financial advisors, without additional compensation, and by telephone,
telegram, teletype, facsimile or similar method. Phoenix will reimburse
brokers, fiduciaries, custodians and other nominees for reasonable out-of-
pocket expenses incurred in sending this Proxy Statement/Prospectus and other
proxy materials to, and obtaining instructions relating to such materials
from, beneficial owners of Phoenix Common Stock.

Phoenix will also reimburse custodians, nominees and fiduciaries for
forwarding proxies and proxy materials to the beneficial owners of its stock.

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

PROPOSAL 1--APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER

RISK FACTORS

RISK FACTORS RELATING TO THE MERGER CONSIDERATION

In addition to the other information in this Proxy Statement/Prospectus,
Phoenix Stockholders should consider carefully the following risk factor in
evaluating the Merger Consideration:

Uncertainty of Value of Merger Consideration. The amount and the value of
the Stock Consideration and of the Contingent Cash Consideration, if any, are
subject to risk and uncertainty. The timing of the payment of the Contingent
Cash Consideration, if any, is also subject to uncertainty. Accordingly, the
value of the Merger Consideration that may be realized by the Phoenix
Stockholders is uncertain. Certain principal elements of this uncertainty are
summarized below.

The amount of the Stock Consideration to be received by the Phoenix
Stockholders depends, among other things, on (i) the Acquisition Value, which
is reduced by any amount that Phoenix is required to pay to MCI and Sprint
Communications in respect of certain minimum usage fees, and (ii) the average
of the daily closing prices of the Qwest Common Stock for the fifteen
consecutive trading days commencing twenty trading days prior to the Closing
Date. See "PLAN OF MERGER--Terms of the Merger Agreement--Conversion of
Phoenix Common Stock in the Merger--Stock Consideration." In addition, the
value of the Stock Consideration that any Phoenix Stockholder may be able to
realize upon the sale of the Qwest Common Stock received in the Merger will
depend principally on the market price per share of Qwest Common Stock at the
time of sale. The market price of the Qwest Common Stock at any time reflects
perceptions of market participants as to the business, operations, results and
prospects of Qwest, general market and economic conditions and other factors.

With respect to the Acquisition Value, which affects the value of the Stock
Consideration, Qwest and Phoenix express no view as to whether Phoenix will be
required by MCI and Sprint Communications to make payments in respect of
certain minimum usage fees owed by Phoenix to such entities. Pursuant to the
terms of the agreements between Phoenix and each of MCI and Sprint
Communications, Phoenix is obligated to pay approximately $420,000 to MCI and
$1.275 million to Sprint Communications in respect of such minimum usage fees.
Pursuant to the terms of the Merger Agreement, such payments, if required,
will reduce the Acquisition Value and, accordingly, the Stock Consideration to
be paid by Qwest to the Phoenix Stockholders in the Merger. Although Phoenix
is currently attempting to re-negotiate the amount of such payments, there can
be no assurance that Phoenix will be successful in reducing its obligations to
MCI or Sprint Communications. For a description of the minimum usage fees owed
by Phoenix to MCI and Sprint Communications, see "BUSINESS OF PHOENIX--MCI and
Sprint Payables" and for a description of the terms of the Merger Agreement
relating to such minimum usage fees, see "PLAN OF MERGER--Terms of the Merger
Agreement--Conversion of Phoenix Common Stock in the Merger--Stock
Consideration."

any right of indemnification under the Van Essen Indemnification and Hold
Harmless Agreement. The potential liability of Phoenix and its subsidiaries,
based on the damages asserted by WorldCom, exceeds $4 million, and includes
(1) compensatory damages of approximately $3,020,000; (2) attorneys' fees in
excess of $700,000; (3) punitive damages in an unspecified amount; and (4)
pre-judgment interest. Qwest and Phoenix express no view as to whether Van
Essen now has, or in the future will have, the financial capability to perform
her obligations under the Van Essen Indemnification and Hold Harmless
Agreement. The obligations of Van Essen to indemnify Phoenix under the Van
Essen Indemnification and Hold Harmless Agreement are unsecured, although
certain shares of Phoenix Common Stock have been deposited in escrow in
support of Van Essen's indemnification obligations. Pursuant to the terms of
the Merger Agreement, Qwest is obligated to exercise no more than commercially
reasonable efforts to recover any amounts under the Van Essen Indemnification
and Hold Harmless Agreement and only amounts so recovered on or prior to the
third anniversary of the Closing Date will be included in calculating the
Contingent Cash Consideration, if any. IF THERE IS NO SETTLEMENT OR OTHER
FINAL, NONAPPEALABLE RESOLUTION OF THE LDDS LITIGATION ON OR PRIOR TO THE
THIRD ANNIVERSARY OF THE CLOSING DATE, THE LIABILITY IS ASSUMED TO BE $4
MILLION AND THE CONTINGENT CASH CONSIDERATION WILL BE $0. IN ANY CASE, ANY
AMOUNTS RECOVERED BY ANY OF QWEST OR ITS SUBSIDIARIES AFTER THE THIRD
ANNIVERSARY OF THE CLOSING DATE WILL BE RETAINED BY QWEST AND WILL NOT BE
DISTRIBUTED TO THE PHOENIX STOCKHOLDERS. In addition, in exercising
commercially reasonable efforts Qwest is not required to incur expenses in
excess of that which it reasonably expects to recover by reason of such
efforts, and no person other than Qwest has been selected to monitor Qwest's
recovery efforts. For a description of the LDDS Litigation and a description
of the substantial limitations on Qwest's obligation to enforce the Van Essen
Indemnification and Hold Harmless Agreement, see "BUSINESS OF PHOENIX--Legal
Proceedings" and for a description of the terms of the Merger Agreement
relating to such litigation, see "PLAN OF MERGER--Terms of the Merger
Agreement--Conversion of Phoenix Common Stock in the Merger."

The right to receive the Contingent Cash Consideration represents a general
obligation of Qwest, is not secured by a security interest, mortgage or lien
on any property, and does not represent an interest in any trust fund, escrow
fund, segregated fund or account or any similar vehicle held by Qwest or by a
third party for the benefit of the Phoenix Stockholders. In addition, the
right to receive the Contingent Cash Consideration is a personal right of each
Phoenix Stockholder of record immediately prior to the Effective Time of the
Merger and may not be assigned, sold or otherwise transferred to any other
person, other than pursuant to the laws of inheritance. Qwest is not required
to (other than pursuant to the laws of inheritance), but in its sole
discretion may, record or otherwise recognize any assignment, sale or other
transfer of the right to receive the Contingent Cash Consideration. Qwest will
pay the Contingent Cash Consideration, if any, promptly following the
Contingent Cash Consideration Date to the Phoenix Stockholders of record
immediately prior to the Effective Time unless in any case Qwest shall elect
to record an assignment, sale or other transfer of such right to any
transferee, in which case the Contingent Cash Consideration, if any, will be
paid to such transferee promptly following the Contingent Cash Consideration
Date. It is highly uncertain whether or when any Contingent Cash Consideration
will be paid to the Phoenix Stockholders pursuant to the terms of the Merger
Agreement. Accordingly, for the purposes of deciding whether to vote to
approve and authorize the Merger Agreement and the Merger, it is appropriate
for the Phoenix Stockholders to carefully consider what value, if any, to
assign to the right to receive the Contingent Cash Consideration.

RISK FACTORS RELATING TO QWEST AND ITS BUSINESS

In addition to the other information in this Proxy Statement/Prospectus,
Phoenix Stockholders should consider carefully the following risk factors in
evaluating Qwest and its business, the Merger, the Merger Agreement, the
Issuance and the transactions contemplated thereby:

Risks Related to Completing the Qwest Network; Increasing Traffic
Volume. Qwest's ability to achieve its strategic objective will depend in
large part upon the successful, timely and cost-effective

completion of the Qwest Network, as well as on achieving substantial traffic
volumes on the Qwest Network. The construction of the Qwest Network will be
affected by a variety of factors, uncertainties and contingencies. Many of
these factors are beyond Qwest's control. There can be no assurance that the
entire Qwest Network will be completed as planned for the costs and in the
time frame currently estimated. Although Qwest believes that its cost
estimates and the build-out schedule are reasonable, there can be no assurance
that the actual construction costs or time required to complete the Qwest
Network will not substantially exceed current estimates. In addition, Qwest
must substantially increase its current traffic volume in order to realize the
anticipated cash flow, operating efficiencies and cost benefits of the Qwest
Network. There can be no assurance that Qwest will be able to achieve such
increased traffic volume. See "--Competition" and "--Pricing Pressures and
Industry Capacity."

The successful and timely completion of the Qwest Network will depend, among
other things, upon Qwest's ability to manage effectively and cost efficiently
the construction of the route segments and obtain additional rights-of-way.
Successful construction of the Qwest Network also will depend upon the timely
performance by third-party contractors of their obligations. There can be no
assurance that Qwest will successfully manage construction or acquire the
remaining necessary rights-of-way or that third party contractors will timely
perform their obligations.

Any of the foregoing may significantly delay or prevent completion of the
Qwest Network, which would have a material adverse effect on Qwest's financial
condition and results of operations.

Operating Losses and Working Capital Deficits. Qwest's operations have
generated operating losses in recent years and insufficient cash flow to
enable it to meet its debt service requirements, capital expenditures and
other cash needs. Qwest had net income of approximately $2.3 million for the
nine months ended September 30, 1997 and a net loss of approximately $7.0
million for the year ended December 31, 1996; and Qwest had an accumulated
deficit of approximately $44.2 million as of September 30, 1997. Although
Qwest had positive working capital of approximately $221.1 million as of
September 30, 1997, Qwest expected to incur approximately $769.4 million of
total capital expenditures for the remainder of the year ending December 31,
1997 and the year ending December 31, 1998. Qwest had working capital deficits
for each of the past five fiscal years. See the Consolidated Financial
Statements of Qwest appearing elsewhere in this Proxy Statement/Prospectus.
Any future working capital deficits would limit Qwest's cash resources,
resulting in reduced liquidity. There can be no assurance that Qwest will be
able to achieve or sustain operating profitability. Qwest may require
additional capital in order to offset operating losses and working capital
deficits and to support its strategic objective.

High Leverage; Ability to Service Indebtedness. Qwest is highly leveraged.
As of September 30, 1997, Qwest had approximately $284.7 million of long-term
debt (including the current portion thereof) and stockholders' equity of
approximately $368.9 million. As of September 30, 1997, on a pro forma basis,
as if the acquisitions of SuperNet and Phoenix had been consummated at that
date and as adjusted to give effect to the sale of the Senior Discount Notes
and the New Senior Discount Notes (each as defined herein), Qwest would have
had approximately $943.3 million of long-term debt (including the current
portion thereof), and a debt-to-equity ratio of 2.4 to 1.0. Certain debt
instruments to which Qwest and Qwest's subsidiaries are parties limit but do
not prohibit the incurrence of additional indebtedness by Qwest, and Qwest
expects additional indebtedness to be incurred by Qwest or its subsidiaries in
the future. However, there can be no assurance that Qwest will be successful
in obtaining additional borrowings when required, or that the terms of such
indebtedness will not impair the ability of Qwest to develop its business.

Qwest's ability to pay the principal of and interest on its indebtedness
will depend upon Qwest's future performance, which is subject to a variety of
factors, uncertainties and contingencies, many of which are beyond Qwest's
control. There can be no assurance that Qwest will generate sufficient cash
flow in the future to enable it to meet its anticipated debt service
requirements. Failure to generate

sufficient cash flow may impair Qwest's ability to obtain additional equity or
debt financing or to meet its debt service requirements. In such
circumstances, Qwest may be required to renegotiate the terms of the
instruments relating to its long-term debt or to refinance all or a portion
thereof. There can be no assurance that Qwest would be able to renegotiate
successfully such terms or refinance its indebtedness when required or that
the terms of any such refinancing would be acceptable to management. If Qwest
were unable to refinance its indebtedness or obtain new financing under these
circumstances, it would have to consider other options such as the sale of
certain assets to meet its debt service obligations, the sale of equity,
negotiations with its lenders to restructure applicable indebtedness or other
options available to it under the law. See "QWEST'S MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

Qwest's leverage could result in adverse consequences to Qwest. Such
consequences may include, among other things: (i) the cash generated by
Qwest's operations may be insufficient to meet the payment obligations on the
indebtedness and obligations of Qwest and its subsidiaries as they become due;
(ii) Qwest's ability to obtain any necessary financing in the future for
completion of the Qwest Network or other purposes may be impaired; (iii)
certain of the future borrowings by Qwest or its subsidiaries may be at
variable rates of interest that could cause Qwest to be vulnerable to
increases in interest rates; (iv) Qwest may be more leveraged than certain of
its competitors, which may be a competitive disadvantage; and (v) Qwest's
vulnerability to the effects of general economic downturns or to delays or
increases in costs of constructing the Qwest Network will be increased. In
addition, the debt instruments governing existing and future indebtedness
contain, or may contain, covenants that limit the operating and financial
flexibility of Qwest and its subsidiaries.

The ability of Qwest to meet its obligations will be subject to financial,
business and other factors, including factors beyond its control, such as
prevailing economic conditions. In addition, the ability of Qwest's operating
subsidiaries to pay dividends or to make other payments to Qwest may be
restricted by the terms of various credit arrangements entered into by such
operating subsidiaries, as well as legal restrictions, and such payments may
have adverse tax consequences. The debt instruments governing existing and
future indebtedness of Qwest contain, or may contain, covenants that limit the
operating and financial flexibility of Qwest and its subsidiaries. Failure to
generate sufficient cash flow may impair Qwest's ability to obtain additional
equity or debt financing or to meet its debt service requirements. In such
circumstances, Qwest may be required to renegotiate the terms of the
instruments relating to its long-term debt or to refinance all or a portion
thereof. There can be no assurance that Qwest would be able to renegotiate
successfully such terms or refinance its indebtedness when required or that
the terms of any such refinancing would be acceptable to management. If Qwest
were unable to refinance its indebtedness or obtain new financing under these
circumstances, it would have to consider other options such as the sale of
certain assets to meet its debt service obligations, the sale of equity,
negotiations with its lenders to restructure applicable indebtedness or other
options available to it under the law. See "QWEST'S MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

Competition. The telecommunications industry is highly competitive. Many of
Qwest's existing and potential competitors in the Carrier Services, Commercial
Services and Network Construction Services markets have financial, personnel,
marketing and other resources significantly greater than those of Qwest, as
well as other competitive advantages. Increased consolidation and strategic
alliances in the industry resulting from the Telecommunications Act of 1996
(the "Telecommunications Act") could give rise to significant new competitors
to Qwest.

The success of Qwest's business plan depends in large part on significant
increases in its share of the Carrier Services and Commercial Services markets
in the medium and long term. In the Carrier Services market, Qwest's primary
competitors are other carrier service providers. Within the Carrier Services
market, Qwest competes with large and small facilities-based interexchange
carriers. For high

volume capacity services, Qwest competes primarily with other coast-to-coast
and regional fiber optic network providers. There are currently four principal
facilities-based long distance fiber optic networks (AT&T, MCI, Sprint and
WorldCom), although a proposed WorldCom/MCI merger is pending. Qwest is aware
that others are planning additional networks that, if constructed, could
employ similar advanced technology as the Qwest Network. Upon completion of
the Qwest Network, each of Frontier and GTE will have a fiber network similar
in geographic scope and potential operating capability to that of Qwest.
Another competitor is constructing, and has already obtained a significant
portion of the financing for, a fiber optic network. As publicly announced,
the scope of that competitor's network is less than that of Qwest.
Nevertheless it is expected to compete directly with the Qwest Network for
many of the same customers along a significant portion of the same routes. A
carrier's carrier announced in January 1998 that it plans to sell wholesale
capacity on its fiber optic network and that it has entered into an agreement
with one of the RBOCs to be the primary user of its network. Qwest believes
that this network, although potentially competitive, is different in operating
capability from the Qwest Network. Another potential competitor, a new
telecommunications company, has announced its intention to create a
telecommunications network based on Internet technology. Qwest also sells
switched services to both facilities-based carriers and nonfacilities-based
carriers (switchless resellers), competing with facilities-based carriers such
as AT&T, MCI, Sprint, WorldCom and certain regional carriers. Qwest competes
in the Carrier Services market on the basis of price, transmission quality,
network reliability, and customer service and support. The ability of Qwest to
compete effectively in this market will depend upon its ability to maintain
high quality services at prices equal to or below those charged by its
competitors. In the Commercial Services market, Qwest's primary competitors
include AT&T, MCI, Sprint and WorldCom, all of whom have extensive experience
in the long distance market. In October 1997 MCI and WorldCom announced a
proposed merger. The impact on Qwest of such a merger or other consolidation
in the industry is uncertain. In addition, the Telecommunications Act will
allow the RBOCs and others to enter the long distance market. There can be no
assurance that Qwest will be able to compete successfully with existing
competitors or new entrants in its Commercial Services markets. Failure by
Qwest to do so would have a material adverse effect on Qwest's business,
financial condition and results of operations.

Dependence on Significant Customers. Qwest has substantial business
relationships with a few large customers. During 1996 and the first nine
months of 1997, Qwest's top 10 customers accounted for approximately 69.3% and
86.3%, respectively, of its consolidated gross revenue. Frontier, WorldCom and
GTE accounted for 26.3%, 27.8% and 0.0% of such revenue, respectively, in 1996
and 33.4%, 6.3% and 36.9% of such revenue in the first nine months of 1997,
respectively, attributable primarily to construction contracts for the sale of
dark fiber to these customers that extend through 1998 or into 1999 pursuant
to the applicable contract. In 1997, Qwest entered into two substantial
construction contracts for the sale of dark fiber to GTE. The Frontier and GTE
contracts provide for reduced payments and varying penalties for late delivery
of route segments, and allow the purchaser, after expiration of substantial
grace periods (ranging generally from 12 to 18 months depending on the reason
for late delivery and the segment affected), to delete such non-delivered
segment from the system route to be delivered. See "BUSINESS OF QWEST--The
Qwest Network--Dark Fiber Sales." A default by any of Qwest's dark fiber
purchasers would require Qwest to seek alternative funding sources for capital
expenditures. A significant reduction in the level of services Qwest provides
for any of its large customers could have a material adverse effect on Qwest's
results of operations or financial condition. In addition, Qwest's business
plan assumes increased revenue from its Carrier Services operations to fund
the expansion of the Qwest Network. Many of Qwest's customer arrangements are
subject to termination on short notice and do not provide Qwest with
guarantees that service quantities will be maintained at current levels. Qwest
is aware that certain interexchange carriers are constructing or considering
new networks. Accordingly, there can be no assurance that any of Qwest's
Carrier Services customers will increase their use of Qwest's services, or
will not reduce or cease their use of Qwest's services, which could have a
material adverse effect on Qwest's ability to fund the completion of the Qwest
Network.

Managing Rapid Growth. Part of Qwest's strategy is to achieve rapid growth
by completing the Qwest Network and using the Qwest Network to exploit
opportunities expected to arise from regulatory and technological changes and
other industry developments. Qwest's growth strategy also includes exploring
opportunities for strategic acquisitions, and in this regard, Qwest has
completed one acquisition. See "BUSINESS OF QWEST--Recent Developments." As a
result of its strategy, Qwest is experiencing rapid expansion that management
expects will continue for the foreseeable future. This growth has increased
the operating complexity of Qwest. Qwest's ability to manage its expansion
effectively will depend on, among other things: (i) expansion, training and
management of its employee base, including attracting and retaining highly
skilled personnel; (ii) expansion and improvement of Qwest's customer
interface systems and improvement or cost-effective outsourcing of Qwest's
operational and financial systems; (iii) development, introduction and
marketing of new products, particularly in Commercial Services; (iv)
integration of acquired operations and (v) control of Qwest's expenses related
to the expansion of Carrier Services and Commercial Services. Failure of Qwest
to satisfy these requirements, or otherwise manage its growth effectively,
would have a material adverse effect on Qwest's business, financial condition
and results of operations.

Pricing Pressures and Industry Capacity. The long distance transmission
industry has generally been characterized as having overcapacity and declining
prices since shortly after the AT&T divestiture in 1984. Although Qwest
believes that, in the last several years, increasing demand has resulted in a
shortage of capacity and slowed the decline in prices, Qwest anticipates that
prices for Carrier Services and Commercial Services will continue to decline
over the next several years due primarily to (i) installation by Qwest and its
competitors (certain of whom are expanding capacity and constructing or
considering new networks) of fiber that provides substantially more
transmission capacity than will be needed over the short or medium term, since
the cost of fiber is a relatively small portion of construction cost, (ii)
recent technological advances that permit substantial increases in the
transmission capacity of both new and existing fiber, and (iii) strategic
alliances or similar transactions, such as long distance capacity purchasing
alliances among certain RBOCs, that increase the parties' purchasing power.
Also, Qwest's existing construction contracts for the sale of dark fiber and
other potential contracts or arrangements with other carriers will increase
supply and may lower prices for traffic on the Qwest Network. Such pricing
pressure could have a material adverse effect on the business of Qwest and on
its financial condition and results of operations, including its ability to
complete the Qwest Network successfully. See "QWEST'S MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

Rapid Technological Changes. The telecommunications industry is subject to
rapid and significant changes in technology. For instance, recent
technological advances permit substantial increases in transmission capacity
of both new and existing fiber, and the introduction of new products or
emergence of new technologies may reduce the cost or increase the supply of
certain services similar to those provided by Qwest. While Qwest believes that
for the foreseeable future technology changes will neither materially affect
the continued use of fiber optic cable nor materially hinder Qwest's ability
to acquire necessary technologies, the effect of technological changes on
Qwest's operations cannot be predicted and could have a material adverse
effect on Qwest's business, financial condition and results of operations.

Need to Obtain and Maintain Rights-of-Way. Although as of September 30,
1997, Qwest already had right-of-way agreements covering approximately 94% of
the Qwest Network, Qwest must obtain additional rights-of-way and other
permits to install underground conduit from railroads, utilities, state
highway authorities, local governments and transit authorities. There can be
no assurance that Qwest will be able to maintain all of its existing rights
and permits or to obtain and maintain the additional rights and permits needed
to implement its business plan on acceptable terms. Loss of substantial rights
and permits or the ability to use such rights or the failure to enter into and
maintain required

arrangements for the Qwest Network could have a material adverse effect on
Qwest's business, financial condition and results of operations.

Regulation Risks. Qwest's operations are subject to extensive federal and
state regulation. Carrier Services and Commercial Services (but not Network
Construction Services) are subject to the provisions of the Communications Act
of 1934, as amended, including the Telecommunications Act and the FCC
regulations thereunder, as well as the applicable laws and regulations of the
various states, including regulation by Public Utility Commissions ("PUCs")
and other state agencies. Federal laws and FCC regulations apply to interstate
telecommunications (including international telecommunications that originate
or terminate in the United States), while state regulatory authorities have
jurisdiction over telecommunications both originating and terminating within a
state. Generally, Qwest must obtain and maintain certificates of authority
from regulatory bodies in most states where it offers intrastate services and
must obtain prior regulatory approval of tariffs for its intrastate services
in most of these jurisdictions.

Regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. Moreover, as
deregulation at the federal level occurs, some states are reassessing the
level and scope of regulation that may be applicable to Qwest. All of Qwest's
operations are also subject to a variety of environmental, safety, health and
other governmental regulations. There can be no assurance that future
regulatory, judicial or legislative activities will not have a material
adverse effect on Qwest, or that domestic or international regulators or third
parties will not raise material issues with regard to Qwest's compliance or
noncompliance with applicable regulations.

The Telecommunications Act may have potentially significant effects on the
operations of Qwest. The Telecommunications Act, among other things, allows
the RBOCs and GTE to enter the long distance business and enables other
entities, including entities affiliated with power utilities and ventures
between local exchange carriers ("LECs") and cable television companies, to
provide an expanded range of telecommunications services. Entry of such
companies into the long distance business would result in substantial
additional competition in Commercial Services and Carrier Services, affecting
Qwest and its customers, which may have a material adverse effect on Qwest and
such customers. However, Qwest believes that entry by the RBOCs and other
companies into the market will create opportunities for Qwest to sell fiber or
lease long distance high volume capacity.

Qwest monitors compliance with federal, state and local regulations
governing the discharge and disposal of hazardous and environmentally
sensitive materials, including the emission of electromagnetic radiation.
Although Qwest believes that it is in compliance with such regulations, there
can be no assurance that any such discharge, disposal or emission might not
expose Qwest to claims or actions that could have a material adverse effect on
Qwest. See "REGULATION."

Reliance on Key Personnel. Qwest's operations are managed by certain key
executive officers, the loss of any of whom could have a material adverse
effect on Qwest. Qwest believes that its growth and future success will depend
in large part on its continued ability to attract and retain highly skilled
and qualified personnel. The competition for qualified personnel in the
telecommunications industry is intense and, accordingly, there can be no
assurance that Qwest will be able to hire or retain necessary personnel. The
loss of senior management or the failure to recruit additional qualified
personnel in the future could significantly impede attainment of Qwest's
financial, expansion, marketing and other objectives. See "MANAGEMENT OF
QWEST."

Concentration of Voting Power; Potential Conflicts of Interest. Philip F.
Anschutz, a Director and Chairman of Qwest, beneficially owns approximately
83.7% of the outstanding Qwest Common Stock. As a result, Mr. Anschutz has the
power to elect all the directors of Qwest and to control the vote on

all other matters, including significant corporate actions. Also, Mr. Anschutz
is a director and holds approximately 5% of the stock of Union Pacific
Railroad Company, subsidiaries of which own railroad rights-of-way on which a
significant portion of the Qwest Network will be built. In recent years, Qwest
has relied upon capital contributions, advances and guarantees from its parent
and affiliates. Qwest intends to finance its own operations in the future
through internally and externally generated funds without financial support
from its parent. See "--Operating Losses and Working Capital Deficits" and "--
High Leverage; Ability to Service Indebtedness."

Anti-Takeover Provisions. Qwest's Certificate of Incorporation (the "Qwest
Certificate of Incorporation") and Bylaws (the "Qwest Bylaws") include certain
provisions that may have the effect of delaying, deterring or preventing a
future takeover or change in control of Qwest unless such takeover or change
in control is approved by the Qwest Board. Such provisions may render the
removal of directors and management more difficult. The Qwest Certificate of
Incorporation places certain restrictions on who may call a special meeting of
stockholders. In addition, the Qwest Board has the authority to issue up to
25,000,000 shares of preferred stock (the "Qwest Preferred Stock") and to
determine the price, rights, preferences, and privileges of those shares
without any further vote or actions by the stockholders. The rights of the
holders of Qwest Common Stock will be subject to, and may be adversely
affected by, the right of the holders of any Qwest Preferred Stock that may be
issued in the future. The issuance of such shares of Qwest Preferred Stock,
while potentially providing desirable flexibility in connection with possible
acquisitions and serving other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or may discourage a
third party from attempting to acquire, a majority of the outstanding voting
stock of Qwest. In addition, Qwest is subject to the anti-takeover provisions
of Section 203 of the DGCL ("Section 203"), which will prohibit Qwest from
engaging in "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder unless the business combination is approved
in a prescribed manner. The application of Section 203 also could have the
effect of delaying or preventing change of control of Qwest. Furthermore,
certain provisions of Qwest's Bylaws, including provisions that provide the
exact number of directors shall be determined by a majority of the Qwest Board
and that vacancies on the Qwest Board may be filled by a majority vote of the
directors then in office (though less than a quorum), may have the effect of
delaying or preventing changes in control or management of Qwest, and could
adversely affect market price of the Qwest Common Stock. Additionally, certain
federal regulations require prior approval of certain transfers of control
which could also have the effect of delaying, deferring or preventing a change
of control. See "REGULATION--Federal Regulation" and "DESCRIPTION OF QWEST
CAPITAL STOCK."

Dividend Policy; Restriction on Payment of Dividends. Qwest does not
anticipate paying cash dividends in the foreseeable future. Qwest's ability to
pay dividends is limited by its debt instruments. See "QWEST'S MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Liquidity and Capital Resources."

Possible Volatility of Stock Price. Qwest made its initial public offering
in June of 1997 and accordingly has a limited history as a public company.
Historically, the market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. The trading price of
Qwest Common Stock could be subject to wide fluctuations in response to
numerous factors, including, but not limited to, quarterly variations in
operating results, competition, announcements of technologically innovations
or new products by Qwest or its competitors, product enhancements by Qwest or
its competitors, regulatory changes, any differences in actual results and
results expected by investors and analysts, changes in financial estimates by
securities analysts and other events or factors. 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 such companies. These broad market fluctuations may adversely affect the
market price of the Qwest Common Stock.

Shares Eligible for Future Sale. As of December 31, 1997, 206,669,874 shares
of Qwest Common Stock were outstanding, including 173,000,000 "restricted"
shares that currently are eligible for sale in the public securities market
without registration under the Securities Act to the extent permitted by and
pursuant to Rule 144 under the Securities Act ("Rule 144"). In addition,
approximately 1,110,000 shares of Qwest Common Stock held by officers and
directors of Qwest who may be "affiliates" of Qwest within the meaning of Rule
144 currently are eligible for sale to the extent permitted by and pursuant to
Rule 144.

In general, under Rule 144, if one year has elapsed since the later of the
date of acquisition of restricted shares from Qwest or any "affiliate" of
Qwest, as that term is defined under the Securities Act, or if shares are held
by any "affiliate," the holder is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then-
outstanding shares of Qwest Common Stock or the average weekly trading volume
of shares of Qwest Common Stock on all exchanges and reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 are also subject to certain
restrictions on the manner of sales, notice requirements and the availability
for current public information about Qwest. If two years have elapsed since
the date of acquisition of restricted shares from Qwest or from any
"affiliate" of Qwest, and the holder thereof is deemed not to have been an
affiliate of Qwest at any time during the 90 days preceding a sale, such
person would be entitled to sell such Qwest Common Stock in the public market
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.

Qwest has an effective registration statement under the Securities Act with
respect to 20,000,000 shares of Qwest Common Stock reserved for issuance under
the Equity Incentive Plan. In addition, approximately 1,400,000 shares remain
available for issuance out of the 4,000,000 shares originally reserved under
the Growth Share Plan. All shares issuable under these plans generally may be
resold by non-affiliates upon issuance in the public market without
restriction under the Securities Act and by affiliates subject to the
limitations of Rule 144. As of December 31, 1997, approximately 13,895,000
shares of Qwest Common Stock were subject to outstanding options under the
Equity Incentive Plan. As of December 31, 1997, there were 8,600,000 shares
issuable under a warrant held by an affiliate of Anschutz Company. See
"PRINCIPAL STOCKHOLDER."

Sales of a substantial amount of Qwest Common Stock in the public market, or
the perception that such sales may occur, could adversely affect the market
price of Qwest Common Stock prevailing from time to time in the public market
and could impair Qwest's ability to raise additional capital through the sale
of its equity securities.

RISK FACTORS RELATING TO PHOENIX AND ITS BUSINESS

In addition to the other information in this Proxy Statement/Prospectus, in
evaluating Phoenix and its business and in determining whether to approve and
authorize the Merger Agreement and the Merger, Phoenix Stockholders should
consider carefully the following risk factors to which Phoenix will be subject
if the Merger is not consummated:

Substantial Doubt about Ability to Continue as a Going Concern; Need for
Additional Working Capital. As a result of Phoenix's substantial operating
losses, expected future losses and other factors, Phoenix has required and
will continue to require substantial working capital. In addition to working
capital required to fund operating losses, Phoenix's principal working capital
requirements include capital expenditures, substantial interest and principal
payable with respect to indebtedness,

and other contingencies and obligations. See "PHOENIX MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and
Capital Resources." The notes to Phoenix's unaudited consolidated financial
statements for the period ended September 30, 1997 state that Phoenix's
recurring operating losses and accumulated deficit raise substantial doubt
about Phoenix's ability to continue as a going concern.

Phoenix has for several months experienced a working capital shortfall which
has required Phoenix to secure additional short-term financing from its
principal lender, seek extended payment terms from certain of its suppliers,
delay payments to many of its suppliers and other vendors, delay or cancel
purchases, eliminate 70 employees and take other steps to conserve operating
capital.

Phoenix's available sources of working capital at January 27, 1998,
consisted of a line of credit facility with Foothill Capital Corporation (the
"Phoenix Credit Facility") which permits borrowings of up to the lesser of its
borrowing base or $10.0 million secured by substantially all of the assets of
Phoenix. For a description of the Phoenix Credit Facility, see "BUSINESS OF
PHOENIX--Phoenix Credit Facility." As of January 27, 1998, $4,401,592 was
outstanding under the Phoenix Credit Facility, which was fully drawn upon. In
March 1997 Phoenix obtained short-term financing of $2.0 million from Foothill
Capital Corporation, of which $750,000 has been repaid. In December 1997
Phoenix obtained additional short-term financing from Foothill Capital
Corporation of $1,825,000 and an over-advance of $300,000, and in February
1998 Phoenix obtained an additional over-advance of $500,000. Accordingly, in
addition to amounts owing under the Phoenix Credit Facility, Phoenix owes
Foothill Capital Corporation an aggregate principal amount of $3.075 million
(the "Bridge Loan Amount") that is repayable on the earliest to occur of: (a)
April 30, 1998, (b) the Effective Time and (c) termination of the Phoenix
Credit Facility. Additionally, Foothill Capital Corporation may, in its sole
discretion, lend Phoenix up to $750,000, which will be treated either as an
increase to the Bridge Loan Amount or as an over-advance. See "PHOENIX
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources."

As of January 30, 1998, Phoenix estimated that it will require financing
between $6.0 million and $9.0 million in order to repay the Bridge Loan Amount
and fund operating losses, working capital requirements and capital
expenditures during the remainder of 1998. This amount is in addition to funds
provided by operations and funding available, if any, under the Phoenix Credit
Facility. The exact amount and timing of these working capital requirements
and Phoenix's ability to continue as a going concern will be determined by
numerous factors, including (i) of the level of, and gross margin on, future
sales; (ii) the outcome of outstanding contingencies and disputes, including
the LDDS Litigation and other pending lawsuits; (iii) payment terms achieved
by Phoenix; and (iv) the timing of capital expenditures.

On January 16, 1998, Phoenix failed to make a scheduled payment under the
Van Essen Note and is currently in default thereon. On January 17, 1998,
Phoenix received a notice from Van Essen declaring a default under the Van
Essen Note and notifying Phoenix that if the scheduled payment is not received
by February 2, 1998, the entire unpaid principal balance of the Van Essen Note
will become due and payable and that Van Essen will pursue all remedies
available to her. Phoenix currently does not have sufficient cash to make the
scheduled payment.

If the Merger is not concluded, there can be no assurance that Phoenix will
be able to obtain additional equity or debt financing on terms that Phoenix
will find acceptable. Any additional equity or debt financing may involve
substantial dilution to the interests of Phoenix Stockholders. If Phoenix is
unable to obtain sufficient funds to satisfy its cash requirements, it will be
forced to curtail operations, dispose of assets, seek extended payment terms
from its vendors or seek protection under federal bankruptcy laws. There can
be no assurance that Phoenix will be able to obtain additional working
capital, reduce expenses or successfully complete other steps necessary to
continue as a going concern. See "PHOENIX MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources."

Negative Cash Flow From Operations. For the years ended December 31, 1995
and 1996 and the nine months ended September 30, 1997, Phoenix's consolidated
loss before interest expense, income taxes, depreciation and amortization,
loss on abandonment of fixed assets, aborted bond offering expenses,
acquisition costs and relocation expense was $148,000, $5.1 million, and $4.0
million respectively. Phoenix's ability to achieve positive cash flow from
operations will be dependent primarily upon the successful implementation of
Phoenix's business strategy, which relies largely upon Phoenix's ability to
increase cash flow by lowering the cost of goods sold and selling, general and
administrative expenses ("SG&A") to be achieved through the consummation of a
business combination transaction with a company operating its own long
distance network and decreasing its average line costs through the loading of
the long distance network of such entity. Other factors that are beyond the
control of Phoenix, such as the future actions of competitors and regulators,
may also affect Phoenix's realization of the benefits of its business
strategy. There can be no assurance that Phoenix will be successful in
improving its cash flow.

History of Operating Losses; Anticipated Future Losses. Phoenix sustained
operating losses of $1.9 million, $2.4 million, $12.3 million and $7.0 million
in the years ended December 31, 1993, 1995 and 1996 and the nine months ended
September 30, 1997, respectively, and operating income of only $2,000 for the
year ended December 31, 1994. Phoenix expects to continue to incur operating
losses for the foreseeable future due to the high amortization of goodwill
charges resulting from acquisitions and increased competitiveness in the
telecommunications industry.

Due to the increase in new competitors, the overall decline in retail rates
and price sensitivity in the telecommunications industry, Phoenix's customer
churn, bad debt and new customer acquisition costs have increased over the
last two years. Competitive pricing has resulted in a decrease in Phoenix's
average revenue per minute and lower gross margins. In addition, while
Phoenix's SG&A have decreased in the nine-month period ended September 30,
1997 as compared to the same period of the prior year, as a percentage of
revenue SG&A have increased.

To finance its operations, Phoenix draws upon the Phoenix Credit Facility
and may incur additional indebtedness from time to time subject to
restrictions in the Phoenix Credit Facility. For a description of the Phoenix
Credit Facility, see "BUSINESS OF PHOENIX--Phoenix Credit Facility." The
Phoenix Credit Facility was fully drawn upon at January 27, 1998. If Phoenix
cannot achieve operating profitability, it may have difficulty in attracting
equity capital or other financing, and the value of Phoenix Common Stock may
be adversely affected. This, in turn, could negatively affect Phoenix's
ability to successfully implement its business strategy.

Possible Volatility of Stock Price. The market price of Phoenix's Common
Stock has, in the past, fluctuated substantially over time and may in the
future be highly volatile. Factors such as announcements of rate changes for
various carriers and/or vendors, technological innovation or new products or
service offerings by Phoenix or its competitors, as well as market conditions
in the telecommunications industry generally and variations in Phoenix's
operating results, could cause the market price of Phoenix Common Stock to
fluctuate substantially. Because the public float for Phoenix Common Stock is
small, additional volatility may be experienced.

Substantial Leverage. Phoenix may incur the lesser of its borrowing base or
$10.0 million of indebtedness under the Phoenix Credit Facility and may incur
additional indebtedness from time to time subject to restrictions in the
Phoenix Credit Facility. As of February 9, 1998, $3,129,602 was outstanding
under the Phoenix Credit Facility (including over-advances of $800,000, in the
aggregate), which was fully drawn upon. In addition, Phoenix has incurred
short-term debt of $3.075 million and may incur an additional $750,000 of
debt, all of which is payable in full on the earlier to occur of (a) April 30,
1998, (b) the Effective Time and (c) termination of the Phoenix Credit
Facility. The level of Phoenix's indebtedness could have adverse consequences,
including the effect of such indebtedness on (i) Phoenix's ability to fund
internally, (ii) Phoenix's flexibility in planning for or reacting to changes

in its business and market conditions, (iii) Phoenix's flexibility to compete
with less highly leveraged competitors, particularly in the area of price
competition and (iv) Phoenix's financial vulnerability in the event of a
downturn in its business or the general economy. For a description of the
Phoenix Credit Facility, see "BUSINESS OF PHOENIX--Phoenix Credit Facility."

Phoenix's ability to satisfy its debt obligations will depend upon its
future operating performance, which will be affected by the successful
implementation of its business strategy and financial, business and other
factors, certain of which are beyond its control. If Phoenix's cash flow and
capital resources are insufficient to fund its debt service obligations,
Phoenix may be required to sell assets, obtain additional equity capital,
restructure its debt and/or reduce or delay capital expenditures. In such
event, Phoenix could face substantial liquidity problems, and there can be no
assurance as to the success of such measures or the proceeds that Phoenix
could realize therefrom.

Credit Facility Covenants. From time to time Phoenix has been in violation
of certain of its covenants in the Phoenix Credit Facility. Phoenix has
received waivers of its violations of these covenants so long as it continues
to meet the continuing requirements of the Phoenix Credit Facility. Such
requirements include (a) the execution of the Merger Agreement by January 8,
1998; (b) the filing with the Commission of a preliminary proxy statement with
respect to the Merger Agreement by January 31, 1998; (c) the prompt response
to any comments the Commission might have with respect to such preliminary
proxy statement; (d) the Registration Statement being declared effective by
the Commission by April 30, 1998; (e) the filing with the Commission of
Phoenix's Annual Report on Form 10-K for the year ended December 31, 1997 by
March 31, 1998; (f) the approval of the Merger Agreement and Merger by the
holders of a majority of the shares of Phoenix Common Stock by April 30, 1998;
and (g) the consummation of the Merger by April 30, 1998. A failure by Phoenix
to meet any of such requirements would constitute an event of default under
the Phoenix Credit Facility. In the future, should Phoenix violate, or have a
continuing violation of, any of the covenants constituting an event of default
under the Phoenix Credit Facility, there can be no assurance that it will
receive a waiver of such violation. Under the terms of the Phoenix Credit
Facility, upon the occurrence of an event of default, the lender may, among
other things, declare all amounts outstanding under the Phoenix Credit
Facility immediately due and payable, cease advancing money or extending
credit to Phoenix and/or during the continuance of an event of default,
increase the interest rate on amounts outstanding under the Phoenix Credit
Facility. If the lender were to exercise certain of the remedies available to
it upon an event of default, Phoenix may need to obtain an alternate source of
financing. The availability and terms of any such financing will depend on
market and other conditions, and there can be no assurance that such alternate
financing will be available on terms acceptable to Phoenix, if at all. If
Phoenix is unable to meet its obligations under the Phoenix Credit Facility,
its operations and financial condition could be materially adversely affected.
For a description of the Phoenix Credit Facility, see "BUSINESS OF PHOENIX--
Phoenix Credit Facility."

Competition. The telecommunications services industry is highly competitive
and is significantly influenced by the marketing and pricing decisions of the
larger industry participants. It is characterized by low barriers to entry
(e.g., the major facilities-based carriers' bulk rate tariffs are available to
a wide range of potential market entrants), intense competition for customers
and high customer churn rates. Competition on the basis of price, service
offerings, and customer service is expected to increase in the future.

Furthermore, the Telecommunications Act can be expected to increase
competition in the domestic long distance market as the RBOCs begin providing
both in-region and out-of-region long distance service. The RBOCs may build
their own national networks, resell telecommunications services of others,
lease facilities from others or acquire smaller domestic long distance service
providers. To the extent that the RBOCs enter the domestic long distance
market by acquiring other long distance providers, the domestic long distance
service industry may consolidate.

Certain of Phoenix's competitors are significantly larger, have
substantially greater financial, technical and marketing resources and larger
networks than Phoenix, control transmission lines and have long-standing
relationships with Phoenix's target customers. Phoenix competes with the same
facilities-based carriers from whom Phoenix procures bulk-rate services.
Certain of Phoenix's competitors are able to provide services comparable to or
more extensive than Phoenix's at rates competitive with Phoenix's rates.
Additionally, Phoenix's strategy of partnering with a company that controls a
network can be and has been replicated by some of its competitors.

Phoenix competes with the principal long distance carriers, AT&T, MCI and
Sprint as well as other major providers of long distance services, including
Frontier, LCI International, Inc. ("LCI") and WorldCom. Moreover, as a result
of Congress' enactment of the Telecommunications Act, the nation's largest
local telephone companies (i.e., the RBOCs) and GTE, energy utilities, cable
television companies, competitive local exchange carriers ("CLECs"), and other
entities will also be allowed to provide long distance service in the near
future subject to various regulatory requirements and safeguards. An increase
in such competition could have a material adverse effect on Phoenix's
business, financial condition and results of operations, including higher
customer attrition.

There can be no assurance that Phoenix will be able to compete successfully
in the future in the event that the Merger is not completed. Phoenix intends
to compete in the long distance market and in the local market on the basis of
price, service offerings and customer service. Phoenix's ability to compete on
the basis of price is dependent on its ability to consummate a business
combination transaction with a company operating its own long distance network
and loading such network with Phoenix's long distance traffic and secure
volume-discount pricing from vendor carriers and wholesale local access and
volume-discount pricing from vendor carriers and wholesale local access and
local dial tone providers. The same volume-discount pricing that Phoenix
utilizes is available to current and potential competitors, and current and
potential competitors could lease or build networks in order to lower line
costs. Phoenix does not have proprietary contractual arrangements in this
regard. As a result, there are no substantial barriers to the entry of
additional competitors into the field. Furthermore, to the extent such
competitors acquire or develop facilities-based long distance and/or local
dial tone networks, such competitors may be able to offer rates as low as or
lower than those available from Phoenix.

Phoenix's competitors may reduce rates or offer incentives to existing and
potential customers of Phoenix, whether caused by general competitive
pressures or the entry of the RBOC's, GTE and other LECs into the long
distance market. Phoenix has historically attracted customers by pricing its
services at a discount to the basic "1 plus" rates offered by AT&T, MCI and
Sprint. These and other large long distance providers are offering an
increasing number of flat rate and other rate plans in addition to basic
service, and these plans are likely to result in a reduction in the number of
long distance customers using basic "1 plus" rates. Because Phoenix believes
that to maintain its competitive position it must be able to reduce its prices
in order to maintain its relative price position in the market, a decrease in
the rates charged by others for long distance services could have a material
adverse effect on Phoenix's business, results of operations and financial
condition.

In addition, in certain instances LECs have been afforded a degree of
pricing flexibility in differentiating among markets and carriers in setting
access charges and other rates in areas where adequate competition has
emerged. As LECs become free to set rates and to provide discounts to high-
volume customers, the ability of competitors that are substantially larger
than Phoenix to obtain volume discounts for access and termination charges
could adversely affect Phoenix by reducing the operating costs of its larger
competitors relative to those of Phoenix. In particular, it is expected that
the largest players in the long distance market, such as AT&T, MCI, Sprint and
WorldCom will be able to guarantee substantially larger volumes to LECs than
will Phoenix. As deregulation of the local exchange market occurs, LECs may be
willing to grant large interexchange carriers significant

discounts in return for guarantees of volume. There can be no assurance that
Phoenix will be able to obtain similar discounts.

Need to Consummate a Business Combination Transaction. Phoenix's strategy
includes consummating a business combination transaction with a company
operating its own long distance network as a means of reducing the cost of
providing long distance telecommunications services. Previously, Phoenix had
intended to merge with US One Communications Corp. ("US One") and Resurgens
Capital Group, Inc. ("Resurgens") and, following the abandonment of that
proposed merger, Phoenix had intended to merge with Midcom Communications Inc.
("Midcom"), but such proposed merger was also abandoned. See Phoenix's Current
Reports on Form 8-K, as filed with the Commission on April 25, 1997, July 10,
1997, July 17, 1997 and September 2, 1997, the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997 and the respective exhibits thereto.
Accordingly, in the event that the Merger is not consummated, Phoenix will
continue to seek suitable merger candidates that are operating compatible
networks. There can be no assurance that Phoenix will be able to locate a
suitable candidate, that such a business combination transaction can be
consummated, or that such a network can be effectively and profitably
integrated with Phoenix.

Dependence on Independent Distributors. Like many other companies in the
telecommunications industry, Phoenix relies on independent distributors for a
significant percentage of its new business sales. While Phoenix devotes
significant resources on training and building relationships with these
distributors, they are independent contractors who, in some instances, also do
business with other telecommunications providers. Phoenix has only a limited
degree of control over the operations of these distributors and adherence by
the distributors to Phoenix's policies and procedures.

Reliance on Switching Service Providers. A key component of Phoenix's
business strategy has been to lower its line costs by consummating a business
combination transaction with a company operating a long distance network as an
alternative to purchasing bulk capacity from facilities-based carriers on a
bundled basis. If Phoenix is successful in consummating a business combination
transaction with such a company, the combined entity will own some or all of
the switching equipment necessary to fulfill its switching needs. Until such
time, Phoenix will be reliant on switching service providers to lease
switching capacity to Phoenix.

Ability to Successfully Develop New Products and Enter New Markets. Phoenix
believes that offering a full range of telecommunications products and
services will be crucial for it to remain competitive and attract and retain
customers. Phoenix's strategy includes offering local dial tone service,
either utilizing the capabilities of a business combination partner following
the consummation of a business combination transaction with a company
operating a long distance network, or reselling the wholesale dial tone
product of a switching service provider or other outside vendor. In either
event, local dial tone service is an area in which Phoenix has no experience.
The start-up costs of providing such service and the related increased
customer service support and marketing costs could be substantial.

Dependence on Service Providers. Presently, substantially all of the long
distance calls made by Phoenix's customers are transmitted entirely or
partially on the networks of facilities-based carriers that compete with
Phoenix, including MCI, WorldCom, Frontier and Sprint. Unless Phoenix is able
to load the long distance network of a business combination partner, and even
thereafter with respect to traffic that may not be transmitted fully on such
network, Phoenix will be dependent on its ability to obtain bulk-rate long
distance transmission capacity from such vendor carriers on a cost-effective
basis. Phoenix is vulnerable to changes in its arrangements with such
carriers, such as price increases and service cancellations. Phoenix's current
agreement with Sprint expires in September 1998 and requires Phoenix to pay
minimum usage fees of $20 million during the term of the contract, of which at
least $12 million must be spent in the first twelve months of the contract.
Phoenix's current agreement with

WorldCom, which became effective in August 1996 and expires in May 1999,
obligates Phoenix to pay minimum usage fees of $15 million, $12 million and $9
million, respectively, during each of the first three six-month periods of the
agreement and $12 million during the 12-month period commencing February 1998.
Phoenix has in certain instances in the past failed to place calling traffic
on the networks of vendor carriers sufficient to meet minimum usage
requirements. However, in all instances to date (other than with respect to
the Sprint Payable and MCI Payable, which are currently being negotiated)
where Phoenix has missed a minimum usage requirement and such miss resulted in
an obligation to pay a material sum to a vendor carrier, the vendor carrier
has waived the obligation or Phoenix has been reimbursed by a third party for
the amount of such material sum. For a description of the Sprint Payable and
the MCI Payable, see "BUSINESS OF PHOENIX--MCI and Sprint Payables." Although
Phoenix expects to be able to meet its minimum usage requirements going
forward, the minimum usage requirements may, depending upon traffic volume,
reduce the benefit to Phoenix of the availability of a business combination
partner's long distance network until the minimum requirements decrease per
the terms of the agreements or the agreements expire.

Phoenix is dependent on its facilities-based carriers and other vendors to
provide it promptly with the detailed information on which Phoenix bases
customer billings. Any failure of such carriers or vendors to provide accurate
information on a timely basis could have a material adverse effect on accurate
information on Phoenix's ability to recover charges from its customers.

Customer Attrition. The long distance industry is characterized by a high
level of customer attrition. Customer attrition is measured by the number of
customers who utilize Phoenix's service in a given month and do not utilize
Phoenix's services in the next succeeding month. Phoenix believes its
attrition rate is comparable to the attrition rates of long distance providers
of comparable size. Attrition in the long distance telecommunications industry
is generally attributable to a number of factors, including (i) marketing
initiatives of existing and new competitors as they engage in, among other
things, national advertising campaigns, telemarketing programs, and the
issuance of cash and other forms of customer "win back" initiatives and other
customer acquisition programs and (ii) termination of service for non-payment.
An increase in Phoenix's customer attrition rate could have a material adverse
effect on Phoenix's business, financial condition and results of operations.

Regulatory and Legislative Uncertainty. Federal and state regulations,
regulatory actions and court decisions have had, and may have in the future,
both positive and negative effects on Phoenix and its ability to compete.
Phoenix is subject to regulation by the FCC and by various state PUCs as a
nondominant interexchange carrier. Phoenix is required to file tariffs or
obtain other approvals in most of the states in which it operates. The large
majority of states require long distance service providers to apply for
authority to provide telecommunications services and to make filings regarding
their activities. Neither the FCC nor the state PUCs currently regulate
Phoenix's profit levels, but they often reserve the authority to do so. There
can be no assurance that future regulatory, judicial and legislative changes
or other activities will not have a material adverse effect on Phoenix or that
regulators or third parties will not raise material issues with regard to
Phoenix's compliance with applicable laws and regulations.

Technological Change. The telecommunications industry has been characterized
by rapid technological change, frequent new service introductions and evolving
industry standards. Phoenix believes that its future success will depend on
its ability to anticipate such changes and to offer market responsive services
that meet these evolving industry standards on a timely basis. The effect of
technological change upon Phoenix's business cannot be predicted and there can
be no assurance that Phoenix will have sufficient resources to make the
investments necessary to acquire new technology or to introduce new services
to satisfy an expanded range of customer needs.

Dependence on Key Personnel. Phoenix believes that its success depends, to a
significant extent, on the efforts and abilities of its senior management.
Among others, the loss of Wallace M.

Hammond, Phoenix's President and Chief Executive Officer or Jon Beizer,
Phoenix's Senior Vice President and Chief Financial Officer, could have a
material adverse effect on Phoenix. Phoenix believes that its success will
depend in large part upon its ability to attract, retain and motivate skilled
employees and other senior management personnel. Although Phoenix expects to
continue to attract sufficient numbers of such persons for the foreseeable
future, there can be no assurance that Phoenix will be able to do so. In
addition, because Phoenix's strategy includes consummating a business
combination transaction in the near future, Phoenix's success will be in part
dependent upon its ability to integrate its operations and personnel with
those of its business combination partner.

Control by Officers and Directors. As of the Phoenix Record Date, Phoenix's
executive officers and directors beneficially owned or controlled
approximately 12% of the outstanding shares of Phoenix's Common Stock. The
votes represented by the shares beneficially owned or controlled by Phoenix's
executive officers and directors could, if they were cast together, influence
significantly the election of a majority of Phoenix's directors and the
outcome of most corporate actions requiring stockholder approval.

PLAN OF MERGER

BACKGROUND OF THE MERGER

One of the strategies of both Qwest and Phoenix to achieve growth has been
through select acquisitions, mergers, or other strategic transactions with
industry participants. Toward that objective, Qwest and Phoenix have, from
time to time, explored such opportunities with other entities in the industry.

On April 25, 1997, Phoenix entered into a letter of intent with US One and
Resurgens providing for the merger of the three companies. The proposed merger
was abandoned in July 1996 when Resurgens was notified by its investment
bankers that the company resulting from the merger would be unable to raise
sufficient long term financing, given then-existing market conditions.

On August 13, 1997, Phoenix entered into an agreement to merge with Midcom,
a publicly traded telecommunications company. Effective November 5, 1997,
Phoenix terminated the merger agreement with Midcom due to breaches by Midcom
of the merger agreement and material adverse changes in Midcom's business. On
November 7, 1997, Midcom announced that it had filed for protection from its
creditors under Chapter 11 of the United States Bankruptcy Code.

Phoenix has sustained operating losses of $1.9 million, $2.4 million, $12.3
million and $7.0 million in the years ended December 31, 1993, 1995 and 1996
and the nine months ended September 30, 1997, respectively, and had operating
income of only $2,000 for the year ended December 31, 1994. Phoenix expects to
continue to incur operating losses for the foreseeable future due to the high
amortization of goodwill charges resulting from acquisitions and increased
competitiveness in the telecommunications industry. In addition, Phoenix has
for several months experienced a working capital shortfall, which has required
Phoenix to obtain additional short-term financing from its principal lender,
seek extended payment terms from certain of its supplies, delay payments to
many of its suppliers and other venders, delay or cancel purchases and
terminate seventy of its employees and contractors.

During the second half of 1997, Phoenix publicly announced on several
occasions that it was seeking a strategic business combination. In light of
Phoenix's financial difficulties, such a business combination is central to
Phoenix's ability to continue as a going concern.

In early November 1997, Thomas H. Bell, Chairman of the Board and Director
of Phoenix, and Marc B. Weisberg, Senior Vice President--Corporate Development
of Qwest, discussed the possibility of an acquisition of Phoenix by Qwest
during a telephone call between the two initiated by Mr. Weisberg. During
their conversation Messrs. Bell and Weisberg arranged for a meeting to be held
on November 12, 1997 at Phoenix's offices in Golden, Colorado. Mr. Weisberg
had become familiar with Phoenix as a result of his knowledge of, and years of
experience in, the telecommunications industry. On November 12, 1997, Messrs.
Bell, Weisberg, Wallace M. Hammond, President and Chief Executive Officer of
Phoenix, Jon Beizer, Senior Vice President and Chief Financial Officer of
Phoenix, and Scott Carpenter, Vice President of Anschutz Investment Company,
met to discuss the potential acquisition of Phoenix by Qwest. In the same
meeting, Phoenix and Qwest entered into a confidentiality agreement and Mr.
Hammond provided Mr. Weisberg with certain due diligence information
concerning Phoenix.

On November 20, 1997, Lew Wilks, President of Business Markets of Qwest, met
informally with Mr. Hammond in Denver, Colorado. The meeting was held at the
suggestion of Mr. Weisberg to allow Messrs. Hammond and Wilks to become
acquainted and to allow Mr. Wilks an opportunity to explore potential
synergies among the management teams of Qwest and Phoenix. On November 24,
1997, Messrs. Weisberg, Wilks, Hammond and Charles C. McGettigan, director of
Phoenix, met to discuss in general terms the basic terms of an acquisition of
Phoenix by Qwest. The parties discussed the valuation of Phoenix and the form
and valuation of consideration to be paid to Phoenix Stockholders by Qwest.
The specific terms and structure of the possible transaction were not
discussed in detail. The meeting concluded with the understanding that the
parties would engage in further discussions.

On November 25, 1997, Mr. Hammond discussed the status of discussions
between Phoenix and Qwest with the Phoenix Board. At this meeting, the Phoenix
Board authorized Mr. Hammond to continue discussions with Qwest.

During the week of December 1, 1997, Messrs. Hammond and Weisberg met to
discuss in more detail the terms of a potential business combination. More
detailed due diligence information was exchanged between the two companies
beginning that week. Mr. Hammond regularly updated the Phoenix Board with
respect to any developments in the merger discussions. On December 11, 1997,
Mr. Hammond discussed the status of negotiations between Phoenix and Qwest
with the Phoenix Board and Qwest's request to enter into a no solicitation
agreement. At this meeting, the Phoenix Board authorized Mr. Hammond to enter
into the no solicitation agreement and to continue negotiations with Qwest.
Qwest and Phoenix entered into the no solicitation agreement on December 11,
1997.

Between December 11, 1997 and early January 1998 several meetings and
telephone calls between Mr. Hammond and Mr. Weisberg and their respective
advisors resulted in an agreement in principle to a transaction in which the
merger consideration to the Phoenix Stockholders would be solely Qwest Common
Stock. After completing its due diligence on the LDDS Litigation and the Van
Essen Indemnification and Hold Harmless Agreement, and in particular after
assessing the possibility that Phoenix might become liable with respect to the
LDDS Liability and the possibility that the exercise of rights under the Van
Essen Indemnification and Hold Harmless Agreement might not make Phoenix
whole, Qwest proposed to reduce the aggregate value of the Qwest Common Stock
to be offered to the Phoenix Stockholders by the amount of the compensatory
damages asserted by WorldCom and the approximate legal fees and expenses
relating thereto (i.e., approximately $4.0 million) and offer the Phoenix
Stockholders the Contingent Cash Consideration in lieu thereof. On January 4,
Phoenix agreed to the proposed structure of the Merger Consideration and
agreed to present the transaction to the Phoenix Board for its consideration.

The Phoenix Board met telephonically on January 5, 1998. During that
meeting, Phoenix's management, financial advisors and legal counsel presented
to the Phoenix Board the terms of an Agreement and Plan of Merger dated as of
December 31, 1997 among Phoenix, Qwest and Qwest Subsidiary (the "Initial
Merger Agreement"). In addition, J.C. Bradford presented its oral opinion
(subsequently confirmed in writing) as to the fairness, from a financial point
of view, to Phoenix and Phoenix Stockholders of the consideration to be
received by the Phoenix Stockholders pursuant to the Merger. See "--Opinion of
Phoenix's Financial Advisor." At such meeting, the Phoenix Board unanimously
approved and authorized the Initial Merger Agreement and the Merger. On
January 6, 1998, Qwest and Phoenix executed the Initial Merger Agreement and
Qwest and Phoenix issued a joint press release announcing its essential terms.

At a meeting on January 29, 1998, the Phoenix Board reaffirmed its approval
of the Merger and approved and authorized an amendment and restatement of the
Initial Merger Agreement, and J.C. Bradford reaffirmed its opinion. Effective
January 29, 1998, the parties to the Initial Merger Agreement amended and
restated the Initial Merger Agreement. The amendment and restatement of the
Initial Merger Agreement, among other things, (i) deleted certain references
to the Series I Convertible Preferred Stock, par value $.001 per share, of
Phoenix (the "Series I Preferred Stock"), and certain requirements relating
thereto that were contained in the Initial Merger Agreement but that were made
irrelevant by the holders of all of the outstanding shares of Series I
Preferred Stock voluntarily converting all of such shares pursuant to their
terms into Phoenix Common Stock after the date that the Initial Merger
Agreement was executed, (ii) gave effect to the Qwest Stock Split and (iii)
clarified the Merger Consideration.

On February 10, 1998, the Phoenix Board reaffirmed its approval of the
Merger and approved and authorized a further amendment and restatement of the
Initial Merger Agreement in order to further clarify the Merger Consideration,
and J.C. Bradford reaffirmed its opinion. The parties executed the Merger
Agreement effective February 10, 1998.

PHOENIX'S REASONS FOR THE MERGER; RECOMMENDATION OF THE PHOENIX BOARD

THE PHOENIX BOARD BELIEVES THE CONSUMMATION OF THE MERGER IS IN THE BEST
INTERESTS OF PHOENIX AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF PHOENIX VOTE FOR APPROVAL AND AUTHORIZATION OF THE MERGER
AGREEMENT AND THE MERGER.

The Phoenix Board believes that the Merger offers Phoenix and the Phoenix
Stockholders an opportunity to participate in the business future of Qwest,
including significantly greater business and financial resources and long-term
growth potential than Phoenix standing alone. The Phoenix Board believes that
the Merger offers significant opportunities for efficiencies and economies of
scale as the long distance operations of Phoenix and Qwest are integrated and
will result in an organization with added competitive strength required by the
increased consolidation of the telecommunications industry. The Phoenix Board
believes that the combined entity will be able to provide customers with
quality service and will be better positioned to take advantage of new
opportunities and to meet competitive challenges.

In arriving at its decision to approve the Merger Agreement, the Phoenix
Board considered a number of factors. Among the factors that the Phoenix Board
considered were (i) information concerning Phoenix's and Qwest's respective
businesses, assets, management, competitive position and prospects, including
Phoenix's ability to repay its current indebtedness when due and the
likelihood that Phoenix would seek protection under federal bankruptcy laws
without an immediate infusion of capital, (ii) the financial condition, cash
flows and results of operations of Phoenix and Qwest, both on a historical and
prospective basis, (iii) historical market prices and trading information with
respect to the Phoenix Common Stock and the Qwest Common Stock, (iv) the value
of the consideration to be received by Phoenix Stockholders, (v) Phoenix's
increased need for capital resources to remain competitive and the greater
access to capital markets that Qwest has, enabling those needs to be met, (vi)
the potential efficiencies, elimination of redundancies, economies of scale
and other synergies that may be realized as a result of the combination of
Phoenix's and Qwest's long distance operations, (vii) the Phoenix Board's
judgment that Phoenix was unlikely to identify an alternative strategic
business combination that would provide superior benefits to Phoenix and its
stockholders, (viii) the terms of the Merger Agreement, (ix) the written
opinion of J.C. Bradford, a copy of which is included as Exhibit B to this
Proxy Statement/Prospectus, (x) the structure of the Merger, which will permit
holders of Phoenix Common Stock to have their shares converted largely into
Qwest Common Stock on a "tax-free" basis, (xi) the technical and marketing
knowledge of the Qwest employee team and (xii) significant enhancement of the
strategic and market position of Qwest substantially beyond that achievable by
Phoenix alone. See "PLAN OF MERGER--Opinion of Phoenix's Financial Advisor."

The Phoenix Board evaluated the likelihood of realizing superior benefits
through alternative business strategies, which included evaluations of the
business and financial prospects of Phoenix if it were to continue as an
independent company (including the likelihood that Phoenix would seek
protection under federal bankruptcy laws without an immediate infusion of
capital), and if Phoenix were to seek a strategic combination with another
company in the telecommunications industry. In making these evaluations, the
Phoenix Board considered a number of factors, including market growth, ongoing
industry consolidation, the anticipated emergence of new products and
technologies, Phoenix's internal growth strategies, the ability of Phoenix to
access new customers and markets, and the fit of Phoenix's product lines with
those of other potential partners. The Phoenix Board believes that the product
lines and fundamental business and operating strategies of Phoenix and Qwest
are complementary and consistent, that Phoenix and Qwest together can provide
a greater range of products and superior market coverage compared to any
alternative achievable combination, and that a combination of the two
companies provides a greater potential for enhanced stockholder value than
does either the continuation of Phoenix's operations in their present form or
a combination with any other potential merger partner.

The Phoenix Board also considered (i) the risk that the benefits sought in
the Merger would not be obtained, (ii) the risk that the Merger would not be
consummated, (iii) the effect of the public announcement of the Merger on
Phoenix's sales, customer relations, operating results and ability to retain
employees, and on the trading price of Phoenix Common Stock, (iv) the
potentially substantial management time and effort that will be required to
consummate the Merger and integrate the operations of the two companies, (v)
the impact of the Merger on Phoenix personnel, and (vi) other risks described
herein under "RISK FACTORS--Risk Factors of Phoenix and Its Business." In the
judgment of the Phoenix Board, the potential benefits of the Merger clearly
outweighed the risks inherent in the transaction.

In considering the wide variety of relevant factors, both positive and
negative, the Phoenix Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered.

QWEST'S REASONS FOR THE MERGER

The Qwest Board of Directors believes that the Merger will enable Qwest to
significantly increase the number of business customers to which Qwest
provides communications services over the Qwest Network. As of January 30,
1998, Qwest had approximately 25,000 business customers for long distance and
Internet service. As of January 30, 1998, Phoenix had approximately 40,000
customers, almost all of which are business customers, that Qwest expects to
acquire in the Merger. In addition, because Phoenix predominantly offers voice
communications to its customers, the Merger gives Qwest the opportunity to
sell data and Internet services to Phoenix's long-distance customers.

OPINION OF PHOENIX'S FINANCIAL ADVISOR

Phoenix has retained J.C. Bradford to act as its financial advisor in
connection with the Merger. Phoenix selected J.C. Bradford as its financial
advisor because J.C. Bradford is a nationally recognized investment banking
firm, which, as a part of its investment banking business, engages in the
valuation of securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporations or other
purposes. Phoenix also selected J.C. Bradford because of J.C. Bradford's
familiarity with the telecommunications industry generally. J.C. Bradford
participated in a telephonic meeting of the Phoenix Board on January 5, 1998
and rendered J.C. Bradford's opinion that, as of the date of such opinion, the
proposed consideration for the Merger was fair, from a financial point of
view, to the Phoenix Stockholders. A copy of that opinion, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken, is attached as Exhibit C hereto and should be read in its
entirety. J.C. Bradford reaffirmed its opinion on January 29, 1998 and
February 10, 1998, respectively, in connection with the execution of the
Merger Agreement.

In conducting its analysis and delivering its opinion, J.C. Bradford
considered such financial and other factors as it deemed appropriate and
feasible under the circumstances, including the following items that J.C.
Bradford considers to be material to its opinion: (i) copies of the Merger
Agreement; (ii) the historical and current financial position and results of
operations of Phoenix as set forth in its periodic reports and proxy materials
filed with the Commission; (iii) certain internal operating data and financial
analyses and forecasts of Phoenix for the years beginning January 1, 1997 and
ending December 31, 1998 as prepared by its senior management; (iv) a schedule
of Phoenix's current indebtedness and the maturities of such indebtedness; (v)
certain financial analysis and forecasts for Qwest for the fiscal years
beginning January 1, 1998 and ending December 31, 1999 prepared and published
by financial analysts covering Qwest; (vi) certain financial and securities
trading data of certain other companies, the securities of which are publicly
traded and that J.C. Bradford believed to be comparable to Phoenix or Qwest or
relevant to the transaction; (vii) the financial terms of other

transactions in the telecommunications industry that J.C. Bradford believed to
be relevant; and (viii) reported price and trading activity for Phoenix Common
Stock and the capital stock of Qwest. J.C. Bradford also held discussions with
members of the senior management of Phoenix regarding the past and current
business operations, financial condition, and future prospects of Phoenix
(including Phoenix's ability to repay its current indebtedness), with
officials of Qwest regarding the current business operations and prospects of
Qwest, and with the senior lender of Phoenix regarding Phoenix's liquidity and
borrowing ability. In addition, J.C. Bradford took into account its assessment
of general economic, market and financial conditions and its experience in
other transactions as well as its experience in securities valuation and its
knowledge of the industries in which Phoenix and Qwest operate.

J.C. Bradford's opinions were based upon general economic, market,
financial, and other conditions as they existed on their respective dates and
the information made available to J.C. Bradford through such dates. J.C.
Bradford relied upon the accuracy and completeness of all of the financial and
other information provided for its review for purposes of its opinions and did
not assume any responsibility for independent verification of such
information. With respect to the internal financial analyses and forecasts
supplied to J.C. Bradford by Phoenix, J.C. Bradford assumed, and the
management of Phoenix represented, that such analyses and forecasts (including
Phoenix's ability to pay its current indebtedness when due) were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Phoenix's senior management as to the recent and likely future
performance of Phoenix. In addition, J.C. Bradford was not asked to consider,
and its opinion does not address, the relative merits of the Merger as
compared to any other transactions in which Phoenix might engage. Furthermore,
J.C. Bradford has not made an independent evaluation or appraisal of the
assets and liabilities of Phoenix or Qwest and has not been furnished with any
such evaluation or appraisal.

Nothing in the opinion should be deemed to constitute a recommendation by
J.C. Bradford to any Phoenix Stockholder to vote in favor of the Merger. J.C.
Bradford has consented to the attachment of the Opinion to this Proxy
Statement/Prospectus and to the descriptions thereof in this Proxy
Statement/Prospectus.

In preparing its report to the Phoenix Board, J.C. Bradford performed a
variety of financial and comparative analyses, including: (i) an evaluation of
Phoenix's current financial position and projected results of operations; (ii)
relative contribution analysis; (iii) discounted cash flow analysis; (iv)
comparable company analysis; and (v) comparable transaction analysis. The
summary of J.C. Bradford's analyses set forth below does not purport to be a
complete description of the analyses underlying J.C. Bradford's opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In arriving at its opinion, J.C. Bradford did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, J.C. Bradford believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create a misleading or incomplete view of the processes underlying such
analyses and its opinions. With respect to the comparable company and
transaction analyses, no public company, acquisition or transaction used as a
comparison is identical to Phoenix or Qwest or the Merger and such analyses
necessarily involve complex considerations and judgments concerning the
difference in financial and operating characteristics of the companies and
other factors that could affect the acquisition or public trading values of
the companies concerned. In performing its analyses, J.C. Bradford made
numerous assumptions with respect to industry performance, general business,
economic, market and financial conditions, and other matters. The analyses
performed by J.C. Bradford are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses.

The following are financial and comparative analyses which were performed by
J.C. Bradford, and which J.C. Bradford considers to be material, in arriving
at its opinion as to the fairness of the consideration to be received by
Phoenix Stockholders.

(a) Valuation of Industry Trends and Phoenix's Current Financial
Position. J.C. Bradford noted the recent trend among long distance
providers to enter into business combinations to achieve access to switch-
based networks, achieve greater mass and offer more services to customers.
This trend is the result of several factors including the enactment of the
Telecommunications Act. Recently completed or announced transactions
include WorldCom/MCI, Telco/Excel, Tel-Save/ACC and ACC/U.S. Watts.
Furthermore, J.C. Bradford also noted the increased number of switchless
and switch-based resellers who have reported poor financial results or have
entered into bankruptcy proceedings as a result of competitive and other
factors.

In this context, J.C. Bradford analyzed Phoenix's historical and
projected operating results through December 1998. J.C. Bradford noted that
Phoenix has reported negative cash flow from operations for the last two
years and that management projected a continued deterioration in operating
results through December 1998 and beyond. Senior management of Phoenix
advised J.C. Bradford that, without an immediate infusion of capital in
some form, Phoenix would fail and that it had been unable to raise capital
by private placement of its securities. J.C. Bradford also noted that it is
generally well known that Phoenix has been evaluating its strategic
alternatives, including raising capital, merging with another entity or
selling Phoenix.

(b) Relative Contribution Analysis. For the years ended December 31, 1997
and 1998, J.C. Bradford analyzed the estimated revenues, gross profit,
EBITDA, and pretax income of each of Qwest and Phoenix before the Merger in
order to compare the contribution in each year of Qwest and Phoenix as a
percentage of Qwest after the Merger versus the projected fully-diluted
ownership of Qwest by the existing stockholders of each of Qwest and
Phoenix after the Merger. J.C. Bradford observed that Phoenix Stockholders
are expected to own approximately 0.4% of Qwest after the Merger, assuming
the stock price at the time the J.C. Bradford opinion was rendered of
$65.50 (pre-Qwest Stock Split). Such analysis indicated that for the years
ended December 31, 1997 and 1998, Phoenix would contribute, respectively,
10.5% and 8.4% of revenue, 0% and 0% of EBITDA, and 0% and 0% of pretax
income of Qwest.

(c) Discounted Cash Flow Analysis. Using discounted cash flow analysis,
based on information obtained from management of Phoenix, J.C. Bradford
discounted to present value the projected future cash flows that Phoenix is
projected to produce on a stand-alone basis through December 1998, under
various circumstances, assuming Phoenix performed in accordance with the
earnings forecast of management. (Management advised J.C. Bradford that
projections beyond December 1998 were problematic because management did
not feel that Phoenix could sustain operations beyond that point without an
infusion of capital.) J.C. Bradford calculated terminal values for Phoenix
(i.e., the values at the 1998 year end) by applying multiples of revenue in
the year 1998. The cash flow streams and terminal values were then
discounted to present values using different discount rates chosen to
reflect different assumptions regarding Phoenix's cost of capital. Based on
the above described analysis, the implied value of Phoenix ranged from
$0.34 to $1.05 compared to the stock price of Phoenix common stock on
January 5, 1998 of $0.50.

(d) Comparable Company Analysis. Using publicly available information,
J.C. Bradford reviewed selected financial data, including revenues,
historical and projected earnings and EBITDA for several publicly traded
companies engaged in businesses similar to Phoenix's, including long
distance companies, second tier switch based carriers, wholesalers and
switchless resellers of long distance. J.C. Bradford noted that the revenue
multiples for switchless resellers (which ranged from 0.3x to 0.9x, with an
average multiple of 0.6x) are significantly lower than the multiples of the
second tier switch-based carriers (which ranged from 1.1x to 9.3x, with an
average multiple of 3.3x). Phoenix's last twelve months' revenue multiple
is 0.3x.

(e) Comparable Transaction Analysis. Using publicly-available
information, J.C. Bradford reviewed selected transactions in which
publicly-traded companies engaged in businesses similar to Phoenix and
Qwest (the "Comparable Transaction Group") combined their businesses in
instances in which the acquired company had revenues between $50 million
and $100 million. J.C. Bradford calculated the consideration paid for each
acquired company in the Comparable Transaction Group as a multiple of its
revenues at the time of the transaction. The multiple paid for the target
company in each transaction ranged from 0.7x to 2.1x with an average of
1.2x. J.C. Bradford then compared the Comparable Transaction Group
multiples to the corresponding multiple for Phoenix's revenues in the
Merger (0.5x).

Pursuant to the terms of an engagement letter dated December 3, 1997 (the
"J.C. Bradford Engagement Letter"), J.C. Bradford will be paid $200,000, as
described below, for its services as financial advisor to the Phoenix Board in
connection with the Merger, including delivery of the opinion. Pursuant to the
J.C. Bradford Engagement Letter, if the Merger is not consummated, $100,000 is
due and payable upon the termination of the Merger Agreement, and if the
Merger is consummated, $200,000 is due and payable upon the closing of the
Merger. In addition, pursuant to the J.C. Bradford Engagement Letter, J.C.
Bradford was paid $100,000 in consideration of financial advisory work
performed by J.C. Bradford for Phoenix in connection with the aborted merger
of Phoenix and Midcom. Phoenix has also agreed to indemnify J.C. Bradford
against certain liabilities arising out of or in connection with the services
rendered by J.C. Bradford in connection with the engagement.

J.C. Bradford has issued Phoenix a consent to use their opinion in this
Proxy Statement/ Prospectus.

TERMS OF THE MERGER AGREEMENT

The following discussion summarizes the definitive terms of the Merger
Agreement and the other agreements and transactions contemplated thereby. The
following is not, however, a complete statement of all provisions of the
Merger Agreement and related documents. Detailed terms of and conditions to
the Merger and certain related transactions are contained in the Merger
Agreement, a copy of which is attached to this Proxy Statement/Prospectus as
Exhibit A and incorporated herein by reference. Reference is also made to the
form of the Voting Agreements attached to this Proxy Statement/Prospectus as
Exhibit C, which is also incorporated herein by reference. Statements made in
this Proxy Statement/Prospectus with respect to the terms of the Merger and
such related transactions are qualified by reference to the more detailed
information set forth in the Exhibits hereto.

The Merger. Subject to the terms and conditions of the Merger Agreement,
Qwest Subsidiary will merge with and into Phoenix at the Effective Time, at
which time the separate corporate existence of Qwest Subsidiary will cease,
and Phoenix will become the Surviving Corporation of the Merger.

Conversion of Phoenix Common Stock in the Merger.

General. In connection with the Merger, all outstanding shares of Phoenix
Common Stock will be acquired for (i) that number of shares of Qwest Common
Stock having an aggregate market value equal to $28.5 million, subject to
certain adjustments and limitations described below, which is referred to
below as the Stock Consideration, and (ii) certain cash consideration, if any,
payable promptly following the Contingent Cash Consideration Date in an
aggregate maximum amount of $4.0 million in cash, contingent upon the outcome
of certain litigation described below, plus interest at the rate of 7.0% per
annum, compounded annually, from the Closing Date to, but excluding, the
Contingent Cash Consideration Date, which is referred to below as the
Contingent Cash Consideration. The Stock Consideration and the Contingent Cash
Consideration are collectively referred to below as the Merger Consideration.
The Merger Consideration will be paid to persons who are the record holders of
Phoenix Common Stock immediately prior to the Effective Time of the Merger.

Stock Consideration. The Stock Consideration to be issued by Qwest in the
Merger will be determined by dividing (i) the quotient obtained by dividing
the Acquisition Value by the Effective Time Adjusted Average Market Price by
(ii) the Aggregate Number.

Contingent Cash Consideration. The Contingent Cash Consideration, if any, to
be paid by Qwest in cash promptly following the Contingent Cash Consideration
Date will be determined by dividing (i) the sum of (1)(A) $4,000,000 minus (B)
the LDDS Liability (as defined below) plus (C) any amounts recovered by any of
Qwest and its subsidiaries on or before the Contingent Cash Consideration Date
under the Van Essen Indemnification and Hold Harmless Agreement (net of all
out-of-pocket costs, fees and expenses, including, without limitation, the
fees and disbursements of counsel and the expenses of litigation, incurred in
collecting such amounts, in each case to the extent not reimbursed pursuant to
the Van Essen Indemnification and Hold Harmless Agreement) plus (2) interest
on the amount determined in accordance with the preceding clause (1) at a rate
of 7% per annum, compounded annually, from the Closing Date to, but excluding,
the Contingent Cash Consideration Date by (ii) the Aggregate Number; provided
that, if there has not occurred a settlement or other final, nonappealable
resolution of the litigation styled LDDS/WorldCom, Inc. and Dial-Net, Inc. v.
Automated Communications, Inc. and Judy Van Essen Kenyon, C.A. No. 3:93-CV-463
(WS) (U.S.D.C. S.D. Miss) (the "LDDS Litigation"), on or prior to the
Contingent Cash Consideration Date, the Contingent Cash Consideration shall be
an amount equal to zero dollars ($0).

Definitions. For the purposes of the Merger Agreement, the following terms
have the meanings assigned to them below:

"Acquisition Value" means the amount by which (1) $28,500,000 exceeds (2)
the sum of the aggregate amount paid and payable by Phoenix as of the
Effective Date pursuant to (A) paragraph A.14.1 of Attachment A to the
Resale Solutions Switched Services Agreement dated December 1996 between
Phoenix and Sprint Communications with respect to the difference between
Phoenix's Actual Net Usage (as defined therein) and $12,000,000 during
months 1-12 of the term of such agreement (the "Sprint Payable") and (B)
Section 3 of the Carrier Agreement between Phoenix and MCI with respect to
the difference between Phoenix's Usage Charges (as defined therein) and its
Annual Commitment (as defined therein) during the term of such agreement
(the "MCI Payable"). For a description of the Sprint Payable and the MCI
Payable see "BUSINESS OF PHOENIX--MCI and Sprint Payables."

"Contingent Cash Consideration Date" means the date that is the earlier
of (1) the third anniversary of the Closing Date and (2) the date as of
which Qwest shall have determined, in the

exercise of its reasonable judgment and after having exercised commercially
reasonable efforts to obtain recovery under the Van Essen Indemnification
and Hold Harmless Agreement, that it is not reasonably likely in the
circumstances that Qwest and its Subsidiaries shall recover substantial
additional amounts under such agreement on or before the third anniversary
of the Closing Date (net of all out-of-pocket costs, fees and expenses,
including, without limitation, the fees and disbursements of counsel and
the expenses of litigation, incurred in connection with collecting such
amounts, in each case to the extent not reimbursed or likely to be
reimbursed pursuant to the Van Essen Indemnification and Hold Harmless
Agreement on or before the third anniversary of the Closing Date); provided
that in no event shall any of Qwest and its Subsidiaries be required to
exercise more than commercially reasonable efforts with respect to such
recovery.

"LDDS Liability" means the aggregate amount of any Loss (as defined in
the Merger Agreement) of any of Qwest and its subsidiaries, (including,
without limitation, any of Phoenix, the Surviving Corporation, ACI and
their subsidiaries) in connection with, arising from or related to (1) the
LDDS Litigation or (2) any other Action (as defined in the Merger
Agreement) based, in whole or in part, upon facts involved in the LDDS
Litigation, in each case, including, without limitation, any damages, or
any fees, expenses or other disbursements of counsel. For a description of
the LDDS Litigation, including the substantial limitations on Qwest's
obligation to enforce the Van Essen Indemnification and Hold Harmless
Agreement, see "BUSINESS OF PHOENIX--Legal Proceedings."

Uncertainty of Value of Merger Consideration. The amount and the value of
the Stock Consideration and of the Contingent Cash Consideration, if any, are
subject to risk and uncertainty. The timing of the payment of the Contingent
Cash Consideration, if any, is also subject to uncertainty. Accordingly, the
value of the Merger Consideration that may be realized by the Phoenix
Stockholders is uncertain. Certain principal elements of this uncertainty are
summarized below.

The amount of the Stock Consideration to be received by the Phoenix
Stockholders depends, among other things, on (i) the Acquisition Value, which
is reduced by any amount that Phoenix is required to pay to MCI and Sprint
Communications in respect of certain minimum usage fees, and (ii) the average
of the daily closing prices of the Qwest Common Stock for the fifteen
consecutive trading days commencing twenty trading days prior to the Closing
Date. See "PLAN OF MERGER--Terms of the Merger Agreement--Conversion of
Phoenix Common Stock in the Merger--Stock Consideration." In addition, the
value of the Stock Consideration that any Phoenix Stockholder may be able to
realize upon the sale of the Qwest Common Stock received in the Merger will
depend principally on the market price per share of Qwest Common Stock at the
time of sale. The market price of the Qwest Common Stock at any time reflects
perceptions of market participants as to the business, operations, results and
prospects of Qwest, general market and economic conditions and other factors.

With respect to the Acquisition Value, which affects the value of the Stock
Consideration, Qwest and Phoenix express no view as to whether Phoenix will be
required by MCI and Sprint

Communications to make payments in respect of certain minimum usage fees owed
by Phoenix to such entities. Pursuant to the terms of the agreements between
Phoenix and each of MCI and Sprint Communications, Phoenix is obligated to pay
approximately $420,000 to MCI and $1.275 million to Sprint Communications in
respect of such minimum usage fees. Pursuant to the terms of the Merger
Agreement, such payments, if required, will reduce the Acquisition Value and,
accordingly, the Stock Consideration to be paid by Qwest to the Phoenix
Stockholders in the Merger. Phoenix Stockholders may receive updated
information with respect to these matters by calling the toll free number
referred to below. Although Phoenix is currently attempting to re-negotiate
the amount of such payments, there can be no assurance that Phoenix will be
successful in reducing its obligations to MCI or Sprint Communications. For a
description of the minimum usage fees owed by Phoenix to MCI and Sprint
Communications, see "BUSINESS OF PHOENIX--MCI and Sprint Payables" and for a
description of the terms of the Merger Agreement relating to such minimum
usage fees, see "PLAN OF MERGER--Terms of the Merger Agreement--Conversion of
Phoenix Common Stock in the Merger--Stock Consideration."

The amount of the Contingent Cash Consideration, if any, to be received by
the Phoenix Stockholders depends on the outcome of the LDDS Litigation and/or
the ability of Phoenix and, following the Effective Time, Qwest and its
subsidiaries to recover pursuant to the right of indemnification under the Van
Essen Indemnification and Hold Harmless Agreement any amounts paid by any of
Qwest, Phoenix and their subsidiaries with respect to the LDDS Litigation. See
"PLAN OF MERGER--Terms of the Merger Agreement--Conversion of Phoenix Common
Stock in the Merger--Contingent Cash Consideration." On February 2, 1998, the
trial court in the LDDS Litigation issued an order finding ACI and Van Essen
liable with respect to certain of the claims. The court has scheduled a
hearing on February 16, 1998 on the issue of damages. Qwest and Phoenix
express no view as to the outcome of the LDDS Litigation or the ability of
Phoenix, Qwest or any other person to enforce any right of indemnification
under the Van Essen Indemnification and Hold Harmless Agreement. The potential
liability of Phoenix and its subsidiaries, based on the damages asserted by
WorldCom, exceeds $4 million, and includes (1) compensatory damages of
approximately $3,020,000; (2) attorneys' fees in excess of $700,000; (3)
punitive damages in an unspecified amount; and (4) pre-judgment interest.
Qwest and Phoenix express no view as to whether Van Essen now has, or in the
future will have, the financial capability to perform her obligations under
the Van Essen Indemnification and Hold Harmless Agreement. The obligations of
Van Essen to indemnify Phoenix under the Van Essen Indemnification and Hold
Harmless Agreement are unsecured, although certain shares of Phoenix Common
Stock have been deposited in escrow in support of Van Essen's indemnification
obligations. Pursuant to the terms of the Merger Agreement, Qwest is obligated
to exercise no more than commercially reasonable efforts to recover any
amounts under the Van Essen Indemnification and Hold Harmless Agreement and
only amounts so recovered on or prior to the third anniversary of the Closing
Date will be included in calculating the Contingent Cash Consideration, if
any. IF THERE IS NO SETTLEMENT OR OTHER FINAL, NONAPPEALABLE RESOLUTION OF THE
LDDS LITIGATION ON OR PRIOR TO THE THIRD ANNIVERSARY OF THE CLOSING DATE, THE
LIABILITY IS ASSUMED TO BE $4 MILLION AND THE CONTINGENT CASH CONSIDERATION
WILL BE $0. IN ANY CASE, ANY AMOUNTS RECOVERED BY ANY OF QWEST OR ITS
SUBSIDIARIES AFTER THE THIRD ANNIVERSARY OF THE CLOSING DATE WILL BE RETAINED
BY QWEST AND WILL NOT BE DISTRIBUTED TO THE PHOENIX STOCKHOLDERS. In addition,
in exercising commercially reasonable efforts Qwest is not required to incur
expenses in excess of that which it reasonably expects to recover by reason of
such efforts, and no person other than Qwest has been selected to monitor
Qwest's recovery efforts. For a description of the LDDS Litigation and a
description of the substantial limitations on Qwest's obligation to enforce
the Van Essen Indemnification and Hold Harmless Agreement, see "BUSINESS OF
PHOENIX--Legal Proceedings" and for a description of the terms of the Merger
Agreement relating to such litigation, see "PLAN OF MERGER--Terms of the
Merger Agreement--Conversion of Phoenix Common Stock in the Merger."

The right to receive the Contingent Cash Consideration represents a general
obligation of Qwest, is not secured by a security interest, mortgage or lien
on any property, and does not represent an

interest in any trust fund, escrow fund, segregated fund or account or any
similar vehicle held by Qwest or by a third party for the benefit of the
Phoenix Stockholders. In addition, the right to receive the Contingent Cash
Consideration is a personal right of each Phoenix Stockholder of record
immediately prior to the Effective Time of the Merger and may not be assigned,
sold or otherwise transferred to any other person, other than pursuant to the
laws of inheritance. Qwest is not required to (other than pursuant to the laws
of inheritance), but in its sole discretion may, record or otherwise recognize
any assignment, sale or other transfer of the right to receive the Contingent
Cash Consideration. Qwest will pay the Contingent Cash Consideration, if any,
promptly following the Contingent Cash Consideration Date to the Phoenix
Stockholders of record immediately prior to the Effective Time unless in any
case Qwest shall elect to record an assignment, sale or other transfer of such
right to any transferee, in which case the Contingent Cash Consideration, if
any, will be paid to such transferee promptly following the Contingent Cash
Consideration Date. It is highly uncertain whether or when any Contingent Cash
Consideration will be paid to the Phoenix Stockholders pursuant to the terms
of the Merger Agreement. Accordingly, for the purposes of deciding whether to
vote to approve and authorize the Merger Agreement and the Merger, it is
appropriate for the Phoenix Stockholders to carefully consider what value, if
any, to assign to the right to receive the Contingent Cash Consideration.
Stockholders.

Toll Free Number. Phoenix Stockholders may call toll free to 1-888-441-1134
from Saturday, February 21, 1998 until Friday, March 20, 1998 to hear a tape
recorded message stating what (i) the Average Market Price, (ii) the Effective
Time Adjusted Average Market Price and (iii) the Stock Consideration would be
if the Merger were consummated on Friday, February 27, 1998 (for calls to the
toll free number during the seven day period ending on Friday, February 27,
1998) and on each subsequent Friday (for calls to the toll free number during
the seven day period ending on such Friday). Phoenix Stockholders may call the
same toll free number from Saturday, March 21, 1998 until Monday, March 30,
1998 to hear a tape recorded message stating what the Average Market Price,
Effective Time Adjusted Average Market Price and Stock Consideration would be
if the Merger were consummated on Monday, March 30, 1998, which is the date of
the Phoenix Annual Meeting. The tape recorded message will not give any
information regarding the amount, if any, of the Contingent Cash Consideration
or the likely date of payment, if any, of the Contingent Cash Consideration.
The payment of the Contingent Cash Consideration is dependent on the outcome
of the LDDS Litigation and Qwest's ability to enforce the Van Essen
Indemnification and Hold Harmless Agreement, neither of which is expected to
be resolved prior to the Phoenix Annual Meeting. See "RISK FACTORS--Risk
Factors Relating to the Merger Consideration."

Table of Illustrative Values of Stock Consideration. The following Table 1
illustrates the value of the Stock Consideration issuable in the Merger,
assuming that the Aggregate Number is 36,277,291, that the Average Market
Price is within a range from $22.50 to $40.00, and that the Acquisition Value
is either $26,800,000 or $28,500,000. Phoenix does not expect that the
Aggregate Number will vary materially from 36,277,291, but the Average Market
Price may be less than $22.50 or greater than $40.00. Phoenix expects that the
Acquisition Value will not be less than $26,800,000 and will be less than or
equal to $28,500,000. The columns in the following Table 1 present (a) the
Average Market Price of Qwest Common Stock at the Effective Time within a
range from $22.50 to $40.00, (b) the Effective Time Adjusted Average Market
Prices that correspond to the Average Market Prices presented in the table,
(c) the fractions of one share of Qwest Common Stock that would be issued for
one share of Phoenix Common Stock at the Average Market Prices and
corresponding Effective Time Adjusted Average Market Prices presented in the
table, in each case depending on whether the illustrative Acquisition Value is
$26,800,000 or $28,500,000, as the case may be, and (d) the illustrative
values of the Stock Consideration to be received in the merger for one share
of Phoenix Common Stock, which illustrative values are determined by
multiplying the Average Market Prices presented in the table by the
corresponding fractions of one share of Qwest Common Stock that would be
issued in the Merger at those Average Market Prices, in each case depending on
whether the illustrative Acquisition Value is $26,800,000 or $28,500,000. In
general, the value of the Stock Consideration

issuable in the Merger increases as the Average Market Price and the
Acquisition Value increases and the value of the Stock Consideration decreases
as the Average Market Price and the Acquisition Value decreases. THE VALUES OF
STOCK CONSIDERATION SHOWN IN THE FOLLOWING TABLE 1 ARE ILLUSTRATIVE ONLY AND
DO NOT REPRESENT THE ACTUAL AMOUNT PER SHARE OF PHOENIX COMMON STOCK THAT
MIGHT BE REALIZED BY ANY PHOENIX STOCKHOLDER ON OR AFTER THE CLOSING DATE. THE
AMOUNT ANY PHOENIX STOCKHOLDER WILL BE ABLE TO REALIZE UPON THE SALE IN THE
MARKET OF THE STOCK CONSIDERATION RECEIVED BY SUCH PHOENIX STOCKHOLDER IN THE
MERGER WILL DEPEND PRINCIPALLY UPON THE MARKET PRICE PER SHARE OF QWEST COMMON
STOCK AT THE TIME OF SALE.

TABLE 1

ILLUSTRATIVE VALUES OF STOCK CONSIDERATION
(PER SHARE OF PHOENIX COMMON STOCK)

ILLUSTRATIVE ACQUISITION VALUE ILLUSTRATIVE ACQUISITION VALUE
= =
$26,800,000 $28,500,000
------------------------------------------ ------------------------------------------
(A) (B) (C) (D) (C) (D)
--- -------------- ------------------- ---------------------- ------------------- ----------------------
QWEST EFFECTIVE TIME STOCK CONSIDERATION ILLUSTRATIVE VALUE OF STOCK CONSIDERATION ILLUSTRATIVE VALUE OF
AVERAGE ADJUSTED (QWEST SHARES STOCK CONSIDERATION (QWEST SHARES STOCK CONSIDERATION
MARKET AVERAGE ISSUABLE PER 1 (STOCK CONSIDERATION X ISSUABLE PER 1 (STOCK CONSIDERATION X
PRICE MARKET PRICE PHOENIX SHARE) AVERAGE MARKET PRICE) PHOENIX SHARE) AVERAGE MARKET PRICE)
- ------- -------------- ------------------- ---------------------- ------------------- ----------------------

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

Table of Illustrative Values of Contingent Cash Consideration. The following
Table 2 illustrates the value of the Contingent Cash Consideration, assuming
that the Aggregate Number is 36,277,291 and the Contingent Cash Consideration
multiplied by the Aggregate Number is within a range from zero to $4,000,000
at the time the Contingent Cash Consideration, if any, is paid. THE VALUES OF
THE CONTINGENT CASH CONSIDERATION SHOWN IN THE FOLLOWING TABLE 2 ARE
ILLUSTRATIVE ONLY AND DO NOT REPRESENT THE ACTUAL AMOUNT PER SHARE OF PHOENIX
COMMON STOCK THAT MIGHT BE REALIZED BY ANY PHOENIX STOCKHOLDER ON OR AFTER THE
CONTINGENT CASH CONSIDERATION DATE. THE VALUES ILLUSTRATED ARE NOT VALUES AS
OF THE CLOSING DATE BUT ARE VALUES AS OF THE TIME THE CONTINGENT CASH
CONSIDERATION, IF ANY, IS PAID. IN ADDITION, THE RIGHT TO RECEIVE THE
CONTINGENT CASH CONSIDERATION IS PERSONAL TO EACH PHOENIX STOCKHOLDER OF
RECORD IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGER, AND ACCORDINGLY
THE PRESENT VALUE, IF ANY, OF SUCH RIGHT CANNOT BE REALIZED BY THE ASSIGNMENT,
SALE OR OTHER TRANSFER OF SUCH RIGHT UNLESS QWEST, IN ITS SOLE DISCRETION,
AGREES TO PERMIT AND RECORD SUCH ASSIGNMENT, SALE OR OTHER TRANSFER. IT IS
HIGHLY UNCERTAIN WHETHER OR WHEN ANY CONTINGENT CASH CONSIDERATION WILL BE
PAID TO THE PHOENIX STOCKHOLDERS PURSUANT TO THE TERMS OF THE MERGER
AGREEMENT. ACCORDINGLY, FOR THE PURPOSES OF DECIDING WHETHER TO VOTE TO
APPROVE AND AUTHORIZE THE MERGER AGREEMENT AND THE MERGER, IT IS APPROPRIATE
FOR THE PHOENIX STOCKHOLDERS TO CAREFULLY CONSIDER WHAT VALUE, IF ANY, TO
ASSIGN TO THE RIGHT TO RECEIVE THE CONTINGENT CASH CONSIDERATION.

TABLE 2

ILLUSTRATIVE VALUES OF CONTINGENT CASH CONSIDERATION
(PER SHARE OF PHOENIX COMMON STOCK)

ILLUSTRATIVE AMOUNT OF AGGREGATE CONTINGENT CASH CONSIDERATION
--------------------------------------------------------------
$0 $1,000,000 $2,000,000 $3,000,000 $4,000,000
----------------------------------------------------------

Contingent Cash
Consideration: $0 $0.0276 $0.0551 $0.0827 $0.1103
----------------------------------------------------------

Table of Illustrative Values of Merger Consideration. The following Table 3
illustrates the total value of the Merger Consideration based upon (i) the
various illustrative values of the Stock Consideration issuable in the Merger,
as shown for purposes of illustration in Table 1 above and (ii) the various
amounts of the Contingent Cash Consideration, as shown for purposes of
illustration in Table 2 above. The illustrative values of the Merger
Consideration shown in the following Table 3 have been calculated by adding
certain illustrative values of Stock Consideration that were selected from
Table 1 to the illustrative values of Contingent Cash Consideration shown in
Table 2. The values of Stock Consideration were reflected from Table 1 for
illustrative purposes only, and without any intention of suggesting that any
one possible value or selection of possible values is any more or less likely
to be realized in the Merger than any other possible value or selection of
possible values. In general, the total value of the Merger Consideration
increases as the Stock Consideration and the Contingent Cash Consideration
increase, and the total value of the Merger Consideration decreases as the
Stock Consideration and the Contingent Cash Consideration decrease. There is
no necessary relationship between the Stock Consideration and the Contingent
Cash Consideration, and one component of the Merger Consideration (i.e., the
Stock Consideration or the Contingent Cash Consideration) may increase or
decrease by an amount that is offset, in whole or in part, by a decrease or an
increase in the value of the other component. THE VALUES OF THE MERGER
CONSIDERATION SHOWN IN THE FOLLOWING TABLE 3 ARE ILLUSTRATIVE ONLY AND DO NOT
REPRESENT THE ACTUAL AMOUNT PER SHARE OF PHOENIX COMMON STOCK THAT MIGHT BE
REALIZED BY ANY PHOENIX STOCKHOLDER ON OR AFTER THE CLOSING DATE AND THE
CONTINGENT CASH CONSIDERATION DATE, AS DESCRIBED IN THE BOLD SENTENCES PRIOR
TO EACH OF THE PREVIOUS TWO ILLUSTRATIVE TABLES. THE VALUE OF THE STOCK
CONSIDERATION IS CALCULATED AS OF THE EFFECTIVE TIME (BASED ON THE AVERAGE
MARKET PRICE OF QWEST COMMON STOCK AS OF THE EFFECTIVE TIME) AND THE
CONTINGENT CASH CONSIDERATION IS CALCULATED AS OF THE DATE OF PAYMENT. IT IS
HIGHLY UNCERTAIN WHETHER OR WHEN ANY CONTINGENT CASH CONSIDERATION WILL BE
PAID TO THE PHOENIX STOCKHOLDERS PURSUANT TO THE TERMS OF THE MERGER
AGREEMENT. ACCORDINGLY, FOR THE PURPOSES OF DECIDING WHETHER TO VOTE TO
APPROVE AND AUTHORIZE THE MERGER AGREEMENT AND THE MERGER, IT IS APPROPRIATE
FOR THE PHOENIX STOCKHOLDERS TO CAREFULLY CONSIDER WHAT VALUE, IF ANY, TO
ASSIGN TO THE RIGHT TO RECEIVE THE CONTINGENT CASH CONSIDERATION. PHOENIX
STOCKHOLDERS WHO ELECT TO ASSIGN NO VALUE TO THE RIGHT TO RECEIVE THE
CONTINGENT CASH CONSIDERATION SHOULD DISREGARD THE ILLUSTRATIVE VALUES SHOWN
IN TABLE 2 ABOVE AND IN THE FOLLOWING TABLE 3 AND SHOULD ASSUME THAT TABLE 1
ABOVE, WHICH ILLUSTRATES THE VALUES OF THE STOCK CONSIDERATION, ALSO
ILLUSTRATES THE VALUES OF THE ENTIRE MERGER CONSIDERATION.

TABLE 3

ILLUSTRATIVE VALUES OF MERGER CONSIDERATION
(PER SHARE OF PHOENIX COMMON STOCK)

ILLUSTRATIVE VALUES OF CONTINGENT CASH CONSIDERATION(2)
ILLUSTRATIVE VALUES OF STOCK ------------------------------------------------------------
CONSIDERATION(1) $0 $0.0276 $0.0551 $0.0827 $0.1103
- ---------------------------- ----------- ------------------------------------------------

- --------
1. Illustrative values of Stock Consideration are derived from Table 1 above,
which illustrates the value of the Stock Consideration issuable in the
Merger based upon the assumptions stated therein with respect to the
Average Market Price of Qwest Common Stock and the Acquisition Value. The
illustrative values were reflected from the two columns entitled
"Illustrative Values of Stock Consideration" in Table 1 above under the
more general headings "Illustrative Acquisition Value = $26,800,000" and
"Illustrative Acquisition Value = $28,500,000," respectively.
2. Illustrative values of Contingent Cash Consideration are derived from Table
2 above, which illustrates the value of the Contingent Cash Consideration,
if any, paid promptly following the Contingent Cash Consideration Date
based upon the assumptions stated therein.
- -------------------------------------------------------------------------------

Fractional Shares. No fractional shares of Qwest Common Stock will be issued
in the Merger. In lieu of any such fractional shares, each holder of Phoenix
Capital Stock who otherwise would be entitled to receive a fractional share of
Qwest Common Stock pursuant to the Merger Agreement will be paid an amount in
cash, without interest, in an amount equal to such fractional part of (i) the
closing price of a share of Qwest Common Stock on the Closing Date or (ii) the
aggregate net sale proceeds of Excess Shares sold by the Exchange Agent
following the Effective Time. "Excess Shares" means the excess of (A) the
number of whole shares of Qwest Common Stock delivered to the Exchange Agent
by Qwest pursuant to Section 1.1(a) of the Merger Agreement over (B) the
aggregate number of whole shares of Qwest Common Stock to be distributed to
holders of Phoenix Capital Stock pursuant to Section 1.1(d) of the Merger
Agreement.

Directors and Officers. The Merger Agreement provides that at the Effective
Time, the board of directors and officers of Qwest Subsidiary will be the
initial board of directors and initial officers, respectively, of the
Surviving Corporation. Phoenix shall obtain resignations from each of its
directors and officers effective at or immediately following the Effective
Time. AS A RESULT, THE DIRECTORS ELECTED AT THE PHOENIX ANNUAL MEETING WILL
NOT BE DIRECTORS OF THE SURVIVING CORPORATION AFTER THE EFFECTIVE TIME.

Effective Time of the Merger. Following receipt of all required approvals
and satisfaction or waiver of the other conditions to the Merger, the Merger
will become effective at such time as a certificate of merger is duly filed
with the Secretary of State of the State of Delaware by Qwest Subsidiary and
Phoenix or at such later time as is specified in such certificate of merger.

Exchange of Certificates. At the Effective Time, all shares of Phoenix
capital stock (other than any shares of Phoenix capital stock held by
Dissenting Holders or by any of Phoenix, Qwest, Qwest Subsidiary and their
respective wholly-owned subsidiaries (other than shares held in trust)) will
cease to be outstanding and will be converted into the right to receive the
Merger Consideration. From and after the Effective Time, holders of a
certificate or certificates that immediately before the Effective Time
represented shares of Phoenix capital stock will have no right to vote or to
receive any dividends or other distributions with respect to any shares of
Phoenix capital stock that were theretofore represented by such certificates,
other than any dividends or other distributions payable to holders of record
as of a date prior to the Effective Time, and will have no other rights in
respect thereof other than as provided in the Merger Agreement or by law. If,
after the Effective Time, certificates are presented to the Surviving
Corporation, they will be cancelled and exchanged for Merger Consideration.
Until surrendered in accordance with the provisions of Section 1.1(d) of the
Merger Agreement, each certificate (other than certificates representing
shares of Phoenix capital stock held by Dissenting Holders or by any of
Phoenix, Qwest, Qwest Subsidiary and their respective wholly-owned
subsidiaries) will represent for all purposes the right to receive only (1)
certificates representing the number of whole shares of Qwest Common Stock
into which such shares will have been converted pursuant to Section 1.1(a) of
the Merger Agreement (the "Qwest Certificates"), without interest, (2) the
Contingent Cash Consideration per share of Phoenix Common Stock, without any
additional interest, (3) certain dividends and other distributions in
accordance with Section 1.1(e) of the Merger Agreement, without interest, and
(4) cash in lieu of fractional shares of Qwest Common Stock in accordance with
Section 1.1(g) of the Merger Agreement, without interest. Holders of
unsurrendered certificates will have no right to vote with respect to shares
of Qwest Common Stock into which shares of Phoenix Common Stock represented by
such certificates will have been converted pursuant to Section 1.1(a) of the
Merger Agreement.

Dissenting Shares. Notwithstanding anything in the Merger Agreement to the
contrary, shares of Phoenix Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by a stockholder who
has the right (to the extent such right is available by law) to demand and
receive payment of the fair value of such holder's stock pursuant to Section
262 will not be converted into the right to receive the Merger Consideration
(unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost such right under the DGCL, as the case may be),
but the holder thereof shall only be entitled to such rights as are granted by
Delaware law. If such holder shall have so failed to perfect or shall have
effectively withdrawn or lost such right, such holder's shares of Phoenix
Common Stock shall thereupon be deemed to have been converted at the Effective
Time into the right to receive the Merger Consideration (without any interest
thereon). If the holder of any shares of Phoenix Common Stock shall become
entitled to receive payment for such shares pursuant to Section 262, then such
payment shall be made by the Surviving Corporation.

Payment of Contingent Cash Consideration. Promptly following the Contingent
Cash Consideration Date, Qwest will pay to each Phoenix Stockholder whose
shares of Phoenix Common Stock are converted into the right to receive the
Merger Consideration pursuant to the Merger Agreement, the Contingent Cash
Consideration for each such share of Phoenix Common Stock, without any
additional interest.

Termination of Stock Options, Warrants and Other Rights. Prior to the
Effective Time, Phoenix will cancel or otherwise terminate, without cost or
other liability to any of Phoenix, Qwest, Qwest Subsidiary and any other
person, all of the stock options and warrants, and all rights of participants
in any stock option, stock purchase, stock appreciation rights, phantom stock,
restricted stock or other Phoenix employee plan, that shall not have been
exercised or exchanged on or before the business day preceding the Closing
Date, in each case on terms approved by Qwest and Qwest Subsidiary; provided
that, (1) Phoenix Series F Warrants exercisable for no more than 275,000
shares of Phoenix Common Stock in the aggregate, (2) Phoenix Sunrise Warrants
exercisable for no more than 103,333 shares of Phoenix Common Stock in the
aggregate and (3) Phoenix AmeriConnect Rights

exchangeable for no more than 20,390 shares of Phoenix Common Stock in the
aggregate, may remain outstanding after the Closing Date if both (x) Phoenix
shall have used commercially reasonably efforts to cause the cancellation or
other termination of such Phoenix Series F Warrants and Phoenix Sunrise
Warrants and the exchange of such Phoenix AmeriConnect Rights, in each case as
the case may be, and (y) only shares of Qwest Common Stock (and no Equity
Securities of the Surviving Corporation or any other person) shall be issuable
upon the exercise or exchange, as the case may be, of such Phoenix Series F
Warrants, Phoenix Sunrise Warrants and Phoenix AmeriConnect Rights after the
Effective Time. "Phoenix Series F Warrants" means the Warrants issued by
Phoenix in connection with the issuance of the Series F Convertible Preferred
Stock, par value $.001 per share, of Phoenix. "Phoenix Sunrise Warrants" means
the Warrants issued by Phoenix in connection the Settlement Agreement dated
May 27, 1996 among Sunrise Financial Group, Inc., Thomas Bell and Phoenix.
"Phoenix AmeriConnect Rights" means the rights of former stockholders of
AmeriConnect, Inc. to receive shares of Phoenix Common Stock pursuant to the
Amended and Restated Agreement and Plan of Merger dated as of June 14, 1996
among AmeriConnect Inc., Phoenix and Phoenix Merger Corp.

Listing of Qwest Common Stock on the Nasdaq National Market. In the Merger
Agreement, Qwest has agreed to take all action required, if any, to cause the
Qwest Common Stock issued in the Merger to be approved for inclusion in NASDAQ
National Market, if necessary, subject only to official notice of issuance,
and give such notice to the NASD as required, if any, with respect to the
Merger Agreement and related transactions.

Representations and Warranties. The Merger Agreement contains various
representations and warranties of Phoenix, Qwest and Qwest Subsidiary. In the
Merger Agreement, Phoenix represents and warrants as to: (i) corporate
existence and power; (ii) due authorization of the Transaction Documents (as
defined in the Merger Agreement) and non-contravention with organizational
documents and laws; (iii) receipt of approvals; (iv) binding effect; (v)
financial information; (vi) absence of certain changes or events; (vii) taxes;
(viii) undisclosed liabilities; (ix) litigation; (x) compliance with
regulations; (xi) licenses; (xii) employee matters; (xiii) capitalization;
(xiv) subsidiaries; (xv) property; (xvi) securities; (xvii) proprietary
rights; (xviii) insurance; (xix) debt; (xx) environmental matters; (xxi) books
and records; (xxii) material contracts; (xxiii) restrictions on business
activities; (xxiv) transactions with affiliates; (xxv) certain financial
matters; (xxvi) misstatements; (xxvii) SEC documents; (xxviii) approval by
Phoenix Board; (xxix) required vote of the stockholders of Phoenix; (xxx)
Business Combination Transactions (as defined in the Merger Agreement); (xxxi)
the occurrence of an event constituting a Material Adverse Effect (as defined
in the Merger Agreement); (xxxii) fees for financial advisors, (xxxiii)
brokers and finders; (xxxiv) ownership of Qwest Common Stock; (xxxv) anti-
takeover provisions; and (xxxvi) certain continuing representations and
warranties.

The Merger Agreement also includes representations and warranties by each of
Qwest and Qwest Subsidiary as to: (i) corporate existence and power; (ii) due
authorization of the Transaction Documents and non-contravention with
organizational documents and laws; (iii) receipt of approvals; (iv) binding
effect; (v) financial information; (vi) absence of certain changes or events;
(vii) litigation; (viii) compliance with regulations; (ix) capitalization; (x)
SEC documents; (xi) this Proxy Statement/Prospectus; (xii) the Registration
Statement; (xiii) certain other information; (xiv) ownership

of Phoenix capital stock; (xv) misstatements; and (xvi) certain continuing
representations and warranties.

Certain Covenants of the Parties. In the Merger Agreement each of Phoenix,
Qwest and Qwest Subsidiary has agreed to (i) preserve and maintain its
corporate existence and good standing; (ii) comply with all material legal and
regulatory requirements, including, without limitation, requirements relating
to the Hart-Scott-Rodino Act; (iii) use its best efforts to satisfy the
conditions to the Merger; (iv) notify the other parties of a breach of a
representation or warranty or a failure of a condition, covenant or agreement;
(v) coordinate press releases and public filings with the other parties; (vi)
use reasonable efforts to cause the Merger to qualify as a tax-free
reorganization; (vii) keep certain information confidential (this covenant
will continue indefinitely); (viii) cause all information filed with the
Commission to be not materially misleading; (ix) take such further action
reasonably requested by any other party in furtherance of the consummation of
the transactions contemplated by the Merger Agreement; and (x) prepare and
file with the Commission this Proxy Statement/Prospectus and the Registration
Statement.

In the Merger Agreement, Phoenix has agreed that it will, and will cause its
subsidiaries to, (i) take all action to cause Phoenix Common Stock to continue
to be listed on the American Stock Exchange; (ii) keep adequate books and
records; (iii) preserve its material properties; (iv) conduct its business in
the ordinary course; (v) maintain its insurance policies; (vi) file all tax
returns and pay all taxes and assessments as they come due; (vii) furnish to
Qwest and Qwest Subsidiary (a) prompt notice of an event that does or could
reasonably constitute a Material Adverse Effect or certain other events, (b)
monthly, quarterly and annual financial statements, (c) notice of commencement
of material litigation, (d) copies of certain reports and public filings and
(e) certain other information; (viii) obtain releases and resignations from
the officers and directors of each of Phoenix and its Subsidiaries; (ix)
provide to Qwest and Qwest Subsidiary a list of, and certain other information
relating to, "affiliates" of Phoenix within the meaning of Rule 145 of the
Securities Act; (x) cancel or otherwise terminate all stock options, warrants
and other rights (other than certain limited warrants and other rights); (xi)
recognize and otherwise give effect to the proxies given to Qwest pursuant to
the Voting Agreements; (xii) take certain action with respect to and hold the
Phoenix Annual Meeting; (xiii) take certain action with respect to customers;
and (xiv) to the extent there are any Dissenting Holders (as defined below),
cause the number of shares of Phoenix Common Stock with respect to which
appraisal rights are perfected to be equal to or less than 5.25% of the
Aggregate Number.

In addition, Phoenix has agreed that it will not, and will cause it
subsidiaries to not, except with the prior written consent of Qwest and Qwest
Subsidiary (which may be granted, withheld, delayed or conditioned in their
sole discretion), (i) dissolve any of itself or its Subsidiaries or amend its
organizational documents; (ii) issue any shares of capital stock (other than
as contemplated by the Merger Agreement); (iii) incur additional indebtedness
(other than as contemplated by the Merger Agreement); (iv) incur any liens act
permitted by the Merger Agreement; (v) incur certain liabilities other than in
the ordinary course; (vi) settle any material litigation; (vii) declare any
dividend or make any other payments to persons other than Phoenix or its
wholly-owned subsidiaries; (viii) make any capital expenditures other than in
the ordinary course; (ix) make any acquisitions, certain other investments or
enter into any Business Combination Transaction (other than the Transactions);
(x) enter into certain leases or other similar transactions; (xi) alter any
line of business; (xii) enter into any material transaction with an affiliated
person or other related entity; (xiii) permit certain events relating to
employee benefit plans to occur; (xiv) increase compensation (monetary or
otherwise) or benefits to its officers and employees; (xv) employ any new
executive officers; (xvi) enter into or amend any collective bargaining
agreement; (xvii) change its accounting practices; and (xviii) make any tax
election or settle any income tax liability.

Non-Solicitation. Pursuant to the Merger Agreement, without the consent of
Qwest and Qwest Subsidiary, Phoenix has agreed to not, and to not permit any
of its officers, directors, employees, financial advisors and other
representatives to, (i) enter into any agreement with respect to, or take

any other action to effect, any Business Combination Transaction (other than
the Transactions) with
respect to any of Phoenix and its Subsidiaries; (ii) solicit, initiate or
encourage (including, without limitation, by way of furnishing information),
or take any other action to facilitate, any inquiry or the making of any
proposal to any of Phoenix, its Subsidiaries and its stockholders from any
person (other than Qwest, Qwest Subsidiary or any affiliate of, or any person
acting in concert with, Qwest or Qwest Subsidiary) which constitutes, or may
reasonably be expected to lead to, a proposal with respect to a Business
Combination Transaction (other than the Transactions) with respect to any of
Phoenix and its Subsidiaries, or endorse any Business Combination Transaction
(other than the Transactions) with respect to any of Phoenix and its
subsidiaries; or (iii) continue, enter into or participate in any discussions
or negotiations regarding any of the foregoing, or furnish to any other person
any information with respect to the business, properties, operations,
prospects or condition (financial or otherwise) of Phoenix and its
subsidiaries or any of the foregoing, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek any of the foregoing.

Phoenix or the Phoenix Board, as the case may be, is not, however,
prohibited from (1) (A) furnishing to any person (other than certain principal
stockholders that have entered into Voting Agreements or any other affiliate
of, or other person acting in concert with, Phoenix or any such principal
stockholder) that has made an unsolicited, bona fide written proposal with
respect to a Business Combination Transaction with respect to any of Phoenix
and its subsidiaries information concerning Phoenix and its Subsidiaries and
the business, properties, operations, prospects or condition (financial or
otherwise) of Phoenix and its subsidiaries or (B) engaging in discussions or
negotiations with such a person that has made such written proposal with
respect to a Business Combination Transaction, (2) following receipt of such
written proposal with respect to a Business Combination Transaction, taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
under the Exchange Act, or (3) following receipt of such written proposal with
respect to a Business Combination Transaction, from withdrawing or modifying
the Board Approval; provided, however, that Phoenix or the Phoenix Board, as
the case may be, (x) will take any action referred to in the preceding clauses
(1) and (3) with respect to such written proposal (a "Superior Proposal") only
if such action is consistent with (i) the written opinion, subject only to
customary qualifications, of a financial advisor of nationally recognized
reputation, taking into account the terms and conditions of such proposed
Business Combination Transaction and the Merger, respectively, all other
legal, financial, regulatory and other aspects of such proposed Business
Combination Transaction and the Merger, respectively, and the identity of the
person making such Superior Proposal, that (A) such proposed Business
Combination Transaction is reasonably capable of being completed and would, if
completed, result in a transaction more favorable to Phoenix and its
stockholders from a financial and strategic point of view than is the Merger
and (B) financing for such proposed Business Combination Transaction, to the
extent required, is then committed and is reasonably capable of being provided
by a financial institution or other source able to provide such financing and
(ii) the written opinion of independent counsel for Phoenix that the failure
to take such action would result in a substantial risk of liability for a
breach by the Phoenix Board of its fiduciary obligations under applicable law,
(y) will furnish to the person making such Superior Proposal any information
referred to in the preceding clause (1)(A) only if both (A) Phoenix furnishes
such information to Qwest and Qwest Subsidiary, or has previously furnished
such information to Qwest or Qwest Subsidiary, and (B) such information is
furnished to such person pursuant to a confidentiality agreement no less
favorable to Phoenix than the terms of the confidentiality agreement entered
into by QCC and Phoenix and dated November 12, 1997 and (z) will take any
action referred to in the preceding clauses (1), (2) and (3) only if the
Phoenix Board, by written notice delivered to Qwest and Qwest Subsidiary not
less than 24 hours prior thereto, informs Qwest and Qwest Subsidiary of its
intention to take such action. Phoenix has ceased and caused to be terminated
all activities, discussions and negotiations with all persons (other than
Qwest, Qwest Subsidiary or any affiliate of, or any person acting in concert
with, Qwest or Qwest Subsidiary) conducted on or before the date of the Merger
Agreement with respect to any Business Combination Transaction. Phoenix has
informed its officers, directors, employees, financial advisors and other

representatives of the obligations described in this paragraph. If Phoenix, or
any member of the Board of Directors thereof, receives a proposal with respect
to a Business Combination Transaction with respect to any of Phoenix and its
Subsidiaries, then Phoenix will, by written notice delivered within 24 hours
after the receipt of such proposal, inform Qwest and Qwest Subsidiary of the
terms and conditions of such proposal and the identity of the person making
the proposal with respect to such Business Combination Transaction and will
keep Qwest and Qwest Subsidiary generally informed with reasonable promptness
of any steps it is taking pursuant to the preceding sentence with respect to
such proposal.

Conditions to the Merger. The respective obligations of each party under the
Merger Agreement with respect to the Merger are subject to the satisfaction of
each of the following conditions, unless waived by each of the parties that is
the beneficiary of the satisfaction of such condition, at or before the
Closing:

(a) holders of a majority of the outstanding shares of Phoenix Common
Stock shall have approved the Merger Agreement and the Merger in accordance
with the DGCL and the certificate of incorporation and bylaws of Phoenix;

(b) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act and no stop order suspending such
effectiveness shall have been issued and remain in effect;

(c) the shares of Qwest Common Stock issuable in the Merger shall have
been approved for inclusion in NASDAQ National Market, if necessary,
subject only to official notice of issuance;

(d) each of Phoenix, its subsidiaries, Qwest and Qwest Subsidiary shall
have obtained from each governmental body or other person each approval or
taken all actions required to be taken in connection with each approval,
and all waiting, review or appeal periods under the Hart-Scott-Rodino Act
or otherwise prescribed with respect to each approval shall have terminated
or expired, as the case may be, in each case with respect to an approval
that is required or advisable on the part of such person for (1) the due
execution and delivery by such person of each Transaction Document to which
it is or may become a party, (2) the conclusion of the Transactions, (3)
the performance by such person of its obligations with respect to the
Transactions under each Transaction Document to which it is or may become a
party and (4) the exercise by such person of its rights and remedies with
respect to the Transactions under each Transaction Document to which it is
or may become a party or with respect to which it is or may become an
express beneficiary, except in each case referred to in the preceding
clauses (1), (2), (3) and (4) where the failure to obtain such approval,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect on such person;

(e) except as disclosed to the other parties, no action, suit, litigation
or other proceeding shall be pending against Phoenix, its subsidiaries,
Qwest and Qwest Subsidiary or, to their knowledge, threatened against any
of them or any other person that, individually or in the aggregate, if
determined adversely to any of them, could reasonably be expected to have a
Material Adverse Effect on any of Phoenix, its subsidiaries, Qwest and
Qwest Subsidiary;

(f) except as disclosed to the other parties, none of Phoenix, its
subsidiaries, Qwest and Qwest Subsidiary (1) is in violation or breach of
or default with respect to (A) any regulation of any governmental body or
any decision, ruling, order or award of any arbitrator applicable to it or
its business, properties or operations or (B) any agreement, indenture or
other instrument to which it is a party or by which it or its properties
may be bound or affected, (2) would be in violation or breach of or default
with respect to any regulation of any governmental body or any decision,
ruling, order or award of any arbitrator applicable to it or its business,
properties or operations in connection with or as a result of the
conclusion of any of the Transactions or (3) has received notice that, in
connection with or as a result of the conclusion of any of the
Transactions, it is or would be in violation or breach of or default with
respect to any regulation of any governmental body or any decision, ruling,
order or award of any arbitrator applicable to it or its business,

properties or operations, except in each case referred to in the preceding
clauses (1), (2) and (3) for violations, breaches or defaults that,
individually or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect on such person;

(g) except as disclosed to the other parties, since December 31, 1996, no
circumstance has existed and no event has occurred that has had, will have
or could reasonably be expected to have a Material Adverse Effect on
Phoenix and its Subsidiaries;

(h) each Transaction Document required to be executed and delivered prior
to the Effective Time shall have been so executed and delivered by the
respective parties thereto;

(i) the representations and warranties of each other party contained in
each Transaction Document to which such other party is a party shall be
true and correct in all material respects on and as of the Closing Date,
with the same force and effect as though made on and as of the Closing
Date;

(j) each other party shall have performed, in all material respects, all
of the covenants and other obligations required by each Transaction
Document required to be performed by such other party at or before the
Closing;

(k) Phoenix shall have received an opinion from Grant Thornton LLP, in
form and substance reasonably satisfactory to it, and dated the date of the
Proxy Statement/Prospectus, to the effect that the Merger will qualify for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that none of Phoenix, its subsidiaries,
Qwest and Qwest Subsidiary shall recognize gain or loss for federal income
tax purposes as a result of the Merger, other than with respect to any cash
paid as a part of the Merger Consideration or paid in lieu of fractional
shares of Qwest Common Stock;

(l) each party shall have received from each other party the following,
each dated the Closing Date, in form and substance reasonably satisfactory
to the receiving party: (1) a certificate of the Secretary or an Assistant
Secretary of such other party with respect to (A) the certificate of
incorporation or articles of incorporation, as the case may be, of such
other party, (B) the bylaws of such other party, (C) the resolutions of the
board of directors of such other party, approving each Transaction Document
to which such other party is a party and the other documents to be
delivered by it under the Transaction Documents, and (D) the names and true
signatures of the officers of such other party who signed each Transaction
Document to which such other party is a party and the other documents to be
delivered by such other party under the Transaction Documents; (2) a
certificate of the President or a Vice President of such other party to the
effect that (A) the representations and warranties of such other party
contained in the Transaction Documents to which it is a party are true and
correct in all material respects as of the Closing Date and (B) such other
party has performed, in all material respects, all covenants and other
obligations required by the Transaction Documents to which it is a party to
be performed by it on or before the Closing Date; (3) certified copies, or
other evidence satisfactory to the other parties, of all approvals of all
governmental bodies and other persons with respect to such party required
under the Merger Agreement; (4) a certificate of the Secretary of State of
the State of Delaware, dated as of a recent date, as to the good standing
of and payment of taxes by such party and as to the charter documents of
such other party on file in the office of such Secretary of State; and (5)
with respect to Phoenix, a certificate of the President or a Vice President
of Phoenix, relating to U.S. real property; and

(m) Qwest and Qwest Subsidiary shall have received from Phoenix evidence
of the following, in each case in form and substance reasonably
satisfactory to Qwest and Qwest Subsidiary and, except as expressly
contemplated by this Agreement, without cost or other liability to any of
Phoenix, its subsidiaries, Qwest and Qwest Subsidiary and any other person:
(1) the resignation and general release by, each director and officer of
any of Phoenix and its Subsidiaries and the termination of any related
employment agreements in connection therewith, in each case effective

at or immediately following the Effective Time; (2) a written agreement of
each person who is identified as an "affiliate" on the list furnished by
the company pursuant to the Merger Agreement, which is substantially in the
form attached to the Merger Agreement; (3) the exercise, exchange,
cancellation or other termination of all outstanding stock options and
warrants and all rights of participants in any stock option, stock
purchase, stock appreciation rights, phantom stock, restricted stock or
similar Phoenix Employee Plan, in each case on terms approved by Qwest and
Qwest Subsidiary, other than such number of Phoenix Series F Warrants,
Phoenix Sunrise Warrants and Phoenix AmeriConnect Rights as shall not be
required by the Merger Agreement to be cancelled or otherwise terminated;
and (4) the receipt by Phoenix at or before the Phoenix Annual Meeting of
demands for appraisal pursuant to Section 262 by holders of Phoenix Common
Stock with respect to less than the number of shares of Phoenix Common
Stock referred to in Section 7.1(n) of the Merger Agreement.

Indemnification. Pursuant to the Merger Agreement, the Surviving Corporation
and its subsidiaries will indemnify, for six years after the Effective Time,
each person who on or prior to the date of the Merger Agreement, was a
director, officer, employee or agent of any of Phoenix and its Subsidiaries,
and the successors and assigns of such person (individually, an "Indemnified
Person" and, collectively the "Indemnified Persons"), to the same extent and
in the same manner as is now provided in the respective articles of
incorporation, certificates of incorporation, bylaws, operating agreements or
limited partnership agreements, as applicable, of Phoenix and its Subsidiaries
in effect on the date of the Merger Agreement, with respect to any claim or
other liability whenever asserted or claimed (an "Indemnified Liability"),
based in whole or in part on, or arising before or after the Effective Time in
whole or in part out of, any matter existing or occurring at or prior to the
Effective Time. The Surviving Corporation will also maintain in effect for not
less than six years after the Effective Time the policies of directors' and
officers' liability insurance maintained by Phoenix and its Subsidiaries on
the date of the Merger Agreement or other policies providing no less coverage.
If the aggregate annual premiums for such insurance at any time during such
period exceeds 200% of the per annum rate of premiums paid by Phoenix and its
subsidiaries for such insurance on the date of the Merger Agreement, the
Surviving Corporation will, provide the maximum coverage then available at an
annual premium equal to 200% of such rate, and, in addition to the foregoing
indemnification, will indemnify the Indemnified Persons for the balance of
such insurance coverage on the same terms and conditions as though Qwest were
the insurer under those policies.

Termination. The Merger Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time, before or after approval of the
Merger Agreement and the Merger by the stockholders of Phoenix by:

(1) the agreement of the parties;

(2) Phoenix, on or after May 31, 1998, if (A) the Closing has not
occurred for any reason other than the breach or violation by Phoenix, in
any material respect, of any of its representations, warranties, covenants
and agreements set forth in the Merger Agreement, (B) there has not
occurred an uncured breach or violation by Phoenix, in any material
respect, of any of its representations, warranties, covenants and
agreements set forth in the Merger Agreement and (C) Phoenix has paid in
full to Qwest and Qwest Subsidiary all amounts then owed to Qwest and Qwest
Subsidiary pursuant to Section 9.2 of the Merger Agreement, if any;

(3) Qwest or Qwest Subsidiary, on or after May 31, 1998, if (A) the
Closing has not occurred for any reason other than the breach or violation
by Qwest or Qwest Subsidiary, in any material respect, of any of their
respective representations, warranties, covenants and agreements set forth
in the Merger Agreement and (B) there has not occurred an uncured breach or
violation by Qwest or Qwest Subsidiary, in any material respect, of any of
its representations, warranties, covenants and agreements set forth in the
Merger Agreement;

(4) Phoenix, if (A) a representation, warranty, covenant or agreement of
either Qwest or Qwest Subsidiary set forth in the Merger Agreement is
breached or violated by Qwest or Qwest Subsidiary, as the case may be, in
any material respect, and (B) there has not occurred an uncured breach or
violation by Phoenix, in any material respect, of any of its
representations, warranties, covenants and agreements set forth in the
Merger Agreement and (C) Phoenix has paid in full to Qwest and Qwest
Subsidiary all amounts then owed to Qwest and Qwest Subsidiary pursuant to
Section 9.2 of the Merger Agreement, if any;

(5) Qwest or Qwest Subsidiary, if (A) any one or more of (i) a
representation, warranty, covenant or agreement of Phoenix set forth in the
Merger Agreement is breached or violated by Phoenix in any material
respect, (ii) there exists or there has occurred an event (other than an
Event of Default (as defined) under the Phoenix Credit Facility) that has
had, will have or could reasonably be expected to have a Material Adverse
Effect on Phoenix and its subsidiaries and (iii) there has occurred an
uncured Event of Default (as defined) under the Phoenix Credit Facility and
the debt thereunder has become due and payable or the lender thereunder has
exercised any rights or remedies in connection therewith and (B) there has
not occurred an uncured breach or violation by Qwest or Qwest Subsidiary,
in any material respect, of any of its representations, warranties and
covenants set forth in the Merger Agreement;

(6) Phoenix, if the stockholders of Phoenix have not approved the Merger
Agreement and the Merger at the Phoenix Annual Meeting, or any adjournment
thereof, and Phoenix has paid in full to Qwest and Qwest Subsidiary all
amounts then owed to Qwest and Qwest Subsidiary pursuant to Section 9.2 of
the Merger Agreement, if any;

(7) Qwest or Qwest Subsidiary, if the stockholders of Phoenix have not
approved the Merger Agreement and the Merger at the Phoenix Annual Meeting,
or any adjournment thereof;

(8) Qwest or Qwest Subsidiary, if Phoenix or the Phoenix Board (A) have
authorized, recommended or proposed (or publicly announced its intention to
authorize, recommend or propose) an agreement with respect to a Business
Combination Transaction (other than the Transactions) with respect to any
of Phoenix and its Subsidiaries, (B) have recommended that the stockholders
of Phoenix accept or approve any such Business Combination Transaction or
(C) within the time period contemplated by Rule 14e-2 under the Exchange
Act, have failed to publicly confirm the Board Approval and recommend
against the acceptance by the stockholders of Phoenix of any tender offer
or exchange offer that, if concluded in accordance with its terms, would
constitute or result in a Business Combination Transaction (which failure
shall include, without limitation, the determination by the Phoenix Board
to take no position with respect to such tender offer or exchange offer);

(9) Phoenix, if (A) the Phoenix Board has determined that an unsolicited,
bona fide proposal made by any person (other than a principal stockholder
or an affiliate of, or other person acting in concert with, Phoenix or a
principal stockholder) with respect to a Business Combination Transaction
with respect to any of Phoenix and its Subsidiaries is a Superior Proposal,
(B) the Phoenix Board has complied in all material respects with Section
7.2(z) of the Merger Agreement with respect to actions taken or proposed to
be taken by Phoenix or the Phoenix Board with respect to such Superior
Proposal, (C) Phoenix has notified Qwest and Qwest Subsidiary in writing,
in each case not less than three full Business Days in advance of taking
such action, of its election to terminate the obligations of the parties
under the Merger Agreement for the purpose of recommending that the
stockholders of Phoenix accept or approve such Superior Proposal or
authorizing, recommending or proposing an agreement with respect to such
Superior Proposal, (D) Phoenix and its advisors and representatives have
discussed with Qwest and Qwest Subsidiary the modifications to the terms of
the Merger Agreement and the other Transaction Documents that would permit
Phoenix to conclude the Merger in lieu of concluding such Superior
Proposal, (E) at the end of such three business day period the Phoenix
Board has determined that such Superior Proposal continues to constitute a
Superior Proposal and (F) Phoenix has paid in

full to Qwest and Qwest Subsidiary all amounts then owed to Qwest and Qwest
Subsidiary pursuant to Section 9.2 of the Merger Agreement; or

(10) Qwest and Qwest Subsidiary, if there has occurred a Business
Combination Transaction (other than the Transactions) with respect to any
of Phoenix and its subsidiaries.

Subsequent Event Fee; Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expense, except (i) Phoenix will pay the costs and expenses of complying with
the Hart-Scott-Rodino Act, and (ii) as set forth below.

Promptly following the termination of the obligations of the parties as set
forth in clauses (4) or (5) under "--Termination" above by Phoenix or by Qwest
and Qwest Subsidiary, as the case may be, the other party or parties will
promptly, but in no event later than three Business Days following receipt of
written demand therefor, pay to the party terminating such obligations, as
liquidated damages (and not as a fee or a penalty), the amount of $100,000 in
the aggregate. If the obligations of the parties are terminated as set forth
in clauses (5), (6), (7), (8), (9) or (10) under "--Termination" above and a
Business Combination Transaction (other than the Transactions) with respect to
any of Phoenix and its Subsidiaries shall occur on or before January 5, 1999,
then Phoenix will pay to Qwest not later than the conclusion of such Business
Combination Transaction $3,000,000 less any liquidated damages paid by Phoenix
to Qwest. In the event of any of the foregoing payments, all reasonable out-
of-pocket costs, fees and expenses (including, without limitation, the
reasonable fees and disbursements of counsel and the expenses of litigation)
incurred in connection with collecting fees, expenses and other amounts due
will also be payable by the party making such payments.

Amendments and Waivers. Under the Merger Agreement, no failure or delay by
any party to, or express beneficiary of, any Transaction Document in
exercising any right, power or privilege under such Transaction Document will
operate as a waiver of the right, power or privilege. A single or partial
exercise of any right, power or privilege will not preclude any other or
further exercise of the right, power or privilege or the exercise of any other
right, power or privilege. The rights and remedies provided in the Transaction
Documents will be cumulative and not exclusive of any rights or remedies
provided by law. No amendment, modification, termination, or waiver of any
provision of any Transaction Document, and no consent to any departure by a
party to any Transaction Document from any provision of the Transaction
Document, will be effective unless it will be in writing and signed and
delivered by the other parties to the Transaction Document, and then it will
be effective only in the specific instance and for the specific purpose for
which it is given.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion addresses certain federal income tax considerations
of the Merger that are generally applicable to holders of Phoenix Common
Stock. This discussion reflects the opinion (the "Opinion") of Grant Thornton
LLP, advisor to Phoenix, to the effect that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code (a
"Reorganization"). The Opinion is based on certain assumptions and
representations and is subject to certain limitations and qualifications as
noted therein. One such assumption upon which the Opinion is based is that the
Average Market Price per share of Qwest Common Stock will not be less than
approximately $12.50 as of the Effective Time, which Grant Thornton LLP
believes is a reasonable assumption. Another assumption upon which the Opinion
is based is that there will be an insignificant number of shares of Phoenix
Common Stock that will be exchanged solely for cash as a result of Phoenix
Stockholders dissenting to the Merger. If, however, either assumption should
prove to be incorrect, the Merger could be a taxable transaction to the
Phoenix Stockholders. To the extent the holders of more than an insignificant
number of shares of Phoenix Common Stock dissent to the Merger, the Merger
could be a taxable transaction to the Phoenix Stockholders even if the Average
Market Price per share of Phoenix Common Stock is greater than $12.50 as of
the Effective Time.

Phoenix Stockholders should be aware that the following discussion does not
deal with all federal income tax consequences that may result from the Merger,
including the survival or availability of any tax attributes or elections of
Phoenix as a result of the Merger, and does not deal with all federal income
tax considerations that may be relevant to particular Phoenix Stockholders in
light of their particular circumstances, such as stockholders who are dealers
in securities, or who acquired their Phoenix Common Stock in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of transactions effectuated prior to or after the
Merger (whether or not such transactions are effected in connection with the
Merger). Finally, no foreign, state or local tax considerations are addressed
herein. ACCORDINGLY, PHOENIX STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF
THE MERGER.

The following discussion is based on the interpretation of the applicable
Treasury Regulations, judicial authority and administrative rulings and
practice, all as of the date hereof. The Internal Revenue Service (the "IRS")
is not precluded from adopting a contrary position. In addition, there can be
no assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger to
Phoenix and the Phoenix Stockholders.

Subject to the limitations and qualifications referred to herein, and as a
result of the Merger qualifying as a Reorganization, the following federal
income tax consequences will generally result:

(a) No gain or loss will be recognized by the Phoenix Stockholders upon
the receipt of Qwest Common Stock solely in exchange for Phoenix Common
Stock in the Merger (except to the extent of cash received in lieu of
fractional shares or cash received on the sale of fractional share
interests or cash received by Dissenting Holders (as defined below), if
any);

(b) The aggregate tax basis of the Qwest Common Stock to be received by
Phoenix Stockholders in the Merger (including any fractional share of Qwest
Common Stock deemed to be received and subsequently redeemed by Qwest) will
be the same as the basis of the Phoenix Common Stock surrendered in
exchange therefor if only Qwest Common Stock is received;

(c) The holding period of the Qwest Common Stock received by each Phoenix
Stockholder in the Merger will include the period during which the Phoenix
Common Stock surrendered in exchange therefor was held, provided that the
Phoenix Common Stock so surrendered is held as a capital asset at the
Effective Time;

(d) If cash payments are received by Phoenix Stockholders in lieu of
receipt of fractional shares of Qwest Common Stock, such payments will be
treated as received in redemption of such fractional shares, subject to the
provisions of Section 302 of the Code, as if such fractional share had been
issued in the Merger and then redeemed by Qwest for cash (see below for
discussion of Section 302 of the Code). If cash is received upon the sale
of fractional share interests by an Escrow Agent, the Phoenix Stockholders
will be subject to the provisions of Section 1001 of the Code and will
recognize gain or loss on the sale, measured by the difference between the
amount of cash received and the basis in such fractional share. Any such
gain or loss should be capital gain or loss provided that such share of
Phoenix Common Stock was held as a capital asset at the Effective Time;

(e) No gain or loss will be recognized by Phoenix as a result of the
Merger; and

(f) Gain, if any, realized by a Phoenix Stockholder who receives both
Qwest Common Stock and Other Consideration (as defined below) (other than
cash for fractional share interests) in exchange for his Phoenix Common
Stock will be recognized by such Phoenix Stockholder at the time of the
Merger, but not in excess of the amount of the Other Consideration
received. If the exchange has the effect of the distribution of a dividend
within the meaning of Section 302 of the

Code, then the amount of gain recognized that is not in excess of such
Phoenix Stockholder's ratable share of undistributed earnings and profits
will be treated as a dividend. The determination of whether the exchange
has the effect of the distribution of a dividend will be made on a
Stockholder-by-Stockholder basis. Generally, if such an analysis determines
that a particular stockholder has had a "meaningful reduction" in his stock
holdings, any gain should be treated as gain from the sale or exchange of
property. (See Rev. Rul. 93-63, 1993-2 C.B. 118). This determination is
made taking into account the constructive stock ownership rules of Section
318 of the Code.

A maximum of $4,000,000 in cash, plus interest at a rate of 7% per annum,
compounded annually, may be received by the Phoenix Stockholders promptly
following the Contingent Cash Consideration Date. Qwest currently intends to
take into account, for federal income tax purposes, (i) a payment equal to the
fair market value of the obligation to pay the Contingent Cash Consideration
at the time of the Merger (such amount is referred to herein as the "Other
Consideration"), (ii) an amount of interest that will accrue annually on the
Other Consideration pursuant to the original issue discount ("OID") rules, and
(iii) the remainder of the Contingent Cash Consideration when and if it is
paid (or it is determined that no payment is due). The precise timing of the
taxation, and the amounts that will ultimately be subject to tax, will depend
on facts in existence at the time of the Merger and to what extent any
Contingent Cash Consideration is ultimately paid. Moreover, depending on the
facts in existence at the time of the Merger, Qwest may change its method of
reporting the Contingent Cash Consideration, and may do so without providing
notice to the Phoenix Stockholders.

Based on Qwest's current intended treatment of the Contingent Cash
Consideration, each Phoenix Stockholder may be required to take into account
their share of the Other Consideration and will recognize interest income
annually on this amount under the OID rules, even though, in each case, such
Phoenix Stockholder has not actually received any cash payments.

Any amount of Contingent Cash Consideration paid in excess of the amount
that was anticipated in determining the amount of OID interest to be accrued
(the "Expected Amount") will be treated as additional interest income by the
Phoenix Stockholders at the time of payment.

If the amount ultimately paid is less than the Expected Amount, the
difference represents a negative adjustment, which will first reduce interest
accruals for the current year, then is treated as an ordinary loss to the
extent it does not exceed the total OID interest included in prior years with
respect to the Other Consideration. To the extent the negative adjustment
exceeds the cumulative interest inclusions at the date of the negative
adjustment, it will reduce the Phoenix Stockholders' amount realized with
respect to the Contingent Cash Consideration obligation.

The interest recognized by the Phoenix Stockholders will be treated as
ordinary income taxable at a maximum federal rate of 39.6% for individuals and
35% for corporations.

THE TIMING OF THE TAXATION AND THE EFFECT ON STOCK BASIS OF THE CONTINGENT
CASH CONSIDERATION INVOLVE FACTUAL DETERMINATIONS RESPECTING THE VALUE OF THE
RIGHT TO RECEIVE SUCH CONSIDERATION (WHICH MAY BE UNCERTAIN) AND AREAS OF THE
TAX LAW IN WHICH THERE IS NO CLEAR GUIDANCE. CONSEQUENTLY, EACH PHOENIX
STOCKHOLDER IS URGED TO DISCUSS THESE MATTERS WITH THEIR OWN TAX ADVISORS.

If a Phoenix Stockholder is not a "U.S. stockholder," the receipt of the
Contingent Cash Consideration may result in withholding of 30% of such amount.
Specifically, to the extent the Contingent Cash Consideration is treated as a
dividend, it would be subject to a 30% withholding tax, subject to a reduced
treaty rate, if applicable. To the extent that any portion of the Contingent
Cash Consideration is treated as interest there may also be a 30% withholding
tax, subject to a reduced treaty rate, if applicable. For these purposes, the
term "U.S. stockholder" means a holder of Phoenix

Common Stock that for U.S. federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other
entity created or organized in or under the laws of the United States or of
any State, (iii) an estate whose income from sources without the United States
is includible in gross income for U.S. federal income tax purposes regardless
of its connection with the conduct of a trade or business within the United
States, or (iv) any trust with respect to which (A) a U.S. court is able to
exercise primary supervision over the administration of such trust and (B) one
or more U.S. persons have the authority to control all substantial decisions
of the trust.

Neither Qwest nor Phoenix has requested a ruling from the IRS in connection
with the Merger. However, Grant Thornton LLP has provided the Opinion
confirming the Merger will constitute a Reorganization. The Opinion neither
binds the IRS nor precludes the IRS from adopting a contrary position. The
Opinion is subject to certain assumptions, exceptions and qualifications and
will be based on the truth and accuracy of certain representations of Qwest,
Phoenix, Qwest Subsidiary and certain Phoenix Stockholders, including
representations contained in certain certificates of the respective
managements of Qwest, Phoenix, and certain Phoenix Stockholders.

A successful IRS challenge to the Reorganization status of the Merger would
result in a Phoenix Stockholder recognizing gain or loss with respect to each
share of Phoenix Common Stock surrendered equal to the difference between the
Stockholder's basis in such share and the fair market value, as of the
Effective Time, of the consideration received in exchange therefor. In such
event, a Phoenix Stockholder's aggregate basis in the Qwest Common Stock so
received would equal its fair market value, and the Phoenix Stockholder's
holding period for such stock would begin the day after the Merger.

Even if the Merger qualifies as a Reorganization, a recipient of shares of
Qwest Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely for Phoenix Common Stock). All or a portion of such gain may be taxable
as ordinary income. Gain would also be recognized to the extent that a Phoenix
Stockholder was treated as receiving (directly or indirectly) consideration
other than Qwest Common Stock in exchange for the stockholder's Phoenix Common
Stock.

Phoenix Stockholders will be required to attach a statement to their tax
returns for the year of the Merger that contains the information listed in
Treasury Regulation Section 1.368-3(b). Such statement must include the
Stockholder's tax basis in the stockholder's Phoenix Common Stock and a
description of the Qwest Common Stock received.

In addition, under the backup withholding rules, a Phoenix Stockholder may
be subject to backup withholding at a rate of 31% unless such Phoenix
Stockholder (a) is a corporation or comes within certain other exempt
categories and when required demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholdings, and otherwise complies with applicable requirements of
the backup withholding rules. A Phoenix Stockholder that does not provide
Qwest with the correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against a Phoenix Stockholder's income tax liability.

ACCOUNTING TREATMENT OF THE MERGER

The merger is expected to be accounted for using the purchase method of
accounting. Under the purchase method of accounting, the purchase price is
allocated to the assets and liabilities acquired based upon the estimated fair
values of such assets and liabilities.

APPRAISAL RIGHTS

Under Section 262 of the DGCL ("Section 262"), Phoenix Stockholders are
entitled to appraisal rights in connection with the Merger. If the Merger is
consummated, Phoenix Stockholders who hold such shares of record on the date
of making a written demand for appraisal as described below,

continuously hold such shares through the Effective Time and otherwise comply
fully with the procedures prescribed in Section 262 will be entitled to a
judicial determination of the "fair value" of their shares (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
and to receive from the Surviving Corporation payment of such fair value in
cash. It is a condition to the closing of the Merger that the number of shares
of Phoenix Common Stock with respect to which demand for appraisal has been
received by Phoenix at or before the Phoenix Annual Meeting shall be less than
5.25% of the Aggregate Number.

Notwithstanding anything to the contrary set forth in this Proxy
Statement/Prospectus, shares of Phoenix Common Stock which are outstanding
immediately prior to the Effective Time with respect to which appraisal shall
have been properly demanded in accordance with Section 262 shall not be
converted into the right to receive the Merger Consideration at or after the
Effective Time unless and until the holder of such shares withdraws his or her
demand for such appraisal or becomes ineligible for such appraisal.

Under Section 262, not less than 20 days prior to the Phoenix Annual
Meeting, Phoenix is required to notify each stockholder eligible for appraisal
rights of the availability of such appraisal rights. This Proxy
Statement/Prospectus constitutes notice to Phoenix Stockholders that appraisal
rights are available to them.

The following is a brief summary of the statutory procedures to be followed
by a Phoenix Stockholder in order to perfect appraisal rights under the DGCL.
This summary is not intended to be complete and is qualified in its entirety
by reference to Section 262 which is attached hereto as Exhibit E and is
incorporated herein by reference. Any Phoenix Stockholder considering
demanding appraisal of shares owned is advised to read the full text of
Section 262 contained in Exhibit E and to consult legal counsel.

If any Phoenix Stockholder elects to exercise such stockholder's appraisal
rights, such stockholder must satisfy each of the following conditions:

(i) A written demand for appraisal of shares of Phoenix Common Stock must
be delivered to Phoenix by any holder thereof seeking appraisal before the
taking of the vote on the Merger at the Phoenix Annual Meeting. Such demand
must reasonably inform Phoenix that the stockholder intends thereby to
demand appraisal of his shares. Merely voting against, or failing to vote
in favor of, the approval of the Merger Agreement and the Merger will not
constitute a demand for appraisal within the meaning of Section 262.

(ii) Phoenix Stockholders electing to exercise their appraisal rights
under Section 262 must not vote for approval of the Merger. A failure to
vote will satisfy this condition. If, however, a stockholder votes for
approval and authorization of the Merger Agreement and the Merger or
returns a signed proxy but does not specify a vote against the approval and
authorization of the Merger, or a direction to abstain, the proxy will be
voted for the approval and authorization of the Merger, which will have the
effect of waiving such stockholder's appraisal rights.

(iii) Such stockholder must continuously hold such shares of Phoenix
Common Stock from the date of the making of the demand through the
Effective Time of the Merger.

(iv) A demand for appraisal must be executed by or for the Phoenix
Stockholder of record, fully and correctly, as such stockholder's name
appears on the stock certificates. If Phoenix Common Stock is owned of
record in a fiduciary capacity, such as by a trustee, guardian or
custodian, such demand must be executed by the fiduciary. If Phoenix Common
Stock is owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may
execute the demand for appraisal for a stockholder of record, so long as
the agent identifies the record owner and expressly discloses the fact
that, in exercising the demand, such agent is acting as agent for the
record holder.

A record holder who holds Phoenix Common Stock as a nominee for others may
exercise appraisal rights with respect to the shares held for all or fewer
than all beneficial owners of shares of Phoenix Common Stock as to which the
holder is the record holder. In such case, the written demand must set forth
the number of shares covered by such demand. Where the number of shares is not
expressly stated, the demand will be presumed to cover all shares of Phoenix
Common Stock outstanding in the name of such record owner. Beneficial owners
who are not record owners and who intend to exercise appraisal rights should
instruct the record owner to comply strictly with the statutory requirements
with respect to the delivery of written demand for appraisal. A demand for
appraisal submitted by a beneficial owner who is not the record owner will not
be honored.

If any holder of Phoenix Common Stock fails to comply with any of the
conditions of Section 262 and the Merger becomes effective, such stockholder
will be entitled to receive the consideration provided for in the Merger
Agreement, but will have no appraisal rights with respect to such
stockholder's Phoenix Common Stock.

A holder of Phoenix Common Stock who elects to exercise appraisal rights
must mail or deliver the written demand for appraisal to: Phoenix Network,
Inc., 13952 Denver West Parkway, Building 53, Golden, Colorado, 80402,
Attention: Corporate Secretary. The written demand for appraisal should
specify the stockholder's name and mailing address and the number of shares of
Phoenix Common Stock covered by the demand, and should state that the
stockholder is thereby demanding appraisal in accordance with Section 262.

Within ten days after the Effective Time, Phoenix must provide notice as to
the date of effectiveness of the Merger to each Phoenix Stockholder who has
duly and timely delivered demands for appraisal and otherwise complied with
Section 262 (a "Dissenting Holder").

Within 120 days after the Effective Time, any Dissenting Holder is entitled,
upon written request, to receive from Phoenix a statement setting forth the
aggregate number of shares not voted in favor of the Merger and with respect
to which demands for appraisal have been received by Phoenix, and the number
of holders of such shares. Such statement must be mailed within ten days after
the written request therefor has been received by Phoenix.

Within 120 days after the Effective Time, Phoenix or any Dissenting Holder
may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of each share of Phoenix Common Stock. If a
petition for an appraisal is timely filed, after a hearing on such petition
the Delaware Court of Chancery will determine which holders of Phoenix Common
Stock are entitled to appraisal rights and thereafter will appraise the shares
of Phoenix Common Stock owned by such stockholders, determining the fair value
of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be fair value.

In determining fair value, the Delaware Court of Chancery is to take into
account all relevant factors. In Weinberger v. UOP, Inc., et al., the Delaware
Supreme Court discussed the factors that could be considered in determining
fair value in an appraisal proceeding, stating that "proof of value by any
techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered
and that "[f]air price obviously requires consideration of all relevant
factors involving the value of a company." The Delaware Supreme Court stated
that in making this determination of fair value, the Delaware Court of
Chancery and the appraiser may consider "all factors and elements which
reasonably might enter into the fixing of value," including "market value,
asset value, dividends, earnings prospects, the nature of the enterprise and
any other factors which were known or which could be ascertained as of the
date of merger and which throw any light on future prospects of the merged
corporation . . ." The Delaware Supreme Court has construed Section 262 to
mean that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not
the

product of speculation, may be considered." However, the court noted that
Section 262 provides that fair value is to be determined "exclusive of any
element of value arising from the accomplishment or expectation of the
merger."

Holders of Phoenix Common Stock considering whether to seek appraisal should
bear in mind that the fair value of their Phoenix Common Stock determined
under Section 262 could be more than, the same as or less than the value of
the Merger Consideration to be paid pursuant to the Merger, and that an
opinion of an investment banking firm as to fairness from a financial point of
view is not necessarily an opinion as to fair value under Section 262 of the
DGCL.

The cost of the appraisal proceeding may be determined by the Delaware Court
of Chancery and assessed upon the parties as the Delaware Court of Chancery
deems equitable in the circumstances. Upon application of a Dissenting Holder,
the Delaware Court of Chancery may order that all or a portion of the expenses
incurred by any Dissenting Holder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all shares
entitled to appraisal. In the absence of such a determination or assessment,
each party bears its own expenses.

A Dissenting Holder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote for any
purpose the Phoenix Common Stock subject to such demand or to receive payment
of dividends or other distributions on such Phoenix Common Stock except for
dividends or other distributions payable to stockholders of record at a date
prior to the Effective Time.

At any time within 60 days after the Effective Time, any Dissenting Holder
may withdraw his or her demand for appraisal and accept the Merger
Consideration to be paid under the Merger Agreement, without interest. After
this period, a Dissenting Holder may withdraw his or her demand for appraisal
only with the consent of Phoenix. If no petition for appraisal is filed with
the Delaware Court of Chancery within 120 days after the Effective Time of the
Merger, Dissenting Holders' rights to appraisal shall cease and they shall be
entitled to receive the Merger Consideration to be paid under the Merger
Agreement, without interest. Inasmuch as Phoenix has no obligation or
intention to file such a petition, any holder of Phoenix Common Stock who
desires such a petition to be filed is advised to file it on a timely basis.
No petition timely filed in the Delaware Court of Chancery demanding appraisal
shall be dismissed as to any Phoenix Stockholder without the approval of the
Delaware Court of Chancery, and such approval may be conditioned upon such
terms as the Delaware Court of Chancery deems just.

Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.

THE VOTING AGREEMENTS

Contemporaneously with the execution of the Merger Agreement, Qwest entered
into voting agreements and proxies (each such agreement and proxy, a "Voting
Agreement") with certain principal stockholders of Phoenix beneficially owning
7,377,139 shares of Phoenix Common Stock in the aggregate, which shares
constitute approximately 21% of all outstanding shares of Phoenix Common Stock
on the Phoenix Record Date. The form of the Voting Agreements is attached as
Exhibit C to this Proxy Statement/Prospectus and is incorporated by reference
herein.

Qwest entered into Voting Agreements with 20 principal stockholders that
beneficially own 7,377,139 shares of Phoenix Common Stock in the aggregate.
Each such Voting Agreement provides for, among other things, (a) the agreement
of such principal stockholder to cause all shares of Phoenix Common Stock
beneficially owned by such principal stockholder as of the date of the Merger

Agreement to be counted for purposes of determining the existence of a quorum
at the Phoenix Annual Meeting, to cause all such shares to be voted against
any action or agreement that would result in a breach of the Merger Agreement,
impede or delay the conclusion of the Transactions or materially reduce the
benefits of the Transactions to Qwest or Qwest Subsidiary and to cause all
such shares to be voted to approve the Merger Agreement and the Merger and
against any Business Combination Transaction (other than the Transactions) and
(b) grant to Qwest and Qwest Subsidiary of an irrevocable proxy in connection
therewith. Each such principal stockholder has agreed in its Voting Agreement
not to transfer any shares of Phoenix Common Stock subject to the Voting
Agreement. Each Voting Agreement will terminate the day following the
termination date under the Merger Agreement; provided that Qwest may by
written notice delivered from time to time terminate all or any of its rights
under any such Voting Agreement and the proxy granted pursuant thereto.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Upon consummation of the Merger, Wallace M. Hammond, the President and Chief
Executive Officer and a director of Phoenix, and Jon Beizer, Senior Vice
President and Chief Financial Officer of Phoenix, will be paid severance in
the amount of $875,000 (less any amounts paid to Mr. Hammond as salary after
January 31, 1998, which is approximately $25,000 per month) and $225,000,
respectively, pursuant to the change of control provisions of their respective
employment agreements. Upon consummation of the Merger, Mr. Hammond and Mr.
Beizer also will be paid approximately $26,538 and $8,759, respectively, in
resepct of accrued paid time off pursuant to the terms of their respective
employment agreements, and Mr. Hammond will be reimbursed for reasonable
relocation expenses in an amount not to exceed $20,000. Phoenix believes that
the severance payments to Mr. Hammond and Mr. Beizer may be characterized as
"excess parachute payments" under the Code, a portion of which would not be
deductible by the Surviving Corporation. To the extent such severance payments
constitute an "excess parachute payment," they will be subject to an excise
tax of 20% of the amount of the excess parachute payment, in addition to the
income tax due on such payment amount.

In addition, Charles C. McGettigan, a director of Phoenix, is a Managing
Director of McGettigan Wick, which had been engaged by Phoenix to provide
advice and counsel to the Phoenix Board regarding the financial terms of the
then proposed business combination of Phoenix and Midcom. In exchange for such
services, McGettigan Wick was to receive a fee of $125,000 only if the
business combination with Midcom were consummated. Since the Midcom merger was
aborted, Phoenix did not pay such fee to McGettigan Wick. Phoenix has agreed,
however, to pay McGettigan Wick $125,000 if the Merger is consummated for past
services rendered and for providing advice and counsel to the Phoenix Board
regarding the financial terms of the Merger.

Pursuant to the Merger Agreement and subject to certain limitations, the
Surviving Corporation will indemnify each person who was an officer, director,
employee or agent of Phoenix against certain liabilities. In addition, the
Surviving Corporation will maintain, with certain limitations, policies of
directors' and officers' liability insurance comparable to those currently
maintained by Phoenix for a period of six years from the Effective Time. See
"PLAN OF MERGER--Terms of the Merger Agreement--Indemnification."

INDUSTRY OVERVIEW

GENERAL

The telecommunications industry involves the transmission of voice, data and
video communications from the point of origination to the point of
termination. The industry has been undergoing rapid change due to
deregulation, the construction of additional infrastructure and the
introduction of new technologies, which has resulted in increased competition
and demand for telecommunications services.

United States Domestic Long Distance. The structure of the domestic long
distance telecommunications industry was strongly influenced by a 1982 court
decree that required the divestiture by AT&T of its seven RBOCs and divided
the country into approximately 200 LATAs that range in size from metropolitan
areas to entire states. The seven RBOCs were initially limited to providing
local telephone service, access to long distance carriers and "in-region" long
distance service (service within a LATA). The right to provide inter-LATA
service was initially ceded to AT&T and other long distance carriers, as well
as to LECs other than the RBOCs. However, under the Telecommunications Act,
the RBOCs may now provide inter-LATA long distance service, subject to certain
conditions. See "REGULATION--General Regulatory Environment."

For each long distance call, the originating and terminating LECs charge the
long distance carrier an access fee to carry the call across their local
networks. The long distance carrier charges the customer a fee for its
transmission of the call, a portion of which consists of the access fees
charged by the originating and terminating LECs. To encourage the development
of competition in the long distance market, the LECs are required to provide
all long distance carriers with access to local exchange service that is
"equal in type, quality and price" to that provided to AT&T. These "equal
access" and related provisions were intended to prevent preferential treatment
of AT&T and to require that the LECs charge the same access fees to all long
distance carriers, regardless of their volume of traffic. These provisions,
along with the development and evolution of fiber optic technology with its
increased capacity and transmission quality, have helped smaller long distance
carriers emerge as alternatives to the largest companies for long distance
telecommunications services. See "REGULATION--General Regulatory Environment."

United States International Long Distance. The United States international
long distance industry is large and growing. The onset of competition gave
rise to deregulation and a decrease in prices, which led to the initial growth
in the market and improvements in service offerings and customer service.
Subsequent growth has been largely attributable to the worldwide trend toward
deregulation and privatization, technological improvements, the expansion of
telecommunications infrastructure and the globalization of the world's
economies.

The profitability of the United States international long distance market is
principally driven by the difference between settlement rates (i.e., the rates
paid to other carriers to terminate an international call) and billed revenue.
The difference in cost between providing domestic long distance and
international service is minimal, and increased worldwide competition has
already brought about certain reductions in settlement rates and end user
prices, thereby reducing overseas termination costs for United States-based
carriers. However, it is believed that certain foreign countries use
settlement rates to subsidize their domestic call rates, contributing to
significantly higher rates for certain international calls compared to
domestic long distance calls. The FCC recently adopted measures intended to
overhaul the system of international settlements by mandating that U.S.
carriers negotiate settlement rates with foreign correspondents at or below
FCC-mandated benchmark levels. Several parties have filed petitions for
reconsideration with the FCC or court appeals or both following this order, so
it remains subject to modification. Additionally, recent worldwide trade
negotiations may lead to reduced settlement rates. See "REGULATION--General
Regulatory Environment."

Multi-media. Continuing developments in multimedia applications are bringing
new entrants to the telecommunications market. Internet service providers and
cable television, entertainment and data transmission companies, for instance,
are potential customers for voice, data and video communications over high
bandwidth networks such as the Qwest Network.

LONG DISTANCE NETWORK SERVICES

Switched voice and data services originate and terminate with end users and
require varying amounts of bandwidth, depending on the nature of the
communication. Traditional telephony services such as "1 Plus" dialing require
only limited bandwidth (such as 64 Kbps). Emerging broadband services, such as
the Internet, private networks and multimedia applications, require higher
bandwidth for effective communication. Such services are increasingly
transmitted over SONET ring-protected Optical Carrier level paths (such as OC-
48 or OC-192) using advanced transmission protocols, such as Frame Relay and
ATM.

The following diagram illustrates the typical layout of a broadband services
network.

[DIAGRAM APPEARS HERE]

TELECOMMUNICATIONS TECHNOLOGY

The market for video, voice and data communications is served primarily
through fiber optic and coaxial copper cables, microwave systems and
satellites. Before the 1980s, telecommunications traffic generally was
transmitted through satellites, microwave radio or copper cable installed
undersea or buried in the ground. By 1990, copper cable had been largely
replaced by fiber optic systems that provided greater capacity at lower cost
with higher quality and reliability.

. Fiber Optic Systems. Fiber optic systems use laser-generated light to
transmit voice, data and video in digital format through ultra-thin strands
of glass. Fiber optic systems are characterized generally by large circuit
capacity, good sound quality, resistance to external signal interference
and direct interface to digital switching equipment or digital microwave
systems. A pair of modern fiber optic strands, using the most advanced
technology commercially available, is capable of carrying OC-192 level
capacity, equal to over 129,000 simultaneous telephone calls. Because fiber
optic signals disperse over distance, they must be regenerated/amplified at
sites located along the fiber optic cable. Fiber optic systems using
earlier generation fiber, as compared to the more advanced fiber being
installed in the Qwest Network, require frequent intervals between
regeneration/amplifier sites, typically between 20 and 45 miles. Qwest's
advanced fiber allows for greater distances between regeneration/amplifier
sites, and the Qwest Network is designed to use a maximum of 60-mile
intervals. Greater distances between regeneration/amplifier sites generally
translate into substantially lower installation and operating costs.

. Microwave Systems. Although limited in capacity compared with fiber
optic systems, digital microwave systems (such as Qwest's Microwave System)
offer an effective and reliable means of transmitting lower volume and
narrower bandwidths of voice, data and video signals. Generally no more
than 21 DS-3s can be transmitted by microwave between two antennae.
Microwaves are very high frequency radio waves that can be reflected,
focused and beamed in a line-of-sight transmission path. Because of their
electro-physical properties, microwaves can be used to transmit signals
through the air, with relatively little power, in much the same way that
electrical signals are transmitted through a copper wire. To create a
communications circuit, microwave signals are transmitted through a
focusing antenna, received by an antenna at the next station in the
network, then amplified and retransmitted. Microwaves disperse as they
travel through the air, and as a result this transmission process must be
repeated at repeater stations, which consist of radio equipment, antennae
and back-up power sources, located on average every 22 miles along the
transmission network.

. Satellite Systems. Although satellites initially were used for point-
to-point long distance telephone and television transmissions, fiber optic
cables have proven to be a more cost effective delivery method for high
volume point-to-point applications. Currently, satellites are primarily
used for transmissions that must reach many locations over vast distances
simultaneously, such as the distribution of television programming, for
point-to-point traffic in developing countries lacking terrestrial networks
and for other point-to-point traffic that cannot be connected efficiently
or cost-effectively by terrestrial transmission systems.

TELECOMMUNICATIONS MARKETS

AT&T, MCI, Sprint and WorldCom together constitute what are generally
referred to as the "Tier 1" companies in the long distance market.

Long distance companies may generally be categorized as "facilities-based"
carriers and "nonfacilities-based" carriers. The four Tier 1 companies are
facilities-based carriers because each operates a network principally using
its own transmission facilities and extensive geographically dispersed
switching equipment. The completed Qwest Network would enable Qwest to become
this type of facilities-based carrier generally. All of the Tier 1 carriers,
including AT&T, lease some of their transmission facilities from other
carriers to back up their service routing, augment areas where they may have
traffic bottlenecks or cover a particular geographic area not covered by their
own networks.

Medium-sized long distance companies, some with national capabilities,
constitute the "Tier 2" companies in the long distance market. Certain Tier 2
carriers are known as "partial facilities-based" carriers in that they own
some of their own transmission facilities but operate using mostly leased
facilities. However, most Tier 2 carriers are nonfacilities-based carriers in
that they lease all of their

transmission facilities. Tier 2 carriers design, manage and operate their own
networks just as the Tier 1 carriers, but generally on a smaller regional
scale, focusing on selling traffic originating in their target geographic
area. These carriers are also generally referred to as "switch-based" or
"switched" because they typically operate their own switches. Some of these
carriers lease high volume DS-3 capacity and resell lower volume DS-1 capacity
to other carriers at higher unit prices. DS-3 level capacity is generally only
sold by carriers that own facilities on the route on which the service is
sold.

The "Tier 3" carriers, often called "switchless" resellers, neither operate
networks nor own facilities, but rather resell "minutes" of service which they
purchase from other carriers. These companies, which vary significantly in
size, are primarily sales and marketing companies that generate their margins
by buying in large volumes to obtain a low price per minute from switch-based
carriers and reselling at higher prices. These companies may receive an
invoice from their underlying carrier and bill the end user or, in some cases,
the underlying carrier may bill the end user directly. The barriers to entry
into this segment of the long distance market are minimal and there are
currently numerous Tier 3 companies providing long distance services. As its
business increases, a Tier 3 company may install its own switch and move into
the Tier 2 category.

Operator services companies concentrate on providing operator services and
other communications services to the long distance industry, private pay phone
operators, prisons and credit card companies. These carriers also manage their
own networks and switching networks and switching equipment while leasing
virtually all of their facilities.

Competition in the retail long distance industry is based upon pricing,
customer service, network quality and valued-added services, creating
opportunities for smaller long distance providers. Sales efforts of long
distance companies focus increasingly on telemarketing and the use of
independent contractors rather than full-time employees. This has created an
opportunity for smaller companies to compete in certain segments of the long
distance market, and many of them are quickly able to build sizable customer
bases on the strength of their marketing efforts and distribution channels.

BUSINESS OF QWEST

Qwest is a facilities-based provider of multi-media communications services
to interexchange carriers and other communications entities, businesses and
consumers, and it constructs and installs fiber optic communications systems
for interexchange carriers and other communications entities, as well as for
its own use. Qwest is expanding its existing long distance network into the
Qwest Network, an approximately 16,000 route mile coast-to-coast,
technologically advanced, fiber optic telecommunications network. Qwest will
employ, throughout substantially all of the Qwest Network, a self-healing
SONET four-fiber ring architecture equipped with the most advanced
commercially available fiber and transmission electronics manufactured by
Lucent and Nortel, respectively. The Qwest Network's advanced fiber and
transmission electronics are expected to provide Qwest with lower
installation, operating and maintenance costs than older fiber systems in
commercial use today. In addition, Qwest has entered into construction
contracts for the sale of dark fiber along the route of the Qwest Network,
which will reduce Qwest's net cost per fiber mile with respect to the fiber it
retains for its own use. As a result of these cost advantages, Qwest believes
it will be well-positioned to capture market share and take advantage of the
rapidly growing demand for long haul voice and data transmission capacity.

The executive offices of Qwest Communications International Inc., a Delaware
corporation, are located at 555 Seventeenth Street, Suite 1000, Denver, CO
80202, and its telephone number is (303) 291-1400. Qwest's web site is
http://www.qwest.net.

RECENT DEVELOPMENTS

Qwest has entered into a long-term contract to provide Apex Global Internet
Services, Inc. ("AGIS") approximately 10,000 route miles of OC-48 capacity
over at least 20 years for a contract net present value of approximately $260
million. As part of the consideration, Qwest will receive 19.99% of the common
stock of AGIS and will have a seat on the AGIS board of directors. Qwest will
receive the consideration for the capacity in the early years of the contract
plus monthly operations and maintenance fees over the term of the agreement.
Under the terms of the contract, the companies will enter into a joint
marketing arrangement to expand their product and service offerings to include
IP telephony, video conferencing, ATM and frame relay services. AGIS, founded
in 1994, provides Internet access to users via its extensive customer base of
RBOCs, content providers, large corporations and ISPs.

In October 1997, Qwest and NEWSUPERNET ("NSN") consummated an agreement
whereby Qwest acquired from NSN all of the issued and outstanding shares of
capital stock of NSN's then wholly-owned subsidiary, SuperNet, Inc.
("SuperNet"), and the capital stock of SuperNet issued at the closing of the
acquisition, for $20.0 million in cash. The acquisition was accounted for
using the purchase method of accounting. SuperNet is a regional ISP in the
Rocky Mountain region that offers Internet services ranging from metered dial-
in access to Internet-based data management and hosting services. SuperNet
provides a customer base, existing product lines and technical expertise from
which Qwest can build product lines in Commercial Services, including
corporate intranet and extranet services and virtual private networks. See the
financial statements of SuperNet and unaudited pro forma financial statements
of Qwest and the notes thereto included elsewhere in this Proxy
Statement/Prospectus.

In January 1998, Qwest issued $450,505,000 in principal amount at maturity
of its 8.29% Senior Discount Notes due 2008 (the "New Senior Discount Notes"),
generating net proceeds of approximately $299.2 million, after deducting
offering costs which are included in intangible and other long-term assets and
will be amortized to interest expense over the term of the New Senior Discount
Notes. The net proceeds will be used primarily to fund the activation and
expansion of the Qwest Network and the growth of its multi-media
communications services and informational systems

infrastructure. In addition, Qwest may use a portion of the proceeds to
increase its presence in international markets, such as Mexico and Europe. The
principal amount of the New Senior Discount Notes is due and payable in full
on February 1, 2008. The New Senior Discount Notes are redeemable at Qwest's
option, in whole or in part, at any time on or after February 1, 2003, at
specified redemption prices. In addition, prior to February 1, 2001, Qwest may
use the net cash proceeds from certain specified equity transactions to redeem
up to 35% of the New Senior Discount Notes at specified redemption prices.
Cash interest on the New Senior Discount Notes will not accrue until February
1, 2003, and thereafter will accrue at a rate of 8.29% per annum, and will be
payable semi-annually in arrears commencing on August 1, 2003 and thereafter
on August 1 and February 1 (each an interest payment date) of each year. Qwest
has the option of commencing the accrual of cash interest on an interest
payment date on or after February 1, 2001 and prior to February 1, 2003, in
which case the outstanding principal amount at maturity of the New Senior
Discount Notes will, on such interest payment date, be reduced to the then
accreted value, and cash interest will be payable on each interest payment
date thereafter. The indenture for the New Senior Discount Notes contains
certain covenants that are substantially identical to the Senior Discount
Notes and the Senior Notes described under "QWEST'S MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and
Capital Resources."

In connection with the sale of the New Senior Discount Notes, Qwest has
agreed to make an offer to exchange new notes, registered under the Securities
Act and with terms identical in all material respects to the New Senior
Discount Notes (the "New Exchange Notes"), for the New Senior Discount Notes
or, alternatively, to file a shelf registration statement under the Securities
Act with respect to the New Senior Discount Notes. If the registration
statement for the exchange offer or the shelf registration statement, as
applicable, are not filed or declared effective within specified time periods
or, after being declared effective, cease to be effective or usable for resale
of the New Senior Discount Notes during specified time periods (each a "New
Senior Discount Registration Default"), additional cash interest will accrue
at a rate per annum equal to 0.50% of the principal amount at maturity of the
New Senior Discount Notes during the 90-day period immediately following the
occurrence of a New Senior Discount Registration Default and increasing in
increments of 0.25% per annum of the principal amount at maturity of the New
Senior Discount Notes up to a maximum of 2.0% per annum, at the end of each
subsequent 90-day period until the New Senior Discount Registration Default is
cured.

OPPORTUNITIES

Qwest believes that demand from interexchange carriers and other
communications entities for advanced, high bandwidth voice, data and video
transmission capacity will increase over the next several years due to
regulatory and technical changes and other industry developments. These
anticipated changes and developments include: (i) continued growth in capacity
requirements for high speed data transmission, ATM and Frame Relay services,
Internet and multimedia services and other new technologies and applications;
(ii) continued growth in demand for existing long distance services; (iii)
entry into the market of new communications providers; (iv) requirements of
the four principal nationwide carriers (AT&T, MCI, Sprint and WorldCom) to
replace or augment portions of their older systems; and (v) reform in
regulation of domestic access charges and international settlement rates,
which Qwest expects will lower long distance rates and fuel primary demand for
long distance services.

. Accommodation of the Internet and Other New Applications. Qwest believes
that additional network transmission capacity and faster response times
will be required to accommodate multimedia (voice, data and video) and
other potential high-bandwidth applications, such as increasing use of
the Internet by commercial users, the deployment of corporate intranets
and the use of telecommunications infrastructure for providing cable
television and other entertainment services. Qwest believes this growth
will result in increased demand for high-bandwidth dedicated circuits and
other network services provided by Qwest (such as Frame Relay and ATM).

. Base Growth of Existing Providers. Domestic long distance industry
revenues have increased in recent years. The revenue increases were
achieved against a backdrop of declining unit prices for most
telecommunications services, which suggests that the demand for
telecommunications bandwidth has increased at an even higher rate. Qwest
believes that these growth trends generally will continue and that
certain companies that do not own most of their networks have potential
needs to invest in network facilities or lease high bandwidth network
capacity in order to remain competitive. In addition, Qwest believes that
the Qwest Network will allow Qwest to offer an attractive alternative for
leased capacity simply to meet current levels of demand for wholesale
telecommunications services.

. Capacity Required by New Entrants. Competition and deregulation are
bringing new entrants into the telecommunications market. Qwest
anticipates that this trend will accelerate as a result of the
Telecommunications Act. The Telecommunications Act allows the RBOCs and
GTE to enter the long distance business and enables other entities,
including entities affiliated with power utilities and ventures between
LECs and cable television companies, to provide an expanded range of
telecommunications services. As these entities emerge as long distance
competitors, Qwest believes they will need their own facilities and
additional high-bandwidth capacity to compete effectively with
facilities-based providers.

. Augmentation of Older Systems. The coast-to-coast fiber systems currently
operated by the Tier 1 carriers were constructed for the most part prior
to 1990, using standard, single mode fiber. Most of these systems were
buried directly in the ground without protective conduit. The conversion
of these older systems to the use of SONET ring architecture requires
increasingly more bandwidth over additional route miles. Accordingly,
Qwest believes that the Tier 1 carriers will generally need to replace or
augment parts of their networks to add more capacity, route diversity and
redundancy to their systems and to lower their overall operating costs.
Qwest believes that the older, legacy systems operated by certain of the
Tier 1 carriers generally face certain other disadvantages when compared
to the Qwest Network, such as: (i) lower transmission speeds, lower
overall capacity and shorter distances between regeneration/amplifier
facilities; (ii) more costly maintenance requirements; (iii) greater
susceptibility to system interruption from physical damage to the network
infrastructure; and (iv) greater difficulty in upgrading to more advanced
fiber due to lack of a spare conduit.

. Access Charge and International Settlement Rate Reform. Qwest anticipates
that primary demand for long distance services will be stimulated by
reforms of domestic access charges and international settlement rates and
recent international trade negotiations. As long distance prices decline,
Qwest expects that overall demand for its services by carriers,
businesses and consumers will increase.

STRATEGY

Qwest's objective is to become a leading, coast-to-coast facilities-based
provider of communications services to other communications providers,
businesses and consumers. To achieve this objective, Qwest intends to:

. Deploy a Technologically Advanced Network. Qwest believes the technical
characteristics of the Qwest Network will enable it to provide highly
reliable services to interexchange carriers and other communications
entities at low per unit costs as it expands its customer base and
increases network traffic volume. For instance, the Qwest Network's
advanced fiber optic cable and electronic equipment permit high capacity
transmission over longer distances between regeneration/amplifier
facilities than older fiber systems. This translates into generally lower
installation and operating costs. These costs typically constitute a
significant portion of the overall cost of providing telecommunications
services.

. Build on Network Construction Expertise and Existing Network Assets. As
of September 30, 1997, Qwest had built over 8,200 route miles of
telecommunications conduit systems over the

last eight years for itself and major interexchange carriers including
AT&T, MCI, Sprint and WorldCom. As of September 30, 1997, Network
Construction Services employed over 810 experienced construction personnel
led by a senior construction management team with combined construction
experience of over 140 years. Qwest utilizes its own fleet of railroad
equipment and had in place railroad and other right-of-way agreements
covering approximately 94% of the Qwest Network and already had installed
approximately 50% of the route miles of conduit required for the Qwest
Network as of September 30, 1997. In addition, Qwest has fixed-price
supply agreements for the provision of all the fiber and transmission
electronics necessary to construct and activate the Qwest Network.

. Establish Low Cost Position. Qwest has entered into four major
construction contracts for the sale of dark fiber in the Qwest Network
that will allow Qwest to achieve a low net capital investment in the
Qwest Network and share future operating and maintenance costs. Earnings
from these agreements will reduce Qwest's net cost per fiber mile with
respect to the fiber that it retains for its own use. Qwest believes that
this network cost advantage, coupled with the operating and maintenance
cost advantages of owning an entirely new network with advanced fiber and
equipment uniformly deployed systemwide, will enable it to establish a
low cost position in the long distance industry relative to its
competitors.

. Build on Management Experience. Qwest's management team and board of
directors include individuals with significant experience at major
telecommunications companies. Mr. Joseph Nacchio became Qwest's President
and Chief Executive Officer in January 1997. Mr. Nacchio was Executive
Vice President of the Consumer and Small Business Division at AT&T, where
he was employed for 27 years prior to joining Qwest. Mr. Nacchio has
extensive management experience in marketing, sales, network operations
and engineering, having served as Chief Engineer and a Vice President of
Network Operations at AT&T. Mr. Richard T. Liebhaber, who was a Director
and served as Executive Vice President and Chief Strategy and Technology
Officer of MCI until his retirement in 1995, is a Director of Qwest. He
is providing technical advisory services to Qwest under a consulting
agreement. Qwest has also hired several additional senior executives. See
"MANAGEMENT OF QWEST."

. Grow Carrier Revenue Base. Qwest is currently focusing on expanding
Carrier Services to increase its revenue stream and reduce per unit
costs, targeting short-term capacity sales on a segment-by-segment basis
as the QwestNetwork is deployed and activated, and is increasingly
seeking longer-term, high volume capacity agreements from major carriers.
In addition to traditional telecommunications carriers, Qwest is
marketing to ISPs and other data service companies.

. Develop Commercial Services. Qwest plans to build on its Carrier Services
experience to expand its presence in the Commercial Services market by
developing its distinctive "ride the light" brand identity and
aggressively marketing its existing and planned voice, data and other
transmission products and services. Qwest plans to build direct end user
relationships by developing strong distribution channels, providing
competitive pricing and superior network quality and offering enhanced,
market-driven services to businesses and consumers. In addition, Qwest
recently announced that it plans to offer, through a controlled
introduction to select cities, Internet protocol telephony service to
consumers and small businesses.

. Acquire Complementary Businesses. Qwest continually evaluates
opportunities to acquire or invest in complementary, attractively valued
businesses, facilities, contract positions and assets to improve its
ability to offer new products and services to customers, to compete more
effectively and to facilitate further growth of its business. Recently,
Qwest acquired SuperNet, a regional ISP in the Rocky Mountain region. See
"--Recent Developments" above and "QWEST'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and
Capital Resources."

THE QWEST NETWORK

As of September 30, 1997, Qwest's network infrastructure included, among
other assets: (i) approximately 7,900 route miles of conduit in place,
consisting of approximately 2,800 route miles of lit fiber including the Cal-
Fiber system and the spans connecting Los Angeles and Sacramento, Sacramento
and Denver, Kansas City and Denver, and Dallas and Houston; approximately
2,800 route miles of dark fiber installed in conduit; and approximately 2,300
route miles of vacant conduit; (ii) right-of-way agreements in place for
approximately 6,900 additional route miles of planned construction for the
Qwest Network; (iii) an approximately 3,500 mile operating digital microwave
system (the "Microwave System"); (iv) approximately 15,000 DS-3 miles of fiber
transmission capacity leased by Qwest from other carriers, used primarily to
extend Qwest's switched services for originating and terminating traffic
beyond the boundaries of Qwest's lit fiber network; and (v) five digital
switches.

Under Qwest's current plan, the Qwest Network will extend approximately
16,000 route miles coast-to-coast and connect approximately 125 metropolitan
areas that represent approximately 80% of the originating and terminating long
distance traffic in the United States. Construction of approximately 13,000
route miles of the Qwest Network is scheduled to be completed by late 1998,
and approximately 3,000 route miles, mostly in the southeastern United States,
are scheduled to be completed by the second quarter of 1999. Through a
combination of the Qwest Network and leased facilities, Qwest will continue to
offer interstate services in all 48 contiguous states. The Qwest Network will
connect to three trans-Atlantic cable heads and two trans-Pacific cable heads,
as well as cross-border points to Canada and Mexico. Qwest recently extended
its network to the United Kingdom through an exchange of capacity for two 155
megabit circuits that will carry international data and voice traffic between
London and New York. Qwest also is extending its network approximately 1,400
route miles into Mexico through dark fiber to be owned by Qwest on the fiber
optic system of a third party. Completion of the Mexican network is scheduled
for late 1998. These connections will allow Qwest to participate in the
anticipated growth in demand for international long distance data and voice
services.

Qwest plans to transfer carrier and retail switched services provided on
leased facilities onto the Qwest Network as Qwest activates its own
facilities. As the Qwest Network is completed, Qwest may use the Microwave
System to serve certain smaller markets contiguous to the Qwest Network and to
feed traffic onto the Qwest Network.

The physical components of the Qwest Network are: (i) high density
polyethylene conduit, which is hollow tubing 1 1/2 to 2 inches in diameter;
(ii) fiber optic cable, which consists of fiber strands placed inside a
plastic sheath and strengthened by metal; (iii) electronic equipment necessary
to activate the fiber for transmission; (iv) switches that enable Qwest to
provide switched services to carrier and commercial customers; and (v) 125
points of presence, which allow Qwest to concentrate customers' traffic at
locations where Qwest does not have switches and carry the traffic to
switching centers over the Qwest Network.

Advanced Technology. Qwest is installing technologically advanced fiber
optic cable and electronic equipment in a uniform configuration throughout the
Qwest Network, using an advanced network management system. The Qwest
Network's technologies include Lucent's non-zero dispersion shifted fiber and
Nortel's dense wave division multiplexing, forward error correction technology
and SONET four-fiber ring technology that enable OC-192 transmission capacity
and high integrity levels (10-/1//5/ Bit Error Rate).

The Qwest Network is designed for superior security and reliability, based
on (i) bi-directional SONET four-fiber ring architecture, a self-healing
system that allows for instantaneous rerouting and virtually eliminates
downtime in the event of a fiber cut; (ii) fiber cable installed in high
density polyethylene conduit generally buried 42-56 inches below the ground;
and (iii) extensive use of railroad rights-of-way, which typically offer
greater protection of the fiber system than other systems built over more
public rights-of-way such as highways, telephone poles or overhead power
transmission lines.

The Qwest Network is designed for expendability and flexibility and will
contain two conduits along substantially all of its route. The first conduit
will contain a cable generally housing at least 96 fibers, and the second
conduit will serve as a spare. The spare conduit will allow for future
technology upgrades and expansion of capacity at costs significantly below the
cost of new construction. After existing and anticipated dark fiber sales,
Qwest generally plans to retain a minimum of 48 fibers for its own use in the
Qwest Network. With the combined use of non-zero dispersion shifted fiber,
dense wave division multiplexing and high bit rate transmission electronics,
each of the fibers retained by Qwest can achieve substantially greater
capacity per fiber than standard, single mode fiber now in use.

Qwest monitors its current network, and will monitor the Qwest Network, 24
hours a day, seven days a week from its Network Management Center in Denver,
Colorado. This facility provides centralized network surveillance,
troubleshooting and customer service, using technology that enables Qwest to
reduce service costs and customer downtime. The system currently allows
Qwest's technicians to detect a component malfunction in the Qwest Network,
quickly reroute the customer to an available alternate path and effect an
expedited repair. Upon completion of the Qwest Network with its SONET four-
fiber ring architecture, the rerouting function will be fully automated. In
addition, Qwest is deploying new management tools, including Nortel's
Integrated Network Management Solutions, that will give Qwest's Carrier
Services customers the ability to monitor and reconfigure their leased
capacity on an essentially real time basis from their own network management
centers and the ability to rapidly increase or reduce bandwidth to better
match their needs. The available software features equipment inventory
management, bandwidth inventory management, configuration management, fault
isolation management, "point-and-click" provisioning on partitioned network
and alarm monitoring. Qwest also has a facility in Dallas that monitors the
Microwave System. As of September 30, 1997, Qwest maintained a staff of
approximately 225 technicians and other related personnel across the system to
provide maintenance and technical support services.

Railroad Rights-of-Way. Qwest has right-of-way agreements in place that
provide it with access to over 30,000 track miles. Qwest believes that use of
railroad rights-of-way, along with the protective conduit, give Qwest inherent
advantages over other systems built over more public rights-of-way, such as
highways, telephone poles or overhead power transmission lines. These
advantages include higher security for the Qwest Network and greater
protection of the fiber system.

Railroad rights-of-way also provide the Qwest Network generally with a
direct, continuous route between cities. This eliminates the potential need,
and the associated time and costs, to piece together rights-of-way using a
combination of agreements with private owners and state or municipal agencies.
In addition, railroad rights-of-way typically extend into downtown areas of
cities that are strategically important to Qwest. Qwest's right-of-way
agreements provide for continuing or lump-sum cash payments, exchanges of
rights-of-way for network capacity or a combination of both. Qwest has other
right-of-way agreements in place, where necessary or economically preferable,
with highway commissions, utilities, political subdivisions and others.

Between 70% and 80% of the Qwest Network will be installed on railroad
rights-of-way. As of September 30, 1997, Qwest had in place agreements for
approximately 94% of the combined railroad and other rights-of-way needed to
complete the Qwest Network. As of September 30, 1997, the remaining rights-of-
way needed for completion of the Qwest Network consisted of approximately
1,000 route miles located primarily in the Midwest and Mid-Atlantic regions.
Qwest has identified alternative rights-of-way for these route miles and is
currently in negotiations with respect to all of them.

Network Installation. Qwest's network installation process along railroad
rights-of-way combines traditional railroad activities and modern engineering
and building techniques. As of September 30, 1997, Qwest employed over 810
experienced construction personnel and uses its own fleet of railroad
equipment. Qwest supplements these personnel with independent contractors.
Qwest uses its own fleet of railroad equipment.

Qwest generally installs conduit on railroad rights-of-way with a "plow
train." Plow trains consist of locomotives, plow cars and several supply cars.
The locomotives are used in a traditional manner to pull the plow train along
the railroad track. The plow cars are engineered to accommodate a large plow
that extends from the side of the car. The plow is lowered into the ground and
digs a trench as the locomotives pull the plow train forward. The supply cars
carry the supply of conduit and other construction materials needed to
construct the fiber route and are designed to continuously feed supplies to
the plow cars.

A plow car travels along the railroad track and simultaneously plows a
trench approximately 42-56 inches deep and approximately eight feet from the
nearest rail, feeds multiple conduits into the trench, buries a warning tape
approximately a foot from the surface, and backfills the land to its original
contour. A plow can cover up to four miles a day, depending on the
availability of track time and the severity of the terrain.

In situations where the conduit must be laid across a bridge or through a
tunnel, Qwest typically places the conduit in a galvanized steel pipe, and the
pipe is attached to the side of the bridge or along the tunnel floor or wall.
When the conduit must be run under rivers or other obstructions, Qwest's
installation personnel use directional boring techniques to bore small tunnels
underneath the rivers or obstructions and feed the conduit through the
completed tunnels.

After the conduit has been buried along the railroad track (or attached to a
bridge or tunnel), the fiber optic cable is installed or "pulled" through the
conduit. Qwest accomplishes this through the use of access boxes that are
installed along the Qwest Network at approximately one mile intervals. These
access boxes also allow Qwest employees to make repairs or replace or install
additional fiber. The access boxes typically contain an additional loop of the
fiber cable to provide slack in the system to accommodate displacement,
disruption or movement of the conduit as a result of digging or excavation
activities, floods, earthquakes or other events. The presence of the
additional fiber cable reduces the risk that the cable will be cut or broken.

For routes not using railroad rights-of-way, Qwest uses "tractor plows."
Tractor plows are tractor pulled plow vehicles equipped to plow trenches and
install conduit. Tractor plows also may be used in certain places along
railroad rights-of-way depending on space, availability of track time and
other factors. These tractor plows generally perform the same functions in a
similar manner as the rail plows.

Railroad rights-of-way, which are usually less accessible to the public than
highways and less vulnerable to physical damage than aerial systems installed
along telephone poles or overhead power transmission lines, reduce the risk of
outside interference or damage to Qwest's conduit. Qwest has also implemented
a "Call Before U Dig" ("CBUD") program, backed up by its 24-hour Network
Management Center to reduce the risk of damage to the conduit or fiber system.
Additionally, above ground markers are placed at frequent intervals along the
route of the Qwest Network.

Dark Fiber Sales. Qwest has entered into agreements with Frontier, WorldCom
and GTE whereby each is purchasing dark fiber along the Qwest Network. The
proceeds from construction contracts for the sale of dark fiber will provide
cash for a significant portion of the total estimated costs to construct the
Qwest Network and complete construction relating to the dark fiber sold to
Frontier, WorldCom and GTE, and are expected to provide Qwest with a strategic
network cost advantage on the fibers that Qwest retains for the Qwest Network.
The GTE agreements provide for the purchase of 24 fibers along substantially
all of the route of the Qwest Network, including the Southeast route. The
Frontier agreement provides for the purchase of 24 fibers along the route of
the Qwest Network, excluding the Southeast route and certain other segments.
The WorldCom agreement provides for the purchase of 24 fibers along certain
selected segments of the Qwest Network and 36 fibers along other selected
segments. Frontier had an option to purchase an additional 24 fibers along the
entire route of the Qwest Network, which option expired in April 1997. Qwest
subsequently entered into the GTE

agreements, under which GTE purchased these 24 fibers. Each contract requires
the purchaser to pay an aggregate price consisting of an initial payment
followed by installments during the construction period based on Qwest's
achievement of certain milestones (e.g., conduit installation and fiber
splicing), with final payment for each segment made at the time of acceptance.
Each agreement contains provisions establishing construction specifications
and fiber splicing, testing and acceptance procedures and requiring Qwest to
maintain rights-of-way with respect to the system route for the economically
useful life of the fibers sold. Each agreement also provides for the sharing
of certain maintenance costs. The Frontier and GTE contracts also provide for
sharing of certain operating costs. The agreements establish anticipated
delivery dates for construction and delivery of segments along the route of
the Qwest Network. Delivery may be extended under each contract for force
majeure events. The Frontier and GTE contracts provide for reduced payments in
the event of delay or non-delivery of segments and, in certain circumstances,
penalties of varying amounts depending upon the reason for the delay or non-
delivery, and allow Frontier and GTE to delete any non-delivered segment from
the system route to be delivered. Qwest has executed performance bonds in
favor of Frontier. In addition, if Frontier or GTE fails to make payment with
respect to any segment, Qwest may terminate Frontier's or GTE's rights
relating to all remaining undelivered segments. Frontier's parent company,
Frontier Corporation, has guaranteed payment of Frontier's payment obligations
under the contract.

Qwest has several smaller construction contracts for the sale of dark fiber
along the Qwest Network aggregating approximately $171.0 million as of
December 31, 1997. Qwest believes that significant opportunities exist to sell
additional dark fiber throughout the Qwest Network and management has
identified and is in various stages of negotiations with potential customers.
However, Qwest does not expect to enter into additional agreements of the size
and scope of the Frontier and GTE contracts. These potential customers include
other interexchange carriers, cable, entertainment and data transmission
companies, RBOCs, ISPs, LECs and CLECs. Qwest believes that these potential
customers will view Qwest, with its construction capabilities and emphasis on
being a "carrier's carrier," as an attractive source for certain of their long
distance transmission needs. In order to meet the needs of this diverse group
of customers, Qwest expects to offer a wide variety of pricing and system
options to meet specific needs of each customer. For example, customers may
purchase or lease dark fiber or purchase capacity on a short- or long-term
basis.

Generally, Qwest plans to install 96 fibers along the entire route of the
Qwest Network. The Frontier and GTE agreements each provide for the purchase
of 24 fibers along major portions of the Qwest Network, while the WorldCom
agreement generally provides for the purchase of 24 or, in certain segments,
36 fibers. Several smaller construction contracts for sales of dark fiber
provide for the sale of smaller numbers of fibers over a more limited number
of segments. In segments where Qwest agrees under construction or sales
contracts to sell more than 48 fibers, it generally will install more than 96
fibers so that it can retain 48 fibers for its own use along substantially all
of the route of the Qwest Network.

With the installation of the advanced transmission electronics contracted to
be purchased from Nortel, the fibers initially activated by Qwest will have a
transmission capacity of 20 gigabits per second, which will more than
accommodate the growth in Carrier Services and Commercial Services anticipated
by Qwest over the next five years. If Qwest fully activated all of its
retained fibers by installing additional amounts of the same transmission
electronics, which is not currently planned, it could further expand the
transmission capacity to approximately two terabits per second.

Build-Out Plan for the Qwest Network. Qwest estimates the total cost to
construct and activate the Qwest Network and complete construction of the dark
fiber sold to Frontier, WorldCom and GTE and additional smaller contract
customers will be approximately $1.9 billion. Of this amount, Qwest had
already expended approximately $640.0 million as of September 30, 1997. As of
September 30, 1997, Qwest anticipated remaining total cash outlays for these
purposes of approximately $170.0 million in

1997, $850.0 million in 1998 and $240.0 million in 1999. Estimated total
expenditures for 1997 and 1998 include Qwest's commitment to purchase a
minimum quantity of fiber for approximately $399.0 million (subject to quality
and performance specifications), of which approximately $198.5 million had
been expended as of September 30, 1997. Estimated total expenditures for 1997,
1998 and 1999 together also include $139.0 million for the purchase of
electronic equipment. In addition, Qwest anticipates approximately $605.8
million of capital expenditures in 1997, 1998 and 1999 to support growth in
Carrier Services and Commercial Services.

As of September 30, 1997, Qwest has obtained the following sources of funds
to complete the build-out: (i) approximately $1.1 billion under the Frontier,
WorldCom and GTE contracts and additional smaller construction contracts for
sales of dark fiber, of which approximately $351.0 million had already been
paid and $770.0 million remained to be paid at September 30, 1997; (ii) $90.0
million of vendor financing; (iii) $117.6 million in net proceeds from the
sale on March 31, 1997 of $250.0 million in principal amount of the Senior
Notes remaining after repayment of certain existing debt; and (iv)
approximately $319.5 million in net proceeds from the Initial Public Offering.
In October 1997, Qwest received approximately $342.6 million in net proceeds
from the sale of the Senior Discount Notes and in January 1998, Qwest received
approximately $299.2 million in net proceeds from the sale of the New Senior
Discount Notes.

With the completion of the approximately 16,000 route mile network, Qwest
will provide services nationally to its customers primarily over its own
facilities, using leased facilities in those portions of the country not
covered by the Qwest Network. Qwest will continue to evaluate the economics of
extending its core network versus continuing to lease network capacity. In
this regard, Qwest recently announced an agreement, through an asset exchange,
to connect the route between Boston and New York City, and Qwest is
considering completing a four-fiber bidirectional SONET ring in the Pacific
Northwest by extending the Qwest Network from Seattle to Salt Lake City.

CARRIER SERVICES

General. Qwest has been positioned historically in the long distance
business as a "carrier's carrier," providing dedicated line and switched
services to other carriers over Qwest's owned or leased fiber optic network
facilities. Management believes that Qwest has earned a reputation of
providing quality services at competitive prices to meet specific customer
needs. Total revenues from Carrier Services were approximately $57.6 million,
$67.8 million and $50.2 million for the years 1996, 1995 and 1994,
respectively, and approximately $39.1 million and $45.1 million for the nine
months ended September 30, 1997 and 1996, respectively.

Products. Products offered by Carrier Services fall into three primary
categories: (i) high volume capacity services; (ii) conventional dedicated
line services; and (iii) switched services.

. High Volume Capacity Services. Qwest provides high volume transmission at
or above the OC-3 level (or its equivalent) through service agreements
for terms of one year or longer. As the Qwest Network is deployed, Qwest
also is targeting potential large users in the inter-LATA market that may
seek to augment their own networks or provide diverse routing
alternatives in strategic areas of their systems.

. Conventional Dedicated Line Services. Qwest currently provides dedicated
line services on owned capacity to a wide range of customers at
capacities below the OC-3 level generally for terms of one year or less.
Qwest expects the Qwest Network will enable Qwest to offer these services
over a significantly expanded geographic area.

. Switched Services. Qwest currently provides switched terminating services
over its switched service network to large and small long distance
carriers. The carrier switched terminating

service business is specifically used to increase volume on Qwest's
switched service network to allow for more efficient "trunking" of calls.
While the carrier switched services generate revenue at lower margins than
the dedicated line services, such services facilitate cost effective
management of the Qwest Network.

Qwest also plans to provide high speed ATM and Frame Relay data services to
carriers and Internet Service Providers by installing ATM and Frame Relay
switching equipment. Qwest expects such services to become available in the
second quarter of 1998.

Customers. Carrier Services' customer base in the inter-LATA carrier market
consists of the following:

. Tier 1 and Tier 2 Carriers. Qwest offers high volume transmission
capacity, conventional dedicated line services and dedicated switched
services to the Tier 1 and Tier 2 carriers on a national or regional
basis. As RBOCs enter the long distance market, Qwest believes they will
be potential customers to lease high volume capacity from Qwest on a
national basis.

. Tier 3 Carriers. Qwest currently offers switchless resale services to
Tier 3 carriers on a limited basis. Qwest anticipates that this business
will expand as coverage of Qwest's switched network grows.

. Internet Service Providers. Qwest believes that ISPs will become
customers for significant high volume capacity. Qwest is providing
capacity at the OC-3 level on its Cal-Fiber system under a recently
signed contract with an ISP.

. Operator Services Companies and Other Niche Companies. These companies
concentrate on providing operator services and other communications
services to the long distance industry, private payphone operators,
prisons and credit card companies. These carriers also manage their own
networks and switching equipment while leasing virtually all of their
transmission facilities. Qwest provides transmission services to these
carriers.

Service Agreements. Qwest provides high volume transmission capacity
services through service agreements for terms of one year or longer. Dedicated
line services are generally offered under service agreements for an initial
term of one year. High volume capacity service agreements and dedicated line
service agreements generally provide for "take or pay" monthly payments at
fixed rates based on the capacity and length of circuit used. Customers are
typically billed on a monthly basis and also may incur an installation charge
or certain ancillary charges for equipment. After contract expiration, the
contracts may be renewed or the services may be provided on a month-to-month
basis. Switched services agreements are generally offered on a month-to-month
basis and the service is billed on a minutes-of-use basis. Revenues from
carrier customers that are billed on a minutes-of-use basis have the potential
to fluctuate significantly based on changes in usage that are highly dependent
on differences between the prices charged by Qwest and its competitors. Qwest,
however, has not experienced significant fluctuations to date.

COMMERCIAL SERVICES

General. Qwest began offering Commercial Services in 1993. Commercial
Services focuses primarily on the sale of inter-LATA long distance services to
the retail market, principally to small- and medium-sized businesses and to
consumers. Qwest currently provides facilities-based services along the Cal-
Fiber and Texas routes, and is a switch based reseller elsewhere. Total
revenues from Commercial Services were approximately $34.3 million, $20.4
million and $8.7 million in 1996, 1995 and 1994, respectively, and
approximately $38.0 million and $25.5 million in the nine months ended
September 30, 1997 and 1996, respectively. Qwest plans to transfer carrier and
commercial switched traffic from leased facilities onto the Qwest Network as
it is activated. As traffic volumes increase and Qwest carries a greater
percentage of traffic on the Qwest Network, Qwest believes it will realize

economies of scale and thereby lower its cost of sales as a percentage of
revenue. See "RISK FACTORS--Risk Factors Relating to Qwest and Its Business--
Managing Rapid Growth."

Products. Qwest markets the following products:

. One Plus. This basic service offers customers the ability to make
outbound long distance calls from any local telephone line by simply
dialing a 1, plus the area code and phone number. Customers select Qwest
as their primary long distance provider by placing an order with it. This
service may be used for both domestic and international calling.

. 10XXX. This service allows the customer to access the Qwest Network by
dialing 10056 plus 1, plus the area code and phone number, with no need
to change their primary long distance provider. These customers are
solicited through direct mailing and receive a sticker to place on their
phones.

. Dedicated Access Service. These lines are designed for larger users with
enough traffic volume to warrant the use of a dedicated access line to
originate calls. Instead of a switched access line that is shared by many
users, this service uses a high capacity line that is used exclusively to
connect between the end user and the long distance carrier's switch. This
results in lower originating access cost and reduced rates to the user.

. Toll Free 800/888. This inbound service, where the receiving party pays
for the call, is accessed by dialing an 800/888 area code. This is used
in a wide variety of applications, many of which generate revenue for the
user (such as reservation centers or customer service centers). Qwest
plans to introduce additional enhanced features such as call routing by
origination point, time of day routing and other premium, high-margin
features in 1998.

. Calling Card. These traditional, basic telephone calling cards allow the
user to place calls from anywhere in the United States or Canada. Qwest
offers additional higher margin features such as conference calling,
international origination, information service access (such as weather or
stock quotes), speed dialing and voice messaging.

. Prepaid Card. Prepaid cards allow a customer to purchase and pay in
advance for a card with a fixed amount of calling time. The card is then
used as a standard calling card. Prepaid cards may be purchased with
enhanced features similar to those of calling cards and also may be
renewed by purchasing additional time.

. International Callback. This service operates by allowing a customer in a
foreign country to place a toll-free call to the U.S. and be "called
back" by Qwest's equipment. Qwest charges a rate similar to that which
the customer would pay if the call were originally initiated in the U.S.,
allowing the customer to take advantage of the fact that the rates for
calling from the U.S. to many foreign destinations are lower than the
cost of the same call if it were originated in the foreign country.

. Media Express(TM). This is an exclusive switched digital broadband
service that provides variable bandwidth for video communications and
other data applications on demand and allows users to control all the
required components of a video conference from a personal computer.

Other services offered by Commercial Services include audio conferencing,
operator services, directory assistance, special rate structures, custom
services, special contract pricing and special local access arrangements in
selected markets. In addition, Qwest intends to develop and offer additional
value-added services to its customers, particularly business customers, to
differentiate Qwest from its competitors and enhance Commercial Services'
profit margins. Qwest also is evaluating and intends to introduce in the
future a variety of services specifically designed to capture a share of the
growing data networking market.

In September 1997, Qwest entered into an arrangement with Cisco Systems Inc.
under which they will jointly define and test new broadband business multi-
media services.

Customers. Qwest is currently targeting businesses spending up to $1,000 per
month on long distance and intends to expand this target segment in early 1998
to businesses spending from $2,000 to $10,000 per month on long distance. The
strategy of Commercial Services is to develop a customer base in geographic
proximity to the Qwest Network.

NETWORK CONSTRUCTION SERVICES

General. Qwest's Network Construction Services operations commenced in 1988
with the construction of conduit systems for major interexchange carriers.
Since then, Network Construction Services has served as the platform for
Qwest's expansion into Carrier Services and, since 1993, Commercial Services.
Total revenues from Network Construction Services were approximately $139.2
million, $36.9 million and $11.9 million for the years ended 1996, 1995 and
1994, respectively, and approximately $413.2 million and $59.3 million for the
nine months ended September 30, 1997 and 1996, respectively.

As of September 30, 1997, Qwest had built for itself and other carriers over
8,200 route miles of telecommunications conduit systems principally along
railroad rights-of-way. Management believes that this experience and expertise
create competitive advantages for Qwest in the construction, ongoing
maintenance and operation of the Qwest Network.

Products. The principal product of Network Construction Services
historically has been turn-key conduit systems built for other carriers. In
most cases, while fulfilling customer contracts, Qwest installed additional
conduit that it retained for its own use. Qwest is using its Network
Construction Services resources to implement its strategic plan to complete
the Qwest Network, in addition to providing Network Construction Services to
third party customers along Qwest Network routes.

Commencing in 1996, Qwest began selling dark fiber to telecommunications
entities to help fund development of the Qwest Network. In 1996, Qwest's
Network Construction Services revenue was derived largely from two principal
dark fiber sales contracts with Frontier and WorldCom. Qwest expects that
these two contracts, along with the May 1997 contract with GTE, will generate
the majority of Network Construction Services revenue in 1997 and 1998. In
addition, Qwest expects to generate additional revenue through the sale of
dark fiber along various segments of the Qwest Network to other carriers.

Customers. Network Construction Services customers historically have been
primarily interexchange carriers, as well as major LECs and other
telecommunications companies. For the year ended December 31, 1996, WorldCom
was Qwest's largest single Network Construction Services customer, accounting
for 27.8% of Qwest's consolidated gross revenue, and Frontier accounted for
26.3% of Qwest's consolidated gross revenue. No other customers accounted for
more than 10% of consolidated gross revenue. For the year ended December 31,
1995, MCI was Qwest's largest single customer, accounting for 35.4% of
consolidated gross revenue. No other customer accounted for more than 10% of
consolidated gross revenue in 1995. For the year ended December 31, 1994,
WorldCom was Qwest's largest single customer, accounting for 18.0% of
consolidated gross revenue. No other customer accounted for more than 10% of
consolidated gross revenue in 1994. In the first nine months of 1997, GTE was
the largest single customer, accounting for 36.9% of Qwest's consolidated
gross revenue, with Frontier accounting for 33.4%.

SALES AND MARKETING

Qwest sells network dedicated and switched services to carriers through its
carrier sales organization. This organization consists of senior level
management personnel and experienced sales

representatives with extensive knowledge of the industry and key contacts
within the industry at various levels in the carrier organizations. Qwest also
markets its construction services for dark fiber and conduit systems through
its carrier sales organization. Contacts are made primarily through individual
premises visits and at meetings of trade associations that serve large
carriers.

In Commercial Services, Qwest currently solicits targeted businesses through
telemarketing personnel and independent contractors and is establishing a
direct sales channel as it expands its targeted segment to higher volume
users. Consumer customers currently are solicited by Qwest through a
combination of direct marketing and independent contractors. Qwest plans to
build on its Carrier Services experience to expand its presence in the
Commercial Services market by developing its distinctive "ride the light"
brand identity and aggressively marketing its existing and planned voice, data
and other transmission products and services. Qwest plans to build direct end
user relationships by developing strong distribution channels, providing
competitive pricing and superior network quality and offering enhanced,
market-driven services to businesses and consumers.

In September 1997, Qwest entered into a marketing agreement with Innova,
Inc. ("Innova") under which Innova will be an authorized sales representative
of Qwest marketing Qwest's long-distance products through affinity groups.
Innova is a marketing company that wholesales and retails telecommunication
products on a national basis with an emphasis on developing bundled product
packages.

Also in September 1997, Qwest entered into a marketing agreement with
enable, a joint venture of KN Energy, Inc. ("KN") and PacifiCorp. Jordan
Haines, a Director of Qwest, is also a Director of KN. Qwest's One Plus and
Calling Card services (with competitive international pricing for both) will
be offered to utilities across the nation along with other services provided
by enable under its Simple Choice SM brand name.

COMPETITION

There are currently four principal facilities-based long distance fiber
optic networks. Qwest is aware that others are planning additional networks
that, if constructed, could employ advanced technology similar to the Qwest
Network. Upon completion of the Qwest Network, each of Frontier and GTE will
have a fiber network similar in geographic scope and potential operating
capability to that of Qwest. Another competitor is constructing, and has
already obtained a significant portion of the financing for, a fiber optic
network. The scope and capacity of that competitor's network, as publicly
announced, is less than that of Qwest, and does not contain all of the
advanced technologies designed for the Qwest Network, but nevertheless is
expected to compete directly with the Qwest Network for many of the same
customers along a significant portion of the same routes. A carrier's carrier
announced in January 1998 that it plans to sell wholesale capacity on its
fiber optic network and that it has entered into an agreement with one of the
RBOCs to be the primary user of its network. Qwest believes that this network,
although potentially competitive, is different in operating capability from
the Qwest Network. Another potential competitor, a new telecommunications
company, has announced its intention to create a telecommunications network
based on Internet technology.

Qwest's competitors in Carrier Services include many large and small
interexchange carriers. Qwest's Carrier Services business competes primarily
on the basis of pricing, transmission quality, reliability and customer
service and support. Commercial Services has been and expects to continue to
be a provider of high quality, low cost service primarily to small- and
medium-sized business customers and consumers. Qwest intends to move into the
market for higher volume business customers as the Qwest Network is completed
and new products are introduced. In recent years the small- and medium-sized
business market has experienced increased competition. The industry wide
changes in technology and the effects of deregulation resulting from the
Telecommunications Act are likely to further increase competition. Many of
Qwest's competitors and potential competitors have

financial, personnel and other resources substantially greater than those of
Qwest. See "RISK FACTORS--Risk Factors Relating to Qwest and Its Business--
Competition" and "INDUSTRY OVERVIEW--Telecommunications Markets."

In the future, Qwest may be subject to additional competition due to the
development of new technologies and increased supply of domestic and
international transmission capacity. The telecommunications industry is in a
period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite transmission capacity
for services similar to those provided by Qwest. For instance, recent
technological advances permit substantial increases in transmission capacity
of both new and existing fiber, and the introduction of new products or
emergence of new technologies may reduce the cost or increase the supply of
certain services similar to those provided by Qwest. Qwest cannot predict
which of many possible future product and service offerings will be important
to maintain its competitive position or what expenditures will be required to
develop and provide such products and services.

High initial network cost and low marginal costs of carrying long distance
traffic have led to a trend among nonfacilities-based carriers to consolidate
in order to achieve economies of scale. Such consolidation could result in
larger, better capitalized competitors. However, Qwest believes that such
competitors would also be stronger prospects as potential Carrier Services
customers.

Qwest believes that its railroad rights-of-way offer a more secure route for
the Qwest Network than other types of rights-of-way. There can be no assurance
that competitors will not obtain rights to use railroad rights-of-way for
expansion of their networks, although Qwest believes that it would involve
significant time and effort for competitors to assemble railroad rights-of-way
comparable to those that Qwest already has available for the Qwest Network.

PROPERTIES

The Qwest Network in progress and its component assets are the principal
properties owned by Qwest. Qwest owns substantially all of the
telecommunications equipment required for its business. Qwest's installed
fiber optic cable is laid under the various rights-of-way held by Qwest. Other
fixed assets are located at various leased locations in geographic areas
served by Qwest. Qwest is opening sales offices in selected major geographic
locations.

Qwest's executive, administrative and sales offices and its Network
Management Center are located at its principal office in Denver, Colorado.
Qwest leases this space from an affiliate of Anschutz Company at market rates
under an agreement that expires in October 2004. Qwest also leases office
space in the Denver area for customer service operations. Qwest leases
additional space in Dallas, Texas, housing the headquarters for operation of
its Microwave System.

In December 1995, Qwest entered into an agreement (as amended in January
1997) with Ferrocarriles Nacionales de Mexico whereby Qwest was granted
easements for the construction of multiple conduit systems along railroad
rights-of-way within Mexico for consideration of approximately $7.7 million,
including $1.1 million in value-added taxes. Qwest has capitalized total
costs, including right-of-way, equipment, construction and design costs,
relating to this investment of approximately $13.0 million as of December 31,
1996.

In July 1997, Qwest entered into an agreement with an unrelated third party
whereby Qwest will receive (i) four dark fibers along a 2,270 kilometer route
to be constructed in Mexico by the third party, and (ii) certain construction
inventory and value-added tax refunds, totaling approximately $2.9 million. In
exchange for these assets, the third party will receive the stock of Qwest's
subsidiary, SP Servicios de Mexico S.A. de C.V., and approximately $6.7
million in cash.

EMPLOYEES

As of September 30, 1997, Qwest employed approximately 1,290 employees of
which 130 perform corporate and administrative services, 810 provide Network
Construction Services, 105 provide Commercial Services, 20 provide Carrier
Services, and 225 perform network engineering and related functions. Qwest
uses the services of independent contractors for installation and maintenance
of portions of the Qwest Network. None of Qwest's employees are currently
represented by a collective bargaining agreement. Qwest believes that its
relations with its employees are good.

LEGAL PROCEEDINGS

Qwest and its subsidiaries are subject to various claims and proceedings in
the ordinary course of business. Based on information currently available,
Qwest believes that none of such current claims or proceedings, individually
or in the aggregate, will have a material adverse effect on Qwest's financial
condition or results of operations, although there can be no assurances in
this regard.

REGULATION

GENERAL REGULATORY ENVIRONMENT

Qwest's operations are subject to extensive federal and state regulation.
Carrier Services and Commercial Services (but not Network Construction
Services) are subject to the provisions of the Communications Act of 1934, as
amended, including the Telecommunications Act and the FCC regulations
thereunder, as well as the applicable laws and regulations of the various
states, including regulation by PUCs and other state agencies. Federal laws
and FCC regulations apply to interstate telecommunications (including
international telecommunications that originate or terminate in the United
States), while state regulatory authorities have jurisdiction over
telecommunications both originating and terminating within the state. The
regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. Moreover, as
deregulation at the federal level occurs, some states are reassessing the
level and scope of regulation that may be applicable to Qwest. All of Qwest's
operations are also subject to a variety of environmental, safety, health and
other governmental regulations. There can be no assurance that future
regulatory, judicial or legislative activities will not have a material
adverse effect on Qwest, or that domestic or international regulators or third
parties will not raise material issues with regard to Qwest's compliance or
noncompliance with applicable regulations.

The Telecommunications Act may have potentially significant effects on the
operations of Qwest. The Telecommunications Act, among other things, allows
the RBOCs and GTE to enter the long distance business, and enables other
entities, including entities affiliated with power utilities and ventures
between LECs and cable television companies, to provide an expanded range of
telecommunications services. Entry of such companies into the long distance
business would result in substantial competition to Qwest's Commercial
Services and Carrier Services customers, and may have a material adverse
effect on Qwest and such customers. However, Qwest believes that the RBOCs'
and other companies' participation in the market will provide opportunities
for Qwest to sell fiber or lease long distance high volume capacity.

Under the Telecommunications Act, the RBOCs may immediately provide long
distance service outside those states in which they provide local exchange
service ("out-of-region" service), and long distance service within the
regions in which they provide local exchange service ("in-region" service)
upon meeting certain conditions. GTE may enter the long distance market
without regard to limitations by region. The Telecommunications Act does,
however, impose certain restrictions on, among others, the RBOCs and GTE in
connection with their provision of long distance services. Out-of-region
services by RBOCs are subject to receipt of any necessary state and/or federal
regulatory approvals that are otherwise applicable to the provision of
intrastate and/or interstate long distance service. In-region services by
RBOCs are subject to specific FCC approval and satisfaction of other
conditions, including a checklist of pro-competitive requirements. On December
31, 1997, the U.S. District Court, Northern District of Texas (Wichita Falls)
(the "District Court"), in SBC Communications, Inc. v. FCC and U.S. (the "SBC
Communications Case"), overturned as unconstitutional the provisions of the
Telecommunications Act which prohibited RBOCs from providing inter-LATA long
distance services within their own region without demonstrating that the local
exchange market was opened to local competition. The decision, however,
affects only SBC Communications, Inc., U.S. West Inc. and Bell Atlantic. Bell
South has filed a recent suit making similar claims. Ameritech has not yet
filed such a suit. On January 2, 1998, AT&T, MCI and other intervenors in the
SBC Communications Case filed a petition for stay with the District Court. On
January 5, 1997, the FCC also filed a petition for stay of the decision in the
District Court. In an order entered on January 22, 1998, the Eighth Circuit
Court of Appeals ruled that the FCC may not require the RBOCs to comply with
other checklist items, the FCC's standard for pricing of access and
interconnection, as a condition of providing in-region service. Under the
Telecommunications Act, the RBOCs may provide in-region long distance services
only through separate subsidiaries with separate books and records, financing,
management and employees, and

all affiliate transactions must be conducted on an arm's length and
nondiscriminatory basis. The RBOCs are also prohibited from jointly marketing
local and long distance services, equipment and certain information services
unless competitors are permitted to offer similar packages of local and long
distance services in their market. Further, the RBOCs must obtain in-region
long distance authority before jointly marketing local and long distance
services in a particular state. Additionally, AT&T and other major carriers
serving more than 5% of resubscribed long distance access lines in the United
States are also restricted from packaging other long distance services and
local services provided over RBOC facilities. GTE is subject to the provisions
of the Telecommunications Act that impose interconnection and other
requirements on LECs, and must obtain regulatory approvals otherwise
applicable to the provision of long distance services in connection with its
providing long distance services.

FEDERAL REGULATION

The FCC has classified QCC, Qwest's principal operating subsidiary, as a
non-dominant carrier. Generally, the FCC has chosen not to exercise its
statutory power to closely regulate the charges, practices or classifications
of non-dominant carriers. However, the FCC has the power to impose more
stringent regulation requirements on Qwest and to change its regulatory
classification. In the current regulatory atmosphere, Qwest believes that the
FCC is unlikely to do so with respect to Qwest's domestic service offerings.

The FCC regulates many of the charges, practices and classifications of
dominant carriers to a greater degree than non-dominant carriers. Among
domestic carriers, large LECs and the RBOCs are currently considered dominant
carriers for the provision of interstate access services, while all other
interstate service providers are considered non-dominant carriers. On April
18, 1997, the FCC ordered that the RBOCs and independent LECs offering
domestic interstate inter-LATA services, in-region or out-of-region, be
regulated as non-dominant carriers. However, such services offered in-region
must be offered in compliance with the structural separation requirements
mentioned above. AT&T was classified as a dominant carrier, but AT&T
successfully petitioned the FCC for non-dominant status in the domestic
interstate interexchange market in October 1995 and in the international
market in May 1996. Therefore, certain pricing restrictions that once applied
to AT&T have been eliminated. A number of parties sought the FCC's
reconsideration of AT&T's status, but the FCC denied these petitions on
October 9, 1997.

As a non-dominant carrier, QCC may install and operate facilities for the
transmission of domestic interstate communications without prior FCC
authorization, so long as QCC obtains all necessary authorizations from the
FCC for use of any radio frequencies. Non-dominant carriers are required to
obtain prior FCC authorization to provide international telecommunications,
and Qwest has obtained international authority that permits it to operate as a
facilities-based carrier to all permissible international points and to
operate as a resale carrier (including the resale of private lines for the
provision of switched services) to all permissible points. The FCC also
imposes prior approval requirements on certain transfers of control and
assignments of operating authorizations. Non-dominant carriers are required to
file periodic reports with the FCC concerning their interstate circuits and
deployment of network facilities. International carriers are also required to
file periodic reports regarding traffic and revenue and regarding circuit
status and additions. Qwest is required to offer its interstate services on a
nondiscriminatory basis, at just and reasonable rates, and remains subject to
FCC complaint procedures. While the FCC generally has chosen not to exercise
direct oversight over cost justification or levels of charges for services of
non-dominant carriers, the FCC acts upon complaints against such carriers for
failure to comply with statutory obligations or with the FCC's rules,
regulations and policies. Qwest or any of its operating subsidiaries could be
subject to legal actions seeking damages, assessment of monetary forfeitures
and/or injunctive relief filed by any party claiming to have been injured by
Qwest's practices. Qwest cannot predict either the likelihood of the filing of
any such complaints or the results if filed.

Under existing regulations, non-dominant carriers are required to file with
the FCC tariffs listing the rates, terms and conditions of both interstate and
international services provided by the carrier. Pursuant to such regulations,
Qwest has filed with the FCC tariffs for its interstate and international
services. On October 29, 1996, the FCC adopted an order in which it
eliminated, as of September 1997, the requirement that non-dominant interstate
carriers such as Qwest maintain tariffs on file with the FCC for domestic
interstate services and in fact prohibited the filing of such tariffs,
although tariffs for international service must still be filed. Such carriers
were given the option to cease filing tariffs during a nine-month transition
period that concluded on September 22, 1997. The FCC's order was issued
pursuant to authority granted to the FCC in the Telecommunications Act to
"forbear" from regulating any telecommunications service provider if the FCC
determines that the public interest will be served. However, on February 19,
1997, the United States Court of Appeals for the District of Columbia Circuit
stayed the FCC's order pending further expedited judicial review or FCC
reconsideration or both. In August 1997, the FCC issued an order on
reconsideration in which it affirmed its decision to impose complete or
mandatory detariffing, although it decided to allow optional or permissive
tariffing in certain limited circumstances (including for interstate,
domestic, interexchange dial-around services, which end users access by
dialing a carrier's 10XXX access code). Petitions for further reconsideration
of this order are pending, and this order also remains subject to the Court of
Appeals' stay pending further judicial review and the pending appeals of the
order on reconsideration. Qwest cannot predict the ultimate outcome of these
or other proceedings on its service offerings or operations.

On May 8, 1997, the FCC released an order intended to reform its system of
interstate access charges to make that regime compatible with the pro-
competitive deregulatory framework of the Telecommunications Act. Access
service is the use of local exchange facilities for the origination and
termination of interexchange communications. The FCC's historic access charge
rules were formulated largely in anticipation of the 1984 divestiture of AT&T
and the emergence of long distance competition, and were designated to replace
piecemeal arrangements for compensating LECs for use of their networks for
access, to ensure that all long distance companies would be able to originate
and terminate long distance traffic at just, reasonable, and non-
discriminatory rates, and to ensure that access charge revenues would be
sufficient to provide certain levels of subsidy to local exchange service.
While there has been pressure on the FCC historically to revisit its access
pricing rules, the Telecommunications Act has made access reform timely. The
FCC's recent access reform order adopts various changes to its rules and
policies governing interstate access service pricing designed to move access
charges, over time, to more economically efficient levels and rate structures.
Among other things, the FCC modified rate structures for certain non-traffic
sensitive access rate elements, moving some costs from a per-minute-of-use
basis to flat-rate recovery, including one new flat rate element; changed its
structure for interstate transport services; and affirmed that ISPs may not be
assessed interstate access charges. In response to claims that existing access
charge levels are excessive, the FCC stated that it would rely on market
forces first to drive prices for interstate access to levels that would be
achieved through competition but that a "prescriptive" approach, specifying
the nature and timing of changes to existing access rate levels, might be
adopted in the absence of competition. The FCC intends to address these and
other related matters in subsequent proceedings. Several parties have filed
petitions for reconsideration or judicial appeals or both of this order, many
of which are still pending. Though Qwest believes that access reform through
lowering and/or eliminating excessive access service charges will have a
positive effect on its service offerings and operations, it cannot predict how
or when such benefits may present themselves, or the outcome of the pending
judicial appeals or petitions for FCC reconsideration.

The FCC also released a companion order on universal service reform on May
8, 1997. The universal availability of basic telecommunications service at
affordable prices has been a fundamental element of U.S. telecommunications
policy since enactment of the Communications Act of 1934. The current system
of universal service is based on the indirect subsidization of LEC pricing,
funded as part

of a system of direct charges on some LEC customers, including interexchange
carriers such as QCC, and above-cost charges for certain LEC services such as
local business rates and access charges. In accordance with the
Telecommunications Act, the FCC adopted plans to implement the recommendations
of a Federal-State Joint Board to preserve universal service, including a
definition of services to be supported, and defining carriers eligible for
contributing to and receiving from universal service subsidies. The FCC ruled,
among other things, that: contributions to universal service funding be based
on all interexchange carriers' gross retail revenues from both interstate and
international telecommunications services; only common carriers providing a
full complement of defined local services be eligible for support; and up to
$2.25 billion in new annual subsidies for discounted telecommunications
services used by schools, libraries, and rural health care providers be funded
by an assessment on total interstate and intrastate revenues of all
interexchange carriers. The FCC stated that it intends to study the mechanism
for continued support of universal service in high cost areas in a subsequent
proceeding. Several parties have filed petitions for reconsideration or
judicial appeals on both of this order, many of which are still pending. Qwest
is unable to predict the outcome of the further FCC proceedings or of the
pending judicial appeals or petitions for FCC reconsideration on its
operations. Qwest anticipates that it will be required to contribute in 1998 a
percentage of its gross retail revenue to the universal services fund and
plans to include charges for these contributions in its 1998 billings.

On April 11, 1997, the FCC released an order requiring that all carriers
transition from three-digit to four-digit Carrier Identification Codes
("CICs") by January 1, 1998. CICs are the suffix of a carrier's Carrier Access
Code ("CAC"), and the transition will expand CACs from five (10XXX) to seven
digits (101XXXX). These codes permit customers to reach their carrier of
choice from any telephone. Parties filed petitions for reconsideration of this
design, arguing in part that this short transition (following the FCC's
proposal for a six-year transition) does not permit carriers sufficient time
to make necessary hardware and software upgrades or to educate their customers
regarding the need to dial additional digits to reach their carrier of choice.
In response to these petitions, the FCC on October 22, 1997 issued an order on
reconsideration that modified the transition to create a "two-step" process.
LECs must have completed switch changes to recognize the new codes by January
1, 1998, but interexchange carriers have until June 30, 1998 to prepare for
and educate their consumers about the change to new codes. Petitions for
reconsideration and judicial appeals of the FCC's orders are pending. Qwest
cannot predict the outcome of these proceedings or whether this transition
period will permit adequate customer notification.

Qwest's Microwave System subsidiary is subject to applicable FCC regulations
for the use of radio frequencies. The FCC issues domestic microwave radio
licenses for limited periods not to exceed 10 years. Qwest must seek renewal
of such licenses prior to their expiration. Qwest knows of no facts that would
result in the denial of any such renewals, although there can be no assurance
in that regard. Although the FCC has never denied a microwave license
application made by Qwest, there can be no assurance that Qwest will receive
all authorizations or licenses necessary to implement its business plan or
that delays in the licensing process will not adversely affect Qwest's
business.

The Communications Act of 1934 limits the ownership by non-U.S. citizens,
foreign corporations and foreign governments of an entity directly or
indirectly holding a common carrier radio license. These ownership
restrictions apply to Qwest's Microwave System but currently do not apply to
non-radio facilities, such as fiber optic cable. The FCC adopted rules
relating to requests to exceed the statutory limit on indirect foreign
ownership of common carrier radio licenses, and the participation of foreign
carriers or U.S. entities with foreign carrier affiliates (generally an
ownership interest greater than 25% or a controlling interest) in an entity
holding U.S. international authority. Under those rules, the FCC has
scrutinized either form of foreign participation to determine whether the
relevant foreign market offers "effective competitive opportunities" ("ECO").
The FCC may impose restrictions (including prohibition of the proposed
participation or investment) on applicants not meeting the ECO

test. These rules have also required international carriers to notify the FCC
60 days in advance of an acquisition of a 10% or greater interest by a foreign
carrier in that U.S. carrier. The FCC has discretion to determine that unique
factors require application of the ECO test or a change in regulatory status
of the U.S. carrier even though the foreign carrier's interest is less than
25%. These rules also reduce international tariff notice requirements for
dominant, foreign-affiliated carriers from 45 days' notice to 14 days' notice.
Such reduced tariff notice requirements may make it easier for dominant,
foreign-affiliated carriers to compete with Qwest. The Telecommunications Act
partially amends existing restrictions on foreign ownership of radio licenses
by allowing corporations with non-U.S. citizen officers or directors to hold
radio licenses. Other non-U.S. ownership restrictions, however, currently
remain unchanged, but the U.S. has agreed in recent world trade negotiations
to allow for a significant increase in permissible foreign investment,
including 100% indirect foreign ownership of U.S. common carrier radio
licensees. On November 26, 1997, the FCC issued a new order that modified the
continued applicability of its ECO test in light of this agreement. In that
order, which is tentatively scheduled to become effective in February 1998,
the FCC eliminated the ECO test for applicants from WTO member countries
seeking international authority from the FCC or seeking to exceed the indirect
foreign ownership limits on US common carrier radio licenses. The FCC instead
adopted an open entry standard with a presumption that such participation by
WTO member countries is permissible. The FCC retained the ECO test, however,
for applicants from non-WTO member countries. The FCC also modified certain
dominant carrier safeguards and further reduced the tariff notice requirements
from 14 to one day's notice. Finally, the FCC raised the threshold for the
required 60-day advance notification of foreign carrier affiliations from 10%
to 25%. This order remains subject to judicial appeal and/or petitions for
reconsideration at the FCC. Although Qwest believes these changes will have a
positive effect on its ability to identify potential sources of capital, they
will also increase the number of competitors for international traffic. The
effect on Qwest of the Telecommunications Act or other new legislation,
negotiations or regulations which may become applicable to Qwest cannot be
determined.

INTERNATIONAL SETTLEMENTS

Under the international settlement system, international long distance
traffic is exchanged under bilateral correspondent agreements between
facilities-based carriers in two countries. Correspondent agreements generally
are three to five years in length and provide for the termination of traffic
in, and return traffic to, the carriers' respective countries at a negotiated
accounting rate, known as the Total Accounting Rate ("TAR"). In addition,
correspondent agreements provide for network coordination and accounting and
settlement procedures between the carriers. Both carriers are responsible for
their own costs and expenses related to operating their respective halves of
the end-to-end international connection.

Settlement costs, which typically equal one-half of the TAR, are the fees
owed to another international carrier for transporting traffic on its
facilities. Settlement costs are reciprocal between each party to a
correspondent agreement at a negotiated rate (which must be the same for all
U.S. based carriers, unless the FCC approves an exception). For example, if a
foreign carrier charges a U.S. carrier $0.30 per minute to terminate a call in
the foreign country, the U.S. carrier would charge the foreign carrier the
same $0.30 per minute to terminate a call in the United States. Additionally,
the TAR is the same for all carriers transporting traffic into a particular
country, but varies from country to country. The term "settlement costs"
arises because carriers essentially pay each other on a net basis determined
by the difference between inbound and outbound traffic between them.

The difference in cost between providing domestic long distance and
international service is minimal, and technical advances in facilities
deployed for international calling are making distance largely irrelevant to
cost. Increased worldwide competition has already brought about certain
reductions in settlement rates and end user prices, thereby reducing overseas
termination costs for United States based carriers. However, it is believed
that certain foreign countries use settlement rates to subsidize their
domestic call rates. As a result, domestic customers currently pay
significantly more

for an international call than they do for a domestic long distance call. The
FCC has adopted measures intended to overhaul the system of international
settlements by mandating that U.S. carriers negotiate settlement rates with
foreign correspondents at or below FCC-mandated benchmark levels. Several
parties have filed petitions for reconsideration with the FCC or judicial
appeals or both following this order, so it remains subject to modification.
Additionally, recent worldwide trade negotiations may have a significant
impact on settlement rates.

Qwest believes that the average cost of international telephone calls will
be reduced, and anticipates further international opportunities will be
created as a result of recent worldwide trade negotiations. On February 15,
1997, representatives of 70 countries, including the United States, finalized
the World Trade Organization ("WTO") Basic Telecommunications Agreement ("WTO
Agreement"), a compact addressing market access, investment and pro-
competitive regulatory principles in areas currently generating over 95% of
the world's telecommunications revenue. The WTO Agreement was scheduled to
take effect January 1, 1998, but some countries have urged a delay to permit
member countries to complete their domestic implementation of the agreement.
Among other things, the agreement provides U.S. companies market access for
local, long distance and international service in 53 historically monopolized
countries through any means of network technology, either as a facilities-
based provider or as a reseller of existing network capacity. The countries
providing market access for telecommunications services as a result of the WTO
Agreement account for 99% of the world's telecommunications revenue. Although
some countries have reserved specific exceptions, the agreement generally
ensures that U.S. companies may acquire, establish, or hold a significant
stake in telecommunications companies around the world, and that foreign
companies may acquire, establish or hold such a stake in U.S.
telecommunications companies. Additionally, pro-competitive regulatory
principles based largely upon the Telecommunications Act were adopted by 65
countries within the WTO Agreement. U.S. companies will be able to enforce
these principles, as well as the WTO Agreement's market access and investment
commitments, at the WTO and through enabling legislation in the U.S. Qwest
expects to benefit from the anticipated effects of the WTO Agreement, but
cannot predict where or when such opportunities may present themselves.

STATE REGULATION

Qwest's intrastate long distance telecommunications operations are subject
to various state laws and regulations including, in many jurisdictions,
certification and tariff filing requirements.

Generally, Qwest must obtain and maintain certificates of authority from
regulatory bodies in most states in which it offers intrastate services. In
most of these jurisdictions Qwest must also file and obtain prior regulatory
approval of tariffs for its intrastate services. Certificates of authority can
generally be conditioned, modified, canceled, terminated, or revoked by state
regulatory authorities for failure to comply with state law and/or the rules,
regulations, and policies of the state regulatory authorities. Fines and other
penalties also may be imposed for such violations. Qwest is currently
authorized to provide intrastate services in 47 states, and has a pending
application for authority to provide intrastate services in one additional
state. Qwest intends to have authority in all states where competition is
allowed.

Those states that permit the offering of intrastate/intra-LATA service by
interexchange carriers generally require that end users desiring to use such
services dial special access codes. Historically, this has put Qwest at a
competitive disadvantage compared with LECs whose customers can make
intrastate/intra-LATA calls simply by dialing 1 plus the desired number. If a
long distance carrier's customer attempts to make an intra-LATA call by simply
dialing 1 plus the desired number, the call will be routed to and completed by
the LEC. Regulatory agencies in a number of states have issued decisions that
would permit Qwest and other interexchange carriers to provide intra-LATA
calling on a 1 + basis. Further, the Telecommunications Act requires in most
cases that the RBOCs provide such

dialing parity coincident to their providing in-region inter-LATA services.
Qwest expects to benefit from the ability to offer 1 + intra-LATA services in
states that allow this type of dialing parity.

LOCAL REGULATION

Qwest is occasionally required to obtain street use and construction permits
and licenses and/or franchises to install and expand its fiber optic network
using municipal rights-of-way. Termination of the existing franchise or
license agreements prior to their expiration dates or a failure to renew the
franchise or license agreements and a requirement that Qwest remove its
facilities or abandon its network in place could have a material adverse
effect on Qwest. In some municipalities where Qwest has installed or
anticipates constructing networks, it will be required to pay license or
franchise fees based on a percentage of gross revenue or on a per linear foot
basis. There can be no assurance that, following the expiration of existing
franchises, fees will remain at their current levels. In addition, Qwest could
be at a competitive disadvantage if its competitors do not pay the same level
of fees as Qwest. However, the Telecommunications Act requires municipalities
to manage public rights-of-way in a competitively neutral and non-
discriminatory manner.

OTHER

Qwest monitors compliance with federal, state and local regulations
governing the discharge and disposal of hazardous and environmentally
sensitive materials, including the emission of electromagnetic radiation.
Qwest believes that it is in compliance with such regulations, although there
can be no assurance that any such discharge, disposal or emission might not
expose Qwest to claims or actions that could have a material adverse effect on
Qwest.

SELECTED HISTORICAL FINANCIAL DATA OF QWEST

The selected data presented below under the captions "Statement of
Operations Data," "Other Financial Data" and "Balance Sheet Data" as of the
end of and for each of the years in the five-year period ended December 31,
1996 have been taken or derived from the historical audited Consolidated
Financial Statements of Qwest. The financial data as of the end of and for the
nine months ended September 30, 1997 and 1996 have been taken or derived from
unaudited interim financial statements. The unaudited interim financial
statements include all adjustments, consisting of normal recurring accruals,
that management considers necessary for a fair presentation of the financial
position as of the end of and results of operations for these interim periods.
Results of operations for the interim periods are not necessarily indicative
of the results of operations for a full year. Consolidated Financial
Statements of Qwest as of December 31, 1996 and 1995 and for each of the years
in the three-year period ended December 31, 1996 and unaudited interim
financial statements as of the end of and for the nine months ended September
30, 1997 and 1996 are included elsewhere in this Proxy Statement/Prospectus.
The information set forth below should be read in conjunction with the
discussion under "QWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," "BUSINESS OF QWEST" and the Historical
Consolidated Financial Statements and the unaudited Pro Forma Combined
Financial Statements of Qwest and the notes thereto, appearing elsewhere in
this Proxy Statement/Prospectus.

NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)

STATEMENT OF OPERATIONS
DATA:
Revenue:
Carrier
services(1)(2)(3)..... $41,561 53,064 50,240 67,789 57,573 45,106 39,062
Commercial services.... -- 969 8,712 20,412 34,265 25,475 38,033
------- ------- ------- ------- ------- ------- -------
41,561 54,033 58,952 88,201 91,838 70,581 77,095
Network construction
services(4)........... 11,751 15,294 11,921 36,901 139,158 59,255 413,226
------- ------- ------- ------- ------- ------- -------
Total revenue.......... 53,312 69,327 70,873 125,102 230,996 129,836 490,321
------- ------- ------- ------- ------- ------- -------
Operating expenses
Telecommunications
services.............. 31,557 41,240 48,239 81,215 80,368 62,399 65,310
Network construction
services.............. 9,730 15,515 9,369 32,754 87,542 37,661 282,472
Selling, general and
administrative(5)..... 10,270 15,622 21,516 37,195 45,755 34,230 59,987
Growth share plan(6)... 2,000 2,600 -- -- 13,100 -- 69,320
Depreciation and
amortization.......... 5,020 5,270 2,364 9,994 16,245 11,890 13,114
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 58,577 80,247 81,488 161,158 243,010 146,180 490,203
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............. (5,265) (10,920) (10,615) (36,056) (12,014) (16,344) 118
Gain on sale of contract
rights(7).............. -- -- -- -- -- -- 9,296
Gain on sale of
telecommunications
service agreements(2).. -- -- -- -- 6,126 6,126 --
Gain on sale of
network(1)............. -- 126,521 -- -- -- -- --
Interest income
(expenses), net........ (2,687) (3,127) (28) (2,466) (4,373) (3,106) (2,974)
Other income (expense),
net.................... (610) (763) (42) 55 60 113 (1,986)
------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes........... (8,562) 111,711 (10,685) (38,467) (10,201) (13,211) 4,454
Income tax expense
(benefit).............. (1,988) 43,185 (3,787) (13,336) (3,234) (4,310) 2,191
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)..... $(6,574) 68,526 (6,898) (25,131) (6,967) (8,901) 2,263
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share(8)............... $ (0.04) 0.39 (0.04) (0.14) (0.04) (0.05) 0.01
Weighted average number
of shares
outstanding(8)......... 176,316 176,316 176,316 176,316 176,316 176,316 187,890

OTHER FINANCIAL DATA:
EBITDA(9)............... $ (855) (824) (6,338) (26,007) 6,912 (2,742) 11,246
Net cash provided by
(used in) operating
activities............. $ 1,377 (7,125) 3,306 (56,635) 32,524 (9,340) (60,072)
Net cash provided by
(used in) investing
activities............. $(11,202) 107,496 (41,712) (58,858) (52,622) (44,353) (196,304)
Net cash provided by
(used in) financing
activities............. $ 11,549 (95,659) 34,264 113,940 25,519 56,338 436,202
Capital
expenditures(10)....... $ 11,000 3,794 40,926 48,732 85,842 49,573 271,332

AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------ ------ ------- ------- ------- -------
(IN THOUSANDS)

- --------
(1) After deducting the carrying value of the assets sold and direct costs
associated with the 1993 Capacity Sale, Qwest recognized a gain of
approximately $126.5 million. See "QWEST'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS
OF QWEST."
(2) In July 1996, Qwest sold the telecommunications service agreements of its
dedicated line customer business on leased capacity to an unrelated third
party for $5.5 million and had received $4.5 million of the purchase
price in cash as of December 31, 1996. As a result of the sale, Qwest
recognized a gain of approximately $6.1 million. See "QWEST MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
(3) Qwest acquired the Microwave System through its purchase of Qwest
Transmission Inc. in January 1995, and the acquired company contributed
$13.2 million to total revenue for the year ended December 31, 1995.
(4) In 1996 and 1997, Qwest entered into construction contracts for sales of
dark fiber with Frontier, WorldCom and GTE whereby Qwest agreed to sell
dark fiber along the route of the Qwest Network for a purchase price of
approximately $952.0 million. As a result of the activity under these
agreements, Qwest recorded Network Construction Services revenue of
approximately $121.0 million in 1996 and approximately $374.0 million in
the nine months ended September 30, 1997. See "BUSINESS OF QWEST--The
Qwest Network--Dark Fiber Sales."
(5) Selling, general and administrative expenses include the following
nonrecurring expenses incurred by Qwest: (i) $5.6 million in 1993 to
provide for the transfer of customers to leased capacity as a result of
the 1993 Capacity Sale; (ii) $2.0 million in 1994 to relocate its
corporate headquarters from San Francisco to Denver and consolidate its
administrative functions in Denver; and (iii) $1.6 million and $2.6
million for the nine months ended September 30, 1996 and the twelve
months ended December 31, 1996, respectively, to restructure its
operations, including the direct sales group.
(6) Growth Share Plan expenses reflect compensation expense related to the
estimated increase in the value of the growth shares outstanding. Upon
completion of Qwest's initial public offering in June 1997 (the "Initial
Public Offering") certain Growth Shares vested in full, which resulted in
the issuance in July 1997 of 2,591,532 shares of Qwest Common Stock, as
adjusted to give effect to the Qwest Stock Split, as described in note
(8) below, net of cash payments of approximately $21.9 million related to
tax withholdings. See "QWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and note 15 to the
Consolidated Financial Statements of Qwest.
(7) In March 1997, Qwest sold certain contract rights related to the 1993
Capacity Sale for $9.0 million. As of September 30, 1997, Qwest has
received $9.0 million in consideration and has reduced its liability for
associated costs by approximately $0.7 million. See "QWEST'S MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
(8) Earnings (loss) per share and weighted average number of shares
outstanding are adjusted to give effect for all periods presented to the
Qwest 2 for 1 Stock Split to be effected in the form of a stock dividend
to Qwest shareholders of record on February 2, 1998, payable on February
24, 1998, and to reflect an increase in the authorized capital stock of
Qwest and a stock dividend of 172,980,000 shares, as adjusted for the
Qwest Stock Split, effected prior to the Initial Public Offering.

(9) EBITDA represents net earnings (loss) before interest, income taxes,
depreciation and amortization, certain nonrecurring expenses described in
note 5 above, gain on sale of contract rights in 1997, gain on sale of
telecommunications service agreements in 1996 and gain on the 1993
Capacity Sale (which are nonrecurring). EBITDA includes earnings from the
construction contracts for the sale of dark fiber that Qwest will use to
provide cash for the construction cost of the Qwest Network. EBITDA does
not represent cash flow for the periods presented and should not be
considered as an alternative to net earnings (loss) as an indicator of
Qwest's operating performance or as an alternative to cash flows as a
source of liquidity and may not be comparable with EBITDA as defined by
other companies. Qwest believes that EBITDA is commonly used by financial
analysts and others in the telecommunications industry. Without the
effect on Growth Share Plan expense, EBITDA would have been $20.0
million, $1.8 million and $1.1 million for the years ended December 31,
1996, 1993 and 1992, respectively, and $80.6 million for the nine months
ended September 30, 1997.
(10) Capital expenditures include expenditures for property and equipment,
accrued capital expenditures, capital expenditure financed with the
equipment credit facility and initial obligations under capital leases.

QWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
Qwest's audited Consolidated Financial Statements and unaudited interim
financial statements and the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus.

OVERVIEW

Qwest is a facilities-based provider of multi-media communications services
to interexchange carriers and other telecommunications entities ("Carrier
Services"), businesses and consumers ("Commercial Services") and constructs
and installs fiber optic communications systems for interexchange carriers and
other telecommunications entities, as well as for its own use ("Network
Construction Services"). Qwest is expanding its existing long distance network
into the Qwest Network, an approximately 16,000 route mile coast-to-coast,
technologically advanced, fiber optic telecommunications network. Management
believes that the Qwest Network will position Qwest to take advantage of the
rapidly growing demand for data transmission, multi-media and long haul voice
capacity.

Founded in 1988 as Southern Pacific Telecommunications Company, a subsidiary
of Southern Pacific Transportation Company ("Southern Pacific"), Qwest began
operations by constructing fiber optic conduit systems along Southern
Pacific's railroad rights-of-way primarily for major long distance carriers in
exchange for cash and capacity rights. Since then, Qwest has used its
construction operations as a platform to expand into the business of providing
telecommunications services. In 1995, Qwest enhanced its ability to provide
telecommunications services by acquiring the Microwave System through its
purchase of Qwest Transmission Inc. for $18.8 million and by completing and
activating the Cal-Fiber system. Qwest derives its revenue from Carrier
Services, Commercial Services and Network Construction Services.

In October 1997, Qwest and NSN consummated an agreement whereby Qwest
acquired from NSN all of the issued and outstanding shares of capital stock of
NSN's then wholly-owned subsidiary, SuperNet and the capital stock of SuperNet
issued at the closing of the acquisition, for $20.0 million in cash. The
acquisition was accounted for using the purchase method of accounting. See the
financial statements of SuperNet and the unaudited pro forma combined
financial statements of Qwest and the notes thereto appearing elsewhere in
this Proxy Statement/Prospectus.

Carrier Services. Carrier Services provide high volume and conventional
dedicated line services over Qwest's owned capacity and switched services over
owned and leased capacity to interexchange carriers and other
telecommunications providers. Qwest entered the Carrier Services market in
1988 by marketing and providing dedicated line services to other carriers
using the long distance capacity that it had received under construction
contracts to build conduit systems principally for MCI. Through the
acquisition of a carrier's carrier in 1990, Qwest increased its presence in
the Carrier Services market and expanded its geographic coverage of digital
dedicated line services to other long distance companies. Qwest sold
substantially all of its owned capacity rights and related equipment in 1993
in exchange for $185.0 million and the right to use excess capacity free of
charge to provide service to its dedicated line customers for the twelve-month
period following the date of the sale (the "1993 Capacity Sale"). As a result
of this arrangement, Qwest's cost of providing dedicated line services to its
carrier customers as a percentage of revenue was lower in 1994 than in
subsequent years. When this arrangement expired, the cost of providing
dedicated line services on a resale basis became substantially greater than
the cost of providing dedicated line services over Qwest's owned network.
Qwest sold its resale dedicated line services in July 1996 to another long
distance company, retaining primarily those dedicated line customers it
serviced on its owned network. As a result of this transaction, Qwest
experienced a reduction in revenue in 1996 and the first nine months of 1997

compared with prior periods; however, Qwest expects to increase Carrier
Services gross margins upon completion of segments of the Qwest Network as
additional owned capacity becomes available and Qwest expands its Carrier
Services customer base through increased sales and marketing efforts.

Revenues from Carrier Services are derived from high volume capacity
services, dedicated line services and switched services. Qwest provides high
volume transmission capacity services through service agreements for terms of
one year or longer. Dedicated line services are generally offered under
service agreements for an initial term of one year. High volume capacity
service agreements and dedicated line service agreements generally provide for
"take or pay" monthly payments at fixed rates based on the capacity and length
of circuit used. Customers are typically billed on a monthly basis and also
may incur an installation charge or certain ancillary charges for equipment.
After contract expiration, the contracts may be renewed or the services may be
provided on a month-to-month basis. Switched services agreements are generally
offered on a month-to-month basis and the service is billed on a minutes-of-
use basis. Revenues from carrier customers that are billed on a minutes-of-use
basis have the potential to fluctuate significantly based on changes in usage
that are highly dependent on differences between the prices charged by Qwest
and its competitors. Qwest, however, has not experienced significant
fluctuations to date. For the nine months ended September 30, 1997 and year
ended December 31, 1996, Qwest's five largest carrier customers accounted for
approximately 41.3% and 35.0% of Carrier Services revenue, respectively.

Commercial Services. Commercial Services provide long distance voice, data
and video services to businesses and consumers. Qwest entered the Commercial
Services market in June 1993 by offering and selling switched services
principally to small- and medium-sized businesses using one switch located in
Dallas, Texas. Qwest added switching capacity late in 1995 and during 1996 in
Denver, Los Angeles, Tampa, and Indianapolis. Qwest anticipates adding more
switching capacity to the Qwest Network as it becomes operational and as
minutes of traffic increase. Qwest plans to build on its Carrier Services
experience to expand its presence in the Commercial Services market by
developing its distinctive "ride the light" brand identity and aggressively
marketing its existing and planned voice, data and other transmission products
and services. Qwest plans to build direct end user relationships by developing
strong distribution channels, providing competitive pricing and superior
network quality and offering enhanced, market-driven services to businesses
and consumers.

Revenue from Commercial Services is recognized primarily on a minutes-of-use
basis. Commercial Services has generated revenue using three primary sales
channels: direct mail, agent and telemarketing. The Commercial Services market
is highly competitive and generally subject to significant customer attrition.
Qwest's attrition rates vary by product line and sales channel, and Qwest
typically has experienced an average monthly attrition rate ranging from 4% to
9%. The average attrition rate for the nine months ended September 30, 1997
has been consistent with historical rates. In September 1997, Qwest entered
into an arrangement with a third party under which they will jointly define
and test new broadband business multimedia services. Qwest has also entered
into marketing agreements in September 1997 with two additional third parties.
Under one of these agreements, the third party, a marketing company that
wholesales and retails telecommunications products on a national basis, will
be an authorized sales representative of Qwest, marketing Qwest's long-
distance products through affinity groups. Under the second of these
agreements, Qwest will offer its One Plus and Calling Card services (with
competitive international pricing for both) to utilities across the nation
along with other services provided by the third party under its Simple
Choice SM brand name.

Network Construction Services. Network Construction Services consist of the
construction and installation of fiber optic communication systems for
interexchange carriers and other telecommunications providers, as well as for
Qwest's own use. Qwest began operations in 1988 constructing fiber optic
conduit systems primarily for major long distance carriers in exchange for
cash and capacity rights. In 1996, Qwest entered into major construction
contracts for the sale of dark fiber to Frontier and WorldCom whereby Qwest
has agreed to install and provide dark fiber to each along

100

the Qwest Network. Qwest also entered into two substantial construction
contracts with GTE in 1997 for the sale of dark fiber along the entire route
of the Qwest Network. After completion of the Qwest Network, Qwest expects
that revenues from Network Construction Services will be less significant to
Qwest's operations. See "BUSINESS OF QWEST--The Qwest Network--Dark Fiber
Sales."

Revenues from Network Construction Services generally are recognized under
the percentage of completion method as performance milestones relating to the
contract are satisfactorily completed. Losses, if any, on uncompleted
contracts are expensed in the period in which they are identified and any
revisions to estimated profits on a contract are recognized in the period in
which they become known.

Pricing. Qwest believes that prices in the telecommunication services
industry will continue to decline as a result of reforms prompted by the
Telecommunications Act and reform of the rules governing access charges and
international settlement rates. Qwest also believes that such decreases in
prices will be partially offset by increased demand for telecommunications
services, and that the low cost base of the Qwest Network will give it a
competitive advantage relative to its competitors.

Operating Expenses. Qwest's principal operating expenses consist of expenses
for network construction incurred by Network Construction Services,
telecommunications services, SG&A and depreciation and amortization. Expenses
for Network Construction Services primarily consist of the costs to construct
the Qwest Network, including conduit, fiber cable, construction crews and
rights-of-way. Costs attributable to the construction of the Qwest Network for
Qwest's own use are capitalized.

Expenses for telecommunications services primarily consist of the cost of
leased capacity, LEC access charges, engineering and operating costs. Since
Qwest currently provides dedicated line services only over its own network,
the cost of providing these services generally does not include the cost of
leased capacity or LEC access charges. Expenses for switched services,
however, include these costs. Qwest leases capacity from other carriers to
extend its switched services for originating and terminating traffic beyond
its own network boundaries. LEC access charges, which are variable, represent
a significant portion of the total cost for switched services. Due in part to
these costs, revenues from switched services have lower gross margins than
revenues from dedicated line services provided by Qwest. When the Qwest
Network is completed and activated, Qwest will be able to serve more customer
needs over its own capacity on the Qwest Network. Furthermore, with additional
switched traffic on the Qwest Network, Qwest believes it will realize
economies of scale and thereby lower its cost of sales as a percentage of
revenue.

SG&A expenses include the cost of salaries, benefits, occupancy costs,
commissions, sales and marketing expenses and administrative expenses.
Commercial services sales and marketing expenses have been incurred primarily
through the use of its agent, telemarketing, and direct sales channels. Qwest
has incurred increased SG&A due to growth in revenue for Carrier Services and
Commercial Services and development of the Qwest Network. Qwest is continuing
to open commercial sales offices in selected major geographic markets to
implement Qwest's strategy, as segments of the Qwest Network become
operational. In addition, SG&A expenses have increased due to Qwest's
recruitment of experienced telecommunications industry personnel to implement
Qwest's strategy. Qwest anticipates that as it deploys and activates the Qwest
Network, expands its Carrier Services and Commercial Services and initiates
its direct sales operations, SG&A will continue to increase. See "MANAGEMENT
OF QWEST."

Qwest has a Growth Share Plan for certain of its employees and directors.
Growth Share Plan expense, included in Operating Expenses, reflects Qwest's
estimate of compensation expense with respect to the Growth Shares issued to
participants. A "Growth Share" is a unit of value based on the increase in
value of Qwest over a specified measuring period. Growth Shares granted under
the Plan generally vest at the rate of 20% for each full year of service
completed after the grant date subject to

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risk of forfeiture. Participants receive their vested portion of the increase
in value of the Growth Shares upon a triggering event, as defined, which
includes the end of a growth share performance cycle. Upon completion of the
Initial Public Offering in June 1997, certain Growth Shares vested in full and
became payable, which resulted in substantial compensation expense under the
Growth Share Plan in the second quarter of 1997. Qwest issued 2,591,532 shares
of Qwest Common Stock in July 1997, which were net of cash payments of amounts
related to tax withholdings, in settlement of the accrued liability related to
these Growth Shares. Effective with the Initial Public Offering, all holders
of Growth Shares not vested by virtue of the Initial Public Offering have been
granted nonqualified stock options under Qwest's Equity Incentive Plan, and
the value of their Growth Shares has been capped based upon the Initial Public
Offering price of $11.00 per share (as adjusted to reflect the Qwest Stock
Split). Future compensation expense relating to these nonvested Growth Shares
will be recognized over the remaining approximately four-year vesting period
and is estimated to be up to approximately $27.7 million in total as of
September 30, 1997. Payment of the liability related to these Growth Shares is
required to be paid in Qwest Common Stock, net of cash payments related to the
tax withholdings. Qwest does not anticipate any future grants under the Growth
Share Plan.

Qwest has created a project team, including internal and external resources,
that is in the process of identifying and addressing the impact on its
operating and application software and products of problems and uncertainties
related to the year 2000. Qwest expects to resolve year 2000 compliance issues
primarily through replacement and normal upgrades of its software and
products, the cost of which replacements and upgrades are included in Qwest's
estimated capital expenditures through 1999. However, there can be no
assurance that such replacements and upgrades can be completed on schedule and
within the estimated costs. See "RISK FACTORS--Risk Factors Relating to Qwest
and Its Business--Operating Losses and Working Capital Deficits."

RESULTS OF OPERATIONS

The table set forth below summarizes Qwest's percentage of revenue by source
and operating expenses as a percentage of total revenues:

NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ------ ------

Revenue:
Carrier Services.......... 78.0% 76.5% 70.9% 54.2% 24.9% 34.7% 8.0%
Commercial Services....... -- 1.4 12.3 16.3 14.8 19.6 7.8
----- ----- ----- ----- ----- ------ ------
78.0 77.9 83.2 70.5 39.7 54.3 15.8
Network Construction
Services................. 22.0 22.1 16.8 29.5 60.3 45.7 84.2
----- ----- ----- ----- ----- ------ ------
Total Revenue............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating Expenses:
Telecommunications
services................. 59.2 59.5 68.1 64.9 34.8 48.1 13.3
Network construction
services................. 18.3 22.4 13.2 26.2 37.9 29.0 57.6
Selling, general and
administrative........... 19.2 22.5 30.4 29.7 19.8 26.4 12.2
Growth Share Plan......... 3.8 3.8 -- -- 5.7 -- 14.1
Depreciation and
Amortization............. 9.4 7.6 3.3 8.0 7.0 9.1 2.8
----- ----- ----- ----- ----- ------ ------
Total Operating Expenses.. 109.9% 115.8% 115.0% 128.8% 105.2% 112.6% 100.0%

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996

Qwest reported net income of $2.3 million in the nine months ended September
30, 1997 compared to a net loss of $8.9 million in the same period of the
prior year. Excluding the effect of the compensation expense relating to the
Growth Share Plan, net of income tax, Qwest's reported net income would have
been approximately $46.6 million for the nine months ended September 30, 1997.

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Revenue. Total revenue increased $360.5 million, or 278%, during the nine
months ended September 30, 1997 as compared to the corresponding period in
1996. Revenue from Network Construction Services increased $354.0 million, or
597%, during the nine months ended September 30, 1997 as compared to the
corresponding period in 1996. The increase was due primarily to network
construction revenue from dark fiber sales to WorldCom, GTE and Frontier.
Carrier Services revenue decreased $6.0 million, or 13%, for the nine months
ended September 30, 1997 compared with the corresponding period in 1996,
primarily due to Qwest's sale of its resale dedicated line services on leased
capacity in July 1996. The sold business generated revenue of $18.8 million
for the nine months ended September 30, 1996. Exclusive of this revenue,
Carrier Services revenue increased $12.8 million, or 48%, during the nine
months ended September 30, 1997, as compared to corresponding period of 1996.
This increase in Carrier Services revenue was due primarily to increases in
revenue from carrier switched services and carrier dedicated line services
provided on the Qwest Network. Commercial Services revenue increased $12.6
million, or 49%, for the nine months ended September 30, 1997 as compared to
the corresponding period in 1996. The increase was due primarily to growth in
switched services provided to small- and medium-sized business and to
consumers as a result of continued expansion of Qwest's direct mail, agent and
telemarketing sales channels.

Operating Expenses. Total operating expenses increased $344.0 million, or
235%, during the nine months ended September 30, 1997 over the same period in
1996, due primarily to increases in telecommunication services, network
construction services, SG&A, Growth Share Plan and depreciation and
amortization expenses.

Expenses for telecommunications services increased $2.9 million, or 5%, for
the nine months ended September 30, 1997 compared to the corresponding period
in the prior year. The growth in telecommunications service expenses was
primarily attributable to the continued growth in switched services network
engineering and operations, partially offset by the reduction in expenses
resulting from the sale on July 1, 1996 of Qwest's dedicated line services on
leased capacity. Expenses for Network Construction Services increased $244.8
million, or 650%, in the nine months ended September 30, 1997 compared to the
corresponding period in 1996 due to costs of construction contracts relating
to increased dark fiber sales revenue.

SG&A increased $25.8 million, or 75%, in the nine months ended September 30,
1997 compared to the corresponding period of 1996. The increase was due
primarily to increases in expenses related to the following: Qwest's direct
mail sales program, the development of Qwest's new brand identity,
administrative and information services support of Qwest's growth, and
recruiting and hiring additional personnel. Qwest anticipates that as it
deploys the Qwest Network, expands its Carrier Services and Commercial
Services, and initiates its direct sales operations, SG&A will continue to
increase.

Qwest has estimated an increase in the value of Growth Shares primarily
triggered by the Initial Public Offering in June 1997, and has recorded
approximately $69.3 million of additional compensation expense in the nine
months ended September 30, 1997. No expense was recognized in the nine months
ended September 30, 1996, as there were no compensatory elements in that
period. As discussed above, as of September 30, 1997, Qwest anticipated total
additional expense of up to approximately $27.7 million through the year 2002
in connection with this plan.

Qwest's depreciation and amortization expense increased $1.2 million, or
10%, during the nine months ended September 30, 1997 from the corresponding
period in 1996. This increase resulted primarily from activating the Denver to
Sacramento segment of the Qwest Network in late July 1997, purchases of
additional equipment used in constructing the Qwest Network and purchases of
other fixed assets to accommodate Qwest's growth. Qwest expects that
depreciation and amortization expense will continue to increase in subsequent
periods as Qwest continues to activate additional segments of the Qwest
Network and amortizes the goodwill acquired with the SuperNet purchase
(discussed above).

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Interest and Other Income (Expense). Pursuant to the 1993 Capacity Sale,
Qwest obtained certain rights of first refusal to re-acquire network
communications equipment and terminal locations including leasehold
improvements should the purchaser, under that agreement, sell the network. In
the first quarter of 1997, Qwest sold certain of these rights to the purchaser
in return for $9.0 million in cash and the right to re-acquire certain
terminal facilities.

As previously discussed, Qwest sold a portion of its dedicated line services
in July 1996. During the transition of the service agreements to the buyer,
Qwest incurred certain facilities costs on behalf of the buyer, which were to
be reimbursed to Qwest. A dispute arose with respect to the reimbursement of
such costs and, as a result, Qwest made a provision of approximately $2.0
million in the first quarter of 1997.

During the nine months ended September 30, 1997 Qwest's net interest and
other expenses increased $2.0 million, as compared to the corresponding period
of 1996. Interest expense, net, increased $3.9 million, or 78%, during the
nine months ended September 30, 1997, as compared to the corresponding period
of 1996. This increase was due primarily to interest expense related to the
issuance of $250.0 million in principal amount of its 10 7/8% Senior Notes due
2007 (the "Senior Notes") on March 31, 1997, partially offset by additional
capitalized interest resulting from construction of the Qwest Network.
Interest income increased by $4.0 million, or 211%, during the nine months
ended September 30, 1997, attributable to the increase in cash equivalent
balances, which resulted from the issuance of the Senior Notes and the Initial
Public Offering. During the nine months ended September 30, 1997, Qwest's
other expense, net, increased $2.1 million, as compared to the corresponding
period of 1996 due primarily to the provision for transition service costs
described in the previous paragraph. Qwest expects interest expense to grow in
future periods due to the issuance in October 1997 of its 9.47% Senior
Discount Notes (discussed below) and the issuance in January 1998 of its New
Senior Discount Notes.

Income Taxes. Qwest is included in the consolidated federal income tax
return of Anschutz Company, and a tax sharing agreement provides for
allocation of tax liabilities and benefits to Qwest, in general, as though it
filed a separate tax return. Qwest's effective tax rate for the nine months
ended September 30, 1997 was higher than the statutory federal rate as a
result of permanent differences between book and tax expense relating to the
Growth Share Plan. Qwest's effective tax rate in the corresponding period of
1996 approximated the statutory federal rate.

Net Loss. Qwest realized net income of $2.3 million in the nine months ended
September 30, 1997 compared to a net loss of $8.9 million in the corresponding
period of 1996 as a result of the factors discussed above.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenue. Total revenue increased $105.9 million, or 85%, to $231.0 million
in 1996 from $125.1 million in 1995 due primarily to significantly higher
revenue from Network Construction Services, as well as increased revenue from
Commercial Services, offset in part by lower revenue from Carrier Services.
Revenue from Network Construction Services increased $102.3 million, or 277%,
to $139.2 million 1996 from $36.9 million in 1995 due to network construction
revenue from dark fiber sales approximately $121.0 million to WorldCom and
Frontier. Commercial Services revenue increased $13.9 million, or 68%, to
$34.3 million in 1996 from $20.4 million in 1995. This increase is largely
attributable to growth in wished services provided to small- and medium-sized
business and consumers as a result of the expansion of Qwest's agent,
telemarketing and direct mail sales channels. Carrier Services revenue
decreased $10.2 million or 15%, to $57.6 million in 1996 from $67.8 million in
1995 primarily due to deceases in revenue resulting from Qwest's sale of a
portion of its dedicated line services on leased capacity on July 1, 1996. The
sold business generated revenues of $18.8 million for the nine months ended
September 30, 1996 and $39.7 million for the year ended

104

December 31, 1995. The decrease in Carrier Services revenue was partially
offset by an increase in revenue from carrier switched services, which
increased to $19.4 million in 1996 from $13.8 million in 1995.

Operating Expenses. Total operating expenses increased $81.9 million, or
51%, to $243.0 million in 1996 from $161.2 million in 1995 due primarily to
increases in Network Construction Services, SG&A and compensation expenses
associated with the Growth Share Plan. Expenses for telecommunications
services decreased $0.8 million or 1%, to $80.4 million in 1996 from $81.2
million in 1995. The sale on July 1, 1996 of Qwest's dedicated line services
on leased capacity generated a reduction in expenses, which was partially
offset by telecommunications services expenses associated with the growth in
switched services and servicing the Qwest Network. Expenses for Network
Construction Services increased $54.8 million or 167%, to $87.5 minion in 1996
from $32.8 million in 1995. This increase was due to cost of construction
contracts relating to dark fiber sales.

SG&A expenses increased $8.6 million, or 23% to $45.8 million in 1996 from
$37.2 million in 1995. Qwest focused additional SG&A expenses as a result of
growth in Qwest's telecommunications services and the construction of the
Qwest Network, including additional sales commissions on higher revenue,
expenses incurred in the implementation of Qwest's direct mail sales channel
and expenses for customer service personnel added to support Qwest expansion
of its commercial customer base. The SG&A expenses in 1996 also included
restructuring expenses of $1.6 million incurred by Qwest as a result of its
decision to close 13 sales offices and the termination of approximately 130
employees involved in sales, marketing and administrative functions. As a
result of this restructuring, Qwest experienced a reduction in payroll,
commissions and rental expense. Qwest anticipates that as it deploys the Qwest
Network and expands its Carrier Services and Commercial Services, SG&A
expenses will continue to increase.

Under the Growth Share Plan, Qwest estimated a $13.1 million increase in
value of the growth shares at December 31, 1996, due to the Frontier dark
fiber sale. No expense was recognized for the year ended December 31, 1995, as
there were no significant compensatory elements in those periods.

Qwest's depreciation and amortization expense increased $6.3 million, or
63%, to $16.2 million in 1996 from $10.0 million in 1995. This increase was
primarily due to Qwest's investment in the Qwest Network. Qwest expects that
depreciation and amortization expense will continue to increase in subsequent
periods as Qwest continues to invest in the Qwest Network.

Interest and Other Income (Expense). Qwest's net interest and other expenses
increased $1.9 million, or 79%, to $4.3 million in 1996 from $2.4 million in
1995. This increase was primarily attributable to additional debt incurred in
1996 to finance capital expenditures and to provide working capital.

Income Taxes. Qwest is included in the consolidated federal income tax
return of Anschutz Company, and a tax sharing agreement provides for
allocation of tax liabilities and benefits to Qwest, in general, as though it
filed a separate tax return. Qwest's effective tax rate in 1996 and 1995
approximated the statutory federal rate. The difference between the income tax
benefit of $13.3 million in 1995 compared to $3.2 million benefit in 1996
resulted from a $28.3 million decrease in loss before income tax benefit from
$38.5 million in 1995 to $10.2 million in 1996.

Net Loss. Qwest experienced a net loss of $7.0 million in 1996 compared to a
net loss of $25.1 million in 1995 as a result of the factors discussed above.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Revenue. Total revenue increased $54.2 million, or 77%, to $125.1 million in
1995 from $70.9 million in 1994 due to growth in revenue in each of the three
services provided by Qwest. Revenue

105

from Carrier Services increased $17.5 million, or 35%, to $67.8 million in
1995 from $50.2 million in 1994 primarily as a result of Qwest's acquisition
of the Microwave System, which contributed $13.2 million in revenue in 1995.
Commercial Services revenue increased $11.7 million, or 134%, to $20.4 million
in 1995 from $8.7 million in 1994 due to increased business arising from
Qwest's marketing efforts. Revenue from Network Construction Services
increased $25.0 million, or 210%, to $36.9 million in 1995 from $11.9 million
in 1994, primarily due to increased revenue under a contract with MCI for the
construction of fiber optic conduit routes.

Operating Expenses. Total operating expenses increased $79.7 million, or
98%, to $161.2 million in 1995 from $81.5 million in 1994. Expenses for
telecommunications services increased $33.0 million, or 68%, to $81.2 million
in 1995 from $48.2 million in 1994 primarily due to increased costs of
providing long distance and dedicated line services associated with growth in
volume and the expiration of free leased capacity under the facility agreement
related to the 1993 Capacity Sale, partially offset by savings derived from
transferring dedicated line services customers from leased capacity to the
Cal-Fiber system. Expenses for Network Construction Services increased $23.4
million, or 250%, to $32.8 million in 1995 compared to $9.4 million in 1994.
The increase in operating expenses was due in large part to increased
construction activity under a contract with MCI for the construction of
conduit routes.

SG&A expenses increased $15.7 million, or 73%, to $37.2 million in 1995 from
$21.5 million in 1994. This increase was primarily attributable to the
expansion in Qwest's sales and marketing efforts and an increase in
administrative expenses due to the expansion of Qwest's administrative
organization to support the growth in revenue.

Depreciation and amortization expense increased $7.6 million, or 323%, to
$10.0 million in 1995 from $2.4 million in 1994 primarily due to the
investment in the Microwave System and the Cal-Fiber system becoming fully
operational in early 1995.

Interest and Other Income (Expense). Qwest's net interest and other expenses
increased $2.3 million to $2.4 million in 1995 from $0.1 million in 1994 as a
result of additional debt incurred in 1995 to finance the acquisition of the
Microwave System and the interest charges related to financing the Cal-Fiber
system. Interest charges related to the Cal-Fiber system were capitalized
during the construction period, which was completed in February 1995.

Net Loss. Qwest experienced a net loss of $25.1 million in 1995 compared to
a net loss of $6.9 million in 1994 as a result of the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

From 1994 through March 31, 1997, Qwest funded capital expenditures, debt
service and cash used in operations through a combination of stockholder
advances, capital contributions and external borrowings supported by
collateral owned by its parent or affiliates, as well as external borrowings
collateralized by certain of Qwest's assets. During the six months ended
September 30, 1997, Qwest funded capital expenditures and long-term debt
repayments primarily through the net proceeds of approximately $319.5 million
from the Initial Public Offering, net proceeds of approximately $242.0 million
from the issuance of the Senior Notes on March 31, 1997 and net proceeds of
approximately $342.6 million from the issuance of the Senior Discount Notes on
October 15, 1997. Qwest also received net proceeds of approximately $299.2
million from the issuance of the New Senior Discount

106

Notes in January 1998. For a description of the New Senior Discount Notes, see
"BUSINESS OF QWEST--Recent Developments." Qwest intends to finance its
operations in the future through internally generated and external funds
without relying on cash advances, contributions or guarantees from the Parent.

Qwest's operations generated insufficient cash flows from 1994 through the
nine months ended September 30, 1997 to enable it to meet its capital
expenditures, debt service and other cash needs. Total cash expended from
January 1, 1994 to September 30, 1997 to fund capital expenditures, repayments
of long-term debt to third parties, repayment of net advances from Qwest's
parent; and the acquisition of the Microwave System was approximately $349.7
million, $209.7 million, $22.1 million and $12.5 million, respectively. Total
cash used in operations was approximately $80.9 million during the same
period. Total cash provided during this same period by loans secured by
collateral owned by its parent or an affiliate and capital contributions from
its parent were approximately $138.0 million and $48.9 million, respectively.
In addition, during this same period, Qwest's net cash provided by secured
borrowings under long-term debt agreements with third parties aggregated $93.0
million. As of September 30, 1997, Qwest had positive working capital of
$221.1 million. At December 31, 1996, 1995 and 1994, Qwest had working capital
deficits of approximately $69.4 million, $2.6 million and $11.9 million,
respectively.

In October 1997, Qwest issued $555,890,000 in principal amount at maturity
of its 9.47% Series B Senior Discount Notes (the "Senior Discount Notes"),
generating net proceeds of approximately $342.6 million, after deducting
offering costs which are included in intangible and other long-term assets and
will be amortized to interest expense over the term of the Senior Discount
Notes. The net proceeds will be used to fund capital expenditures for
continuing construction and activation of the Qwest Network and to fund
further growth in the business. The Senior Discount Notes will accrete at a
rate of 9.47% per annum, compounded semi-annually, to an aggregate principal
amount of $555,890,000 by October 15, 2002. The principal amount of the Senior
Discount Notes is due and payable in full on October 15, 2007. The Senior
Discount Notes are redeemable at Qwest's option, in whole or in part, at any
time on or after October 15, 2002, at specified redemption prices. In
addition, prior to October 15, 2000, Qwest may use the net cash proceeds from
certain specified equity transactions to redeem up to 35% of the Senior
Discount Notes at specified redemption prices. Cash interest on the Senior
Discount Notes will not accrue until October 15, 2002, and thereafter will
accrue at a rate of 9.47% per annum, and will be payable semi-annually in
arrears commencing on April 15, 2003 and thereafter on April 15 and October 15
(each an interest payment date) of each year. Qwest has the option of
commencing the accrual of cash interest on an interest payment date on or
after October 15, 2000, in which case the outstanding principal amount at
maturity of the Senior Discount Notes will, on such interest payment date, be
reduced to the then accreted value, and cash interest will be payable on each
interest payment date thereafter. The indenture for the Senior Discount Notes
contains certain covenants that are substantially identical to the Senior
Notes described below and the New Senior Discount Notes described in "BUSINESS
OF QWEST--Recent Developments."

In connection with the sale of the Senior Discount Notes, Qwest agreed to
make an offer to exchange (the "Exchange Offer") new notes, registered under
the Securities Act and with terms identical in all material respects to the
Senior Discount Notes (the "Exchange Notes"), for the Senior Discount Notes.
Qwest filed a registration statement with respect to the Exchange Offer which
was declared effective by the Commission on January 5, 1998. The Exchange
Offer is scheduled to expire February 18, 1998, unless extended. If the
Exchange Offer registration statement ceases to be effective during specified
time periods (a "Registration Default"), additional cash interest will accrue
at a rate per annum equal to 0.50% of the principal amount at maturity of the
Senior Discount Notes during the 90-day period immediately following the
occurrence of a Registration Default and increasing in increments of 0.25% per
annum of the principal amount at maturity of the Senior Discount Notes up to a
maximum of 2.0% per annum, at the end of each subsequent 90-day period until
the Registration Default is cured.

107

In June 1997, Qwest received approximately $319.5 million in net proceeds
from the sale of 31,050,000 shares of Qwest Common Stock in its Initial Public
Offering.

In March 1997, Qwest issued and sold $250.0 million in principal amount of
its 10 7/8% Senior Notes due 2007 (the "Senior Notes"), the net proceeds
(approximately $242.0 million) of which were used to repay certain long-term
debt and to fund a portion of capital expenditures required to construct
segments of the Qwest Network. Issuance costs totaling approximately $8.0
million are being amortized to interest expense over the term of the Senior
Notes. Interest on the Senior Notes is payable semi-annually on April 1 and
October 1 of each year, commencing on October 1, 1997, and the principal
amount of the Senior Notes is due and payable in full on April 1, 2007. The
Indenture for the Senior Notes (the "Indenture") contains certain covenants
that, among other things, limit the ability of Qwest and certain of its
subsidiaries (the "Restricted Subsidiaries") to incur additional indebtedness
and issue preferred stock, pay dividends or make other distributions,
repurchase capital stock or subordinated indebtedness, create certain liens,
enter into certain transactions with affiliates, sell assets of Qwest or its
Restricted Subsidiaries, issue or sell capital stock of Qwest's Restricted
Subsidiaries or enter into certain mergers and consolidations. In addition,
under certain limited circumstances, Qwest will be required to offer to
purchase the Senior Notes at a price equal to 100% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase with the
excess proceeds of certain asset sales. In the event of a Change of Control
(as defined in the Indenture), holders of the Senior Notes will have the right
to require Qwest to purchase all of their Senior Notes at a price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid
interest. Generally, the Senior Notes are redeemable, at the option of Qwest,
at stated premiums over par on or after April 1, 2002, and up to 35% of the
Senior Notes may be redeemed at a premium over par prior to April 1, 2000 with
the proceeds of certain public stock offerings.

In August 1997, Qwest completed an exchange of new Senior Notes (with terms
identical in all material respects to the originally issued Senior Notes),
registered under the Securities Act, for all of the originally issued Senior
Notes. Qwest received no proceeds from and recognized no profit on the
exchange transaction, and no change in the financial condition of Qwest
occurred as a result of the exchange transaction.

In April 1995, Qwest entered into a secured construction loan facility with
Bank of Nova Scotia used to fund certain conduit installation projects.
Borrowings under the facility are secured by certain construction contracts
and notes payable to Qwest. The facility converted into term loan, with $4.1
million maturing November 27, 1997 and $10.9 million maturing February 27,
1998. Borrowings bear interest at Qwest's option at either: (i) the higher of
a floating base rate announced by the lender or the federal funds rate plus
one half of one percent plus an applicable margin; or (ii) LIBOR plus an
applicable margin. At September 30, 1997, the outstanding principal balance
was $15.0 million. In November 1997, Qwest repaid $4.1 million of the
outstanding principal.

Qwest had a $100.0 million three-year revolving credit facility, convertible
to a two-year term loan maturing on April 2, 2001. In October 1997, Qwest
repaid the then outstanding balance of $10.0 million and terminated this
credit facility. Qwest is considering obtaining a new bank credit facility of
equal or lesser amount, which may be secured or unsecured, as permitted under
the indentures for the Senior Notes, Senior Discount Notes and New Senior
Discount Notes.

In May 1997, Qwest and Nortel, individually and as agent for itself and
other specified lenders, entered into a $90.0 million credit agreement (the
"Equipment Credit Facility") to finance the transmission electronics equipment
to be purchased from Nortel under a procurement agreement. Under the Equipment
Credit Facility, Qwest may borrow funds as it purchases the equipment to fund
up to 75% of the purchase price of such equipment and related engineering and
installation services provided by Nortel, with the purchased equipment and
related items serving as collateral for the loans. Principal amounts
outstanding under the Equipment Credit Facility will be payable in quarterly

108

installments commencing on June 30, 2000, with repayment in full due and
payable on March 31, 2004. Borrowings will bear interest at Qwest's option at
either: (i) a floating base rate announced by a designated reference bank plus
an applicable margin; or (ii) LIBOR plus an applicable margin. As of September
30, 1997, approximately $8.1 million was outstanding under the Equipment
Credit Facility.

The Equipment Credit Facility contains covenants that, among other things,
restrict application of the loan proceeds to the purchase of the Nortel
equipment and related engineering and installation services provided by
Nortel, place limitations on certain asset dispositions and sales of
collateral, and require QCC's direct compliance with the debt-service ratios
to which it is subject as a Restricted Subsidiary under the indenture for the
Senior Discount Notes. Initial extensions of credit are subject to certain
conditions, among others, requiring that QCC deliver to the agent for the
benefit of the lenders security interests, in form and substance satisfactory
to the agent, in the equipment to be purchased. The Equipment Credit Facility
generally permits QCC to pay dividends and make distributions in respect to
its capital stock except where such payments would impair QCC's ability, for
the three-month period following such dividend or distribution, to repay
indebtedness incurred under the Equipment Credit Facility, and authorizes QCC
to pay dividends and make distributions to Qwest in order to allow Qwest to
satisfy its obligations with respect to the Senior Discount Notes and other
debt that is solely an obligation of Qwest. The Equipment Credit Facility
contains certain events of default including, among other things, failure to
pay, breach of the agreement and insolvency. Upon the occurrence of an event
of default, the Equipment Credit Facility agreement permits the agent to
declare all borrowings to be immediately due and payable, terminate loan
commitments and/or proceed against the collateral.

Effective May 23, 1997, Qwest sold to an affiliate of Anschutz Company for
$2.3 million in cash, a warrant to acquire 8.6 million shares of Qwest Common
Stock at an exercise price of $14.00 per share, exercisable on May 23, 2000.
The warrant is not transferable. Stock issued upon exercise of the warrant
will be subject to restrictions on sale or transfer for two years after the
exercise.

Qwest is highly leveraged. As of September 30, 1997, Qwest had, on a
consolidated basis, approximately $284.7 million in principal amount of
indebtedness outstanding. On a pro forma basis, as if the acquisition of
SuperNet and Phoenix had been consummated as of September 30, 1997, and as
adjusted to give effect to the issuance of the Senior Discount Notes and the
New Senior Discount Notes, Qwest would have had approximately $943.3 million
of long-term debt (including the current portion thereof), and a debt-to-
equity ratio of 2.4 to 1.0 at that date. The indenture for the Senior Discount
Notes, the indenture for the New Senior Discount Notes and the Senior Note
Indenture and certain debt instruments to which Qwest's subsidiaries are
parties limit but do not prohibit the incurrence of additional indebtedness in
the future. See "RISK FACTORS--Risk Factors Relating to Qwest and Its
Business--High Leverage; Ability to Service Indebtedness."

During the nine months ended September 30, 1997 and the years ended December
31, 1996, 1995 and 1994, capital expenditures, including accrued capital
expenditures, capital expenditures financed with the equipment credit
facility, and assets held under capital leases, of Qwest totaled $271.3
million, $85.8 million, $48.7 million and $40.9 million, respectively. Prior
to the issuance of the Senior Notes and the Initial Public Offering, these
expenditures were funded principally through project financing and other
external borrowings and, beginning in the fourth quarter of 1994, also through
advances and capital contributions from its parent earnings from contracts
relating to dark fiber sales.

Qwest estimates the total cost to construct and activate the Qwest Network
and complete construction of the dark fiber sold to Frontier, WorldCom and GTE
will be approximately $1.9 billion. Of this amount, Qwest had already expended
approximately $640.0 million as of September 30, 1997. As of September 30,
1997, Qwest anticipates remaining total cash outlays (including capital
expenditures) for these purposes of approximately $170.0 million in 1997,
$850.0 million in 1998 and $240.0 million in 1999. Estimated total
expenditures for 1997 and 1998 include Qwest's commitment to purchase a
minimum quantity of fiber for approximately $399.0 million (subject to quality
and

109

performance specifications), of which approximately $198.5 million had been
expended as of September 30, 1997. Estimated total expenditures for 1997, 1998
and 1999 together also include $139.0 million for the purchase of electronic
equipment. In addition, Qwest anticipates approximately $605.8 million of
capital expenditures in 1997, 1998 and 1999 to support growth in Carrier
Services and Commercial Services.

As of September 30, 1997, Qwest has obtained the following sources of funds
to complete the build-out: (i) approximately $1.1 billion under the Frontier,
WorldCom and GTE contracts and additional smaller construction contracts for
sales of dark fiber, of which approximately $351.0 million had already been
paid and $770.0 million remained to be paid at September 30, 1997; (ii) $90.0
million of vendor financing; (iii) $117.6 million in net proceeds from the
sale on March 31, 1997 of $250.0 million in principal amount of the Senior
Notes remaining after repayment of certain existing debt; and (iv)
approximately $319.5 million in net proceeds from the Initial Public Offering.
Qwest believes that its available cash and cash equivalent balances at
September 30, 1997, the net proceeds from issuance of the Senior Discount
Notes in October 1997 and the New Senior Discount Notes in January 1998 and
cash flow from operations will satisfy its currently anticipated cash
requirements at least through the end of 1998.

With the completion of the approximately 16,000 route-mile network, Qwest
will provide telecommunications services nationally to its customers primarily
over its own facilities, using leased facilities in those portions of the
country not covered by the Qwest Network. Qwest is evaluating the economics of
extending its core network versus continuing to lease network capacity. In
this regard, Qwest recently announced an agreement, through an asset exchange,
to connect the route between Boston and New York City, and Qwest is
considering completing a four-fiber bidirectional SONET ring in the Pacific
Northwest by extending the Qwest Network from Seattle to Salt Lake City. Also,
Qwest continues to evaluate opportunities to acquire or invest in
complementary, attractively valued businesses, facilities, contract positions
and assets to improve its ability to offer new products and services to
customers, to compete more effectively and to facilitate further growth of its
business.

IMPACT OF INFLATION

Inflation has not significantly affected Qwest's operations during the past
three years.

ANNOUNCEMENT OF FISCAL 1997 RESULTS

On February 11, 1998, Qwest announced its results for the fiscal year ended
December 31, 1997. Revenue for the 1997 fiscal year totaled $696.7 million, an
increase of $465.7 million or 202 percent compared with $231.0 million for the
fiscal year ended December 31, 1996. Communications Services revenue for the
1997 fiscal year totaled $115.3 million, an increase of 26 percent over the
$91.8 million reported for fiscal 1996. Net income for fiscal 1997 was $14.5
million ($0.07 per share) compared to a net loss of $7.0 million ($0.04 per
share) for fiscal 1997. Detailed information with respect to Qwest's fiscal
1997 results will be included in Qwest's Annual Report on Form 10-K, which
Qwest expects to file with the Commission in March 1998.

110

MANAGEMENT OF QWEST

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of Qwest, their ages and positions with
Qwest, and brief biographies are set forth below:

NAME AGE POSITION
---- --- --------

Philip F. Anschutz.......... 58 Director and Chairman
Joseph P. Nacchio........... 48 Director, President and Chief Executive Officer
Robert S. Woodruff.......... 49 Director, Executive Vice President--Finance and
Chief Financial Officer and Treasurer
Cannon Y. Harvey............ 57 Director
Richard T. Liebhaber........ 62 Director
Douglas L. Polson........... 55 Director
Craig D. Slater............. 40 Director
Joseph T. Garrity........... 46 Secretary
Richard L. Smith............ 36 Vice President and Controller
Jordan L. Haines............ 70 Director
W. Thomas Stephens.......... 55 Director

OTHER MANAGEMENT

In addition, senior management of QCC includes the individuals set forth
below:

NAME AGE POSITION
---- --- --------

Lewis O. Wilks.............. 44 President--Business Markets
Brij Khandelwal............. 52 Executive Vice President and Chief Information
Officer
Larry A. Seese.............. 52 Executive Vice President--Network Engineering
and Operations
Nayel S. Shafei............. 38 Executive Vice President--Product Development
Gregory M. Casey............ 39 Senior Vice President--Carrier Markets
Stephen M. Jacobsen......... 39 Senior Vice President--Consumer Markets
August B. Turturro.......... 50 Senior Vice President--Network Construction
A. Dean Wandry.............. 57 Senior Vice President--New Business Development
Marc B. Weisberg............ 40 Senior Vice President--Corporate Development
Reynaldo U. Ortiz........... 51 Managing Director and Senior Vice President--
International

Philip F. Anschutz has been a Director and the Chairman of the Board of
Qwest since February 1997. He was a Director and Chairman of the Board of QCC
from November 1993 until September 1997. He has been a Director and Chairman
of the Board of Anschutz Company, Qwest's parent, for more than five years,
and a Director and Chairman of the Board of The Anschutz Corporation, a wholly
owned subsidiary of Anschutz Company, for more than five years. Since the
merger of Southern Pacific Rail Corporation ("SPRC") and Union Pacific
Corporation ("UP") in September 1996, Mr. Anschutz has served as Vice-Chairman
of UP. Prior to the merger, Mr. Anschutz was a Director of SPRC from June 1988
to September 1996, Chairman of SPRC from October 1988 to September 1996, and
President and Chief Executive Officer of SPRC from October 1988 to July 1993.
He also has been a Director of Forest Oil Corporation since 1995. Mr. Anschutz
serves as a member of the Compensation Committee.

Joseph P. Nacchio became Director, President and Chief Executive Officer of
Qwest in February 1997, having been appointed to the same positions at QCC in
January 1997. Prior to joining Qwest he

111

was Executive Vice President of AT&T's Consumer and Small Business Division
since January 1996. In that capacity he was responsible for AT&T's core
consumer long distance business, and AT&T's DirecTV, AT&T Alascom and Language
Line businesses. He was also responsible for marketing and sales targeted at
all consumer and small businesses in the United States. In 1994 and 1995 Mr.
Nacchio was President of AT&T's Consumer Communications Services long
distance, a winner of the Malcolm Baldrige National Quality Award for
Excellence. From November 1991 until August 1994, Mr. Nacchio was President of
AT&T's Business Communications Services unit focused on the long distance
communications needs of business customers. Since joining AT&T in June 1970 he
held assignments in network operations, engineering, marketing and sales. Mr.
Nacchio earned an M.S. degree in management from the Massachusetts Institute
of Technology in the Sloan Fellows Program. He also received an M.B.A. degree
and a B.S. degree in electrical engineering, both from New York University. He
has been a Director of Internet Communications Corporation since May 1997.

Robert S. Woodruff became a Director and Executive Vice President--Finance
and Chief Financial Officer of Qwest in February 1997. He served as interim
Chief Operating Officer of Qwest and QCC from November 1996 through April
1997. He has served as a Director of QCC since December 1996. He became
Executive Vice President--Finance, Chief Financial Officer and Treasurer of
QCC in August 1994. He serves as a Director of FSI Acquisition Corp.,
Government Communications Inc., Qwest Transmission Inc., Qwest Properties,
Inc., and U.S. TeleSource, Inc., all of which are wholly owned subsidiaries of
QCC. He is also Sole Administrator of QCC's Mexican subsidiaries, Opticom,
S.A. de C.V., Servicios Derecho de Via, S.A. de C.V., and S.P. Servicios
Mexico, S.A. de C.V. Prior to joining Qwest he had been a partner in the
accounting firm of Coopers & Lybrand since 1984, where his responsibilities
included providing services to communications companies. Mr. Woodruff received
a B.B.A. degree in accounting, with honors, from the University of Wisconsin.

Cannon Y. Harvey has been a Director of Qwest since February 1997, and was
Director of QCC from December 1996 until September 1997. He has been President
and Chief Operating Officer of both Anschutz Company and The Anschutz
Corporation since December 1996. From February 1995 until September 1996 he
served as Executive Vice President--Finance and Law of SPRC; from September
1993 to February 1995 he served as Senior Vice President and General Counsel
of SPRC; from May 1993 to September 1993 he served as Vice President--Finance
and Law and General Counsel of SPRC. Prior to joining SPRC, Mr. Harvey was a
Partner in the law firm of Holme Roberts & Owen LLP for more than five years.
Mr. Harvey serves on the Audit Committee.

Richard T. Liebhaber has been a Director of Qwest since February 1997. He
has been a Managing Director of Veronis, Suhler & Associates, Inc., the New
York media merchant banking firm, since June 1, 1995. Mr. Liebhaber has been a
member of the board of directors of Objective Communications, Inc. since
August 1994, the board of directors of Alcatel Network Systems, Inc. since
June 1995, the board of directors of Geotek Communications, Inc. since April
1995, the board of directors of Advanced Network Services, Inc. (America
OnLine, Inc.) since July 1996, the board of directors of Internet
Communications Corporation since May 1997, and the board of directors of
Scholz Master Builders since December 1985. From December 1985 to his
retirement in May 1995, Mr. Liebhaber served as Executive Vice President of
MCI Communications Corporation and as a member of its Management Committee.
Mr. Liebhaber was a member of the board of directors of MCI Communications
Corporation from July 1992 until his retirement in May 1995.

Douglas L. Polson has been a Director of Qwest since February 1997, and was
Director of QCC for more than five years. He has been a Director and Vice
President--Finance of both Anschutz Company and The Anschutz Corporation for
more than five years. He was a Director of SPRC from June 1988 to September
1996; Vice Chairman of SPRC from June 1988 to September 1996; and a Vice
President of SPRC from October 1988 to September 1996.

112

Craig D. Slater has been a Director of Qwest since February 1997 and a
Director of QCC since November 1996. He has been Vice President--Acquisitions
and Investments of both Anschutz Company and The Anschutz Corporation since
August 1995 and Corporate Secretary of Anschutz Company and The Anschutz
Corporation from September 1991 to October 1996. Mr. Slater held various other
positions with Anschutz Company and The Anschutz Corporation from 1988 to
1995. He has been a Director of Forest Oil Corporation since 1995 and Internet
Communications Corporation since 1996.

Joseph T. Garrity has been Secretary of Qwest since February 1997 and
Secretary of QCC since November 1996 and has been a Director of QCC since
September 1997. He is also Senior Director-- Legal, Regulatory and Legislative
Affairs of QCC since November 1996 and was Director--Regulatory and
Legislative Affairs of QCC from March 1995 to November 1996. Prior to joining
Qwest, from 1992 to March 1995, Mr. Garrity was Senior Attorney with MCI
Telecommunications Corporation; and from 1991 to 1992 he was President of
Garrity, Inc. and Joseph T. Garrity, P.C., where he was an attorney and
consultant in the areas of domestic and international telecommunications. From
1988 to 1991 he was Counsel and Assistant Secretary to Jones International,
Ltd., Jones Intercable, Inc. and Jones Spacelink, Ltd. and from 1989 to 1991
was President, Jones Programming Services, Inc. He has B.S. and M.S. degrees
from Northwestern University and a J.D. degree from DePaul University College
of Law.

Richard L. Smith became Vice President and Controller of Qwest in February
1997 and of QCC in October 1995. Prior to becoming Controller for QCC, he had
been the Director of Financial Operations for QCC since November 1993. From
1989 through October 1993, Mr. Smith served as Vice President of Finance for
Centrex Equipment Associates, Inc., an interconnect company. He was Controller
of Convenience Video Movies, Inc., a national distribution company, from 1987
to 1989 and was a Senior Accountant with Coopers & Lybrand from 1983 to 1987.
Mr. Smith received a B.S. degree in accounting from San Diego State
University.

Jordan L. Haines was appointed a Director of Qwest effective immediately
upon completion of the Initial Public Offering. He was Chairman of the Board
of Fourth Financial Corporation, a Kansas-based bank holding company, and its
subsidiary, Bank IV Wichita, N.A., from 1983 until his retirement in 1991. He
has been a member of the Board of Directors of KN Energy, Inc. since 1983 and
a Director of Forest Oil Corporation since 1996. Mr. Haines serves as a member
of the Audit Committee and the Compensation Committee.

W. Thomas Stephens was appointed a Director of Qwest effective immediately
upon completion of the Initial Public Offering. He served from 1986 until his
retirement as President and Chief Executive Officer of Manville Corporation,
an international manufacturing and resources company. He also served as a
member of the Manville Corporation Board of Directors from 1986 to 1996, and
served as Chairman of the Board from 1990 to 1996. Mr. Stephens has been a
Director of Public Service Company of Colorado since 1989, a Director of Mail
Well, Inc. since 1996, a Trustee of Eagle Picher Settlement Trust since 1996
and a Trustee of The Denver Art Museum since 1994. He serves as a member of
the Audit Committee and the Compensation Committee.

Lewis O. Wilks became President--Business Markets of QCC in October 1997.
Mr. Wilks, who previously was President of GTE Communications, has extensive
senior-level management experience in delivering communications services to
the corporate sector. While Mr. Wilks served as President of GTE
Communications, he oversaw national sales, service and marketing activities
for the competitive local exchange markets. The business unit, under his
leadership, was responsible for all consumer, business and strategic accounts
as well as long-distance, media ventures and Internet product distribution.
Before joining GTE, Mr. Wilks was a senior executive with MCI Corporation, and
held a variety of management positions with Wang Laboratories.

113

Brij Khandelwal became Executive Vice President and Chief Information
Officer of QCC in October 1997. Prior to joining Qwest he was Vice President
and Chief Information Officer at Lucent Technologies Network Systems from
November 1995 to October 1997. At Lucent from August 1994 to October 1997, he
was responsible for global delivery of enterprise information systems and
services aligned with corporate strategic and tactical goals. He is
experienced in a wide range of information technologies, systems and processes
affecting the business enterprise, including sales, marketing, financial,
operations, and R&D. From August 1990 through August 1994 he was Director,
Systems Development at GE Aerospace/Martin Marietta, where he was responsible
for architecture and delivery of enterprise information systems. Mr.
Khandelwal holds a B.S. from the University of Roorkee (Roorkee, India), an
M.S. from the University of Nebraska, and a Ph.D. from the University of
Wisconsin.

Larry A. Seese became Executive Vice President--Network Engineering and
Operations of QCC in October 1997. From 1968 to October 1997, he was employed
by AT&T, most recently as Vice President of Network Operations. During Mr.
Seese's 29 year tenure at AT&T, he was responsible for managing the
operations, reliability and cost performance of AT&T's voice and data networks
and worked on the development of advanced switching systems and the
development of lightwave systems. He has experience in all aspects of network
planning, development, certification and deployment. Mr. Seese holds a B.S.
from the University of Kentucky and an M.S. from Columbia University, both in
electrical engineering. He also received an M.S. from the Sloan School of
Management at M.I.T.

Nayel S. Shafei became Executive Vice President--Product Development of QCC
in August 1997. From August 1996 to August 1997 he was Senior Vice President
and General Manager of Arrowsmith Corporation's Telecommunications Division.
From July 1994 to August 1996, he was Vice President and General Manager for
AlliedSignal. From April 1992 to July 1994, he was Vice President, Development
and General Manager for Computervision Corporation, and was Principal
Architect, Research and Development for Computervision from August 1986 to
February 1991. Mr. Shafei serves as a computer/communications consultant for
the United Nations Development Program and is a member of the IEEE Computer
Society, Association of Computer Machinery, Society of Cable Engineers and
Product Data Exchange Standards. He holds an undergraduate degree from Cairo
University and an M.S. and a Ph.D. in computer science from the school of
engineering at M.I.T.

Gregory M. Casey became Senior Vice President--Carrier Markets of QCC in
June 1997. In this capacity, he is responsible for all of Qwest's carrier
marketing and sales programs. Prior to joining QCC, Mr. Casey was, since 1996,
Vice President of Carrier Relations and Regulatory Affairs at LCI, with
responsibility for managing relationships with RBOCs and LECs and negotiating
interconnection arrangements and wholesale pricing for resale of local
service. From 1991 to 1996, he was employed by ONCOR Communications Inc.,
where he served as Senior Vice President of Regulatory Affairs and Telephone
Company Relations. Prior to joining ONCOR, he was Senior Vice President and
General Counsel for Telesphere International Inc. Mr. Casey holds a B.A.
degree in political science from the University of Connecticut and a J.D.
degree from DePaul University College of Law.

Stephen M. Jacobsen became Senior Vice President--Consumer Markets of QCC in
March 1997. In this capacity, he is responsible for all of QCC's consumer
marketing and sales programs. Prior to joining QCC, Mr. Jacobsen was Regional
Vice President--Consumer and Small Business for AT&T in Southern California
and Nevada since 1996, with responsibility for all marketing functions for
consumer and small business customers in those geographic areas. During his
nearly sixteen-year career at AT&T, Mr. Jacobsen held key managerial positions
in the network services division, including responsibility for AT&T's network
operations center in the western region as well as positions in sales,
marketing and product management. Mr. Jacobsen holds an M.S. degree in
management from the Massachusetts Institute of Technology in the Sloan Fellows
Program and a B.S.B.A. degree from the University of Arizona.

114

August B. Turturro became Senior Vice President--Network Construction for
QCC in September 1997 and President and Chief Operating Officer of Qwest
Network Construction Services. From January 1996 to September 1997, Mr.
Turturro was President and Chief Operating Officer of Inliner American, a
specialty trenchless utility contractor. From January 1992 to January 1996 he
was President and Chief Executive Officer of Fishbach Corporation and its
Natkin Group, which is the second largest specialty contractor in the United
States. Mr. Turturro has over 27 years of construction experience as a
professional engineer and holds contractor licenses in several states. He
holds a B.S. degree in Mechanical Engineering from West Virginia University.

A. Dean Wandry became Senior Vice President--Cable & Access Services for QCC
in November 1994 and Senior Vice President-New Business Development for QCC in
December 1995. In 1981 Mr. Wandry formed Citation Cable Systems Limited, which
merged into Fanch Communications, Inc. in 1986. Following the merger, he
served as Vice President-Operations until he joined QCC. He joined Bayly
Corp., a multinational apparel manufacturer, in 1967 and served as President
of the Sales and Marketing Division from 1977 to 1981. He holds a B.S. degree
in economics from the University of Colorado.

Marc Weisberg became Senior Vice President--Corporate Development of QCC in
September 1997. Prior to joining QCC, he was the founder and owner of Weisberg
& Company, where he provided investment banking and advisory services to
clients in several industries, including telecommunications, multimedia and
emerging technologies. Mr. Weisberg holds a B.A. from Michigan State
University.

Reynaldo U. Ortiz became Managing Director, International and Senior Vice
President of QCC in December 1997. Before joining Qwest full time, Mr. Ortiz
was a consultant to QCC. In this capacity, he negotiated with the government
of Mexico and arranged a transaction with Bestel S.A. de C.V. to extend the
Qwest network into 14 major cities in Mexico. Previously, Mr. Ortiz served as
President and CEO of US West International, Inc., where he developed and
implemented a successful strategy for US West's entry into the cable
television-telephony and wireless communications markets in Asia, Europe and
Latin America. He also developed international distribution sales and
marketing agreements and product sourcing for International Business Machines,
Inc. Mr. Ortiz received an honorary doctorate degree in law from New Mexico
State University for his international achievements. He also holds a Masters
of Science in management degree from Stanford University.

115

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid or accrued to Qwest's
chief executive officer and four other most highly compensated executive
officers of Qwest and its operating subsidiaries (the "Named Executives")
during the fiscal years ended December 31, 1997, 1996, and 1995, together with
the compensation paid or accrued to three additional executive officers of
Qwest and its operating subsidiaries whose annualized rate of salary would
place them among the four most highly compensated executive officers. The
position identified in the table for each person is that person's current
position at Qwest unless otherwise indicated. Mr. Nacchio joined Qwest as its
Chief Executive Officer effective January 4, 1997. Mr. Woodruff served as
interim Chief Operations Officer of Qwest from November 1996 to January 4,
1997.

SUMMARY COMPENSATION TABLE

LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ---------------------
AWARDS PAYOUTS
---------- ----------
NUMBER OF
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME/PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
----------------------- ---- -------- -------- ------------ ---------- ---------- ------------

Joseph P. Nacchio....... 1997 $593,461 $300,000 -- 6,000,000 -- $7,405,273(1)
President and Chief 1996 -- -- -- -- -- --
Executive Officer 1995 -- -- -- -- -- --
Robert S. Woodruff 1997 $200,000 $ 70,000 $ 25,000(2) 400,000 $9,453,025 $ 75,466
Executive Vice 1996 182,200 25,000 2,083 -- -- 1,671
President--Finance and 1995 167,766 16,500 -- -- --
Chief Financial Officer
and Treasurer
A. Dean Wandry.......... 1997 $157,000 $ 47,100 -- 150,000 $8,271,383 $ 7,930(3)
Senior Vice President-- 1996 148,300 30,000 -- -- -- 7,725
New Business 1995 141,866 14,000 -- -- -- 2,310
Development of QCC
Anthony J. Brodman...... 1997 $157,000 -- -- 50,000 $5,908,127 $ 7,930(3)
Senior Vice President-- 1996 152,333 30,000 -- -- -- 7,945
Fiber Markets of QCC 1995 130,270 11,364 $15,752(4) -- -- 7,163
Stephen M. Jacobson..... 1997 $143,020(5) -- $132,085(6) 600,000 -- --
Senior Vice President-- 1996 -- -- -- -- -- --
Consumer Markets of QCC 1995 -- -- -- -- -- --
Lewis O. Wilks.......... 1997 $ 50,750(7) -- $200,000(6) 700,000 -- --
President--Business 1996 -- -- -- -- -- --
Markets of QCC 1995 -- -- -- -- -- --
Brij Khandelwal......... 1997 $ 47,740(8) -- $150,000(6) 700,000 -- --
Executive Vice 1996 -- -- -- -- -- --
President and Chief 1995 -- -- -- -- -- --
Information Officer of
QCC
Larry A. Seese.......... 1997 $ 54,994(9) -- $200,000(6) 750,000 -- --
Executive Vice 1996 -- -- -- -- -- --
President--Network 1995 -- -- -- -- -- --
Engineering and
Operations of QCC

- --------
(1) The amount shown represents the first installment of the "equalization
payment" (see "--Employment Contracts and Termination of Employment and
Change-in-Control Arrangements") paid to Mr. Nacchio in 1997 together with
interest of $78,128 that accrued with respect to the remaining portion of
the "equalization payment." That interest was paid to Mr. Nacchio in
January 1998.
(2) The amount shown represents QCC's forgiveness of a portion of a loan.
(3) The amount shown represents QCC's contribution to QCC's 401(k) plan.
(4) The amount shown represents commissions.
(5) Mr. Jacobsen began his employment with QCC in March 1997 and amounts
disclosed for Mr. Jacobsen for 1997 represent compensation paid after that
date. Mr. Jacobsen will receive an annual salary of $192,770 for 1998.
(6) The amount shown represents relocation payments.

116

(7) Mr. Wilks began his employment with QCC in October 1997 and amounts
disclosed for Mr. Wilks for 1997 represent compensation paid after that
date. Mr. Wilks will receive an annual salary of $273,000 for 1998.
(8) Mr. Khandelwal began his employment with QCC in October 1997 and amounts
disclosed for Mr. Khandelwal for 1997 represent compensation paid after
that date. Mr. Khandelwal will receive an annual salary of $225,000 for
1998.
(9) Mr. Seese began his employment with QCC in October 1997 and amounts
disclosed for Mr. Seese for 1997 represent compensation paid after that
date. Mr. Seese will receive an annual salary of $230,000 for 1998.

STOCK OPTION GRANT

The following table sets forth information with respect to the named
executive officers concerning the grant of stock options in 1997.

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS AWARDS FOR OPTION
- ---------------------------------------------------------------------------- -----------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE OR
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --------------- ------------ ----------- ---------- ----------- -----------

Joseph P. Nacchio....... 6,000,000(1) 43.18% $ 11.00 6/30/03 $22,617,341 $51,375,214
Robert S. Woodruff...... 400,000(2) 2.88% $ 30.00 12/01/07 7,546,736 19,124,910
Lewis O. Wilks.......... 700,000(3) 5.04% $ 23.75 10/03/07 10,455,373 26,495,968
Brij Khandelwal......... 700,000(4) 5.04% $22.875 9/27/07 10,070,175 25,519,801
Larry A. Seese.......... 750,000(5) 5.40% $22.875 9/26/07 10,789,473 27,342,644
A. Dean Wandry.......... 150,000(2) 1.08% $ 30.00 12/01/07 2,830,026 7,171,841
Stephen M. Jacobsen..... 600,000(6) 4.32% $ 11.00 9/24/03 2,299,861 5,248,074
Anthony J. Brodman...... 50,000(7) 0.36% $ 11.00 4/01/03 182,584 413,888

- --------
(1) Granted on June 23, 1997 and exercisable in five annual increments of 20%
each commencing December 31, 1997.
(2) Granted on December 1, 1997 and exercisable in five annual increments of
20% each commencing December 1, 1998.
(3) Granted on October 3, 1997 and exercisable in increments of 140,000 shares
each year for four years beginning October 27, 1998 and in two additional
increments of 70,000 shares each on October 27, 2002 and October 27, 2003.
(4) Granted on September 27, 1997 and exercisable in five annual increments of
20% each commencing October 16, 1998.
(5) Granted on September 26, 1997 and exercisable in two annual increments of
200,000 shares each commencing October 6, 1998, three annual increments of
100,000 shares for each of three years beginning October 6, 2000 and a
final increment of 50,000 shares on October 6, 2003.
(6) Granted on June 23, 1997 and exercisable in 15% increments on each of
March 24, 1998 through March 24, 2001 and in an increment of 40% on March
24, 2002.
(7) Granted on June 23, 1997 and exercisable in 15% increments commencing
October 1, 1997 through October 1, 2000 and in an increment of 40% on
October 1, 2001.

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OPTION EXERCISES AND HOLDINGS

The following table sets forth information with respect to the named
executive officers concerning the exercise of options in 1997 and unexercised
options held at the end of 1997.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- -------------- ------------- --------------

Joseph P. Nacchio....... 1,200,000 4,800,000 $ 22,500,000 $ 90,000,000
Robert S. Woodruff...... -- 400,000 -- --
Lewis O. Wilks.......... -- 700,000 -- 4,200,000
Brij Khandelwal......... -- 700,000 -- 4,812,500
Larry A. Seese.......... -- 750,000 -- 5,156,250
A. Dean Wandry.......... -- 150,000 -- --
Stephen M. Jacobsen..... -- 600,000 -- 11,250,000
Anthony J. Brodman...... 7,500 42,500 140,625 796,875

GROWTH SHARE PLAN

Qwest's Growth Share Plan, as amended, provides for the grant of "growth
shares" to selected employees and directors of Qwest and certain affiliates
who can significantly affect the long-term financial success of Qwest. The
Growth Share Plan is unfunded and is a general, unsecured obligation of Qwest.
Growth share grants may include additional or different terms and conditions
from those described herein. A "growth share" is a unit of value based on the
increase in value of Qwest over a specified performance cycle or other
specified measuring period. The value of a growth share is generally equal to
(1) the value of Qwest at or near the date of a "triggering event," as defined
below, minus (2) the value of Qwest as of a date determined by Qwest's board
of directors in its sole discretion at the time of grant of a growth share
("beginning company value"), minus (3) the value of contributions to capital
during the period beginning with the date as of which Qwest's value for
purposes of the growth share's grant is determined and ending with the date as
of which the value of the growth share is determined (the "measuring period")
together with an amount equal to 9% of each such contribution made by entities
controlled by Philip F. Anschutz, compounded annually, reduced for any return
of capital, plus (4) dividends paid during the measuring period, divided by
(5) 10 million (the total number of growth shares authorized). The value of
Qwest as of the last day of the measuring period is determined by independent
appraisal; provided that if all classes of Qwest's outstanding equity
securities are publicly traded and Qwest is subject to the reporting and
disclosure rules of the Exchange Act, the value of Qwest will be based on the
trading price of the equity securities over the 20 consecutive trading days
ending on the last day of the measuring period. Qwest does not intend to grant
any more growth shares under the Growth Share Plan.

Payment for growth shares is generally made at the end of the performance
cycle or upon the occurrence of certain "triggering events," which consist of
termination of the Growth Share Plan and a "change in control" (as described
below). In the case of payments made other than at the end of a performance
cycle, Qwest is valued as of the last day of the month following the
triggering event, in the case of termination of the Growth Share Plan and
immediately after the date of the change in control, in the case of a change
in control. Generally, payment is made in a single cash payment or in shares
of Qwest Common Stock, as determined by the Qwest Board, although Qwest may
elect to pay in two equal annual installments, the first installment to be
made within 30 days after the growth shares are valued and the second
installment to be made one year later with interest at the consolidated prime
rate published in The Wall Street Journal on the date of payment of the first
installment. Payment must be made in shares of Qwest Common Stock if the Qwest
Common Stock is actively traded on an established securities market, and Qwest
is subject to the reporting and disclosure requirements of the

118

Exchange Act provided that Qwest may make cash payments in respect of tax
withholdings at the request of the holder of the growth shares.

The Growth Share Plan provides that no more than 850,000 of the 10 million
growth shares will be outstanding at one time. Growth shares which have been
redeemed, forfeited or cancelled may be used again under the Growth Share
Plan. Growth shares generally vest at 20% for each full year of service after
the date of grant. Participants become fully vested in their outstanding
growth shares at death, disability or retirement after age 65. If a
participant is terminated for cause, he or she will forfeit all vested growth
shares. Different vesting arrangements may apply to different participants. A
participant who is not 100% vested at the date of a triggering event will be
paid for the vested growth shares; however, 25% of the payment will be
withheld and will be forfeited if the participant voluntarily terminates
employment. Payment will be made for the unvested growth shares if and when
they vest.

Upon a "change of control" of Qwest or a termination of the Growth Share
Plan, the outstanding growth shares will become fully vested. For this
purpose, "change of control" is defined as either (A) the acquisition by any
individual, entity or group (as defined in the Exchange Act), other than
Anschutz Company, The Anschutz Corporation, or any entity controlled by Philip
F. Anschutz ("Anschutz Entities"), of beneficial ownership of 20% or more of
either (1) the then-outstanding shares of Qwest Common Stock or (2) the
combined voting power of the then-outstanding voting securities of Qwest
entitled to vote generally in the election of directors and the beneficial
ownership of the individual, entity or group exceeds the beneficial ownership
of the Anschutz Entities or (B) the Anschutz Entities no longer have
beneficial ownership of at least 20% of the Qwest Common Stock or 20% of the
combined voting power.

Growth shares granted prior to October 1, 1996, remain subject to the terms
and conditions of the Growth Share Plan that were in effect when the growth
shares were granted, unless otherwise agreed in writing by the Participant and
Qwest. A total of 253,900 outstanding growth shares were granted under prior
versions of the Growth Share Plan (the "Prior Plan"). Those growth shares
became 100% vested (if not previously vested) upon completion of the Initial
Public Offering and completion of the Initial Public Offering constituted a
triggering event with respect to those growth shares, which resulted in
payment by Qwest to the holders of the value of those growth shares.

Growth shares granted on or after October 1, 1996 were not accelerated or
triggered by completion of the Initial Public Offering. Qwest has entered into
amendments to the growth share agreements with participants who hold growth
shares granted which provide that (1) following completion of the Initial
Public Offering, the value of the growth shares is capped at a value generally
determined by the $11.00 per share price (as adjusted to reflect the Qwest
Stock Split) of the Qwest Common Stock in the Initial Public Offering and (2)
the performance cycle will end on a date in 2001 selected by Qwest in its sole
discretion and communicated to the participant in writing. Qwest has granted
the participant an option under Qwest's Equity Incentive Plan to purchase a
number of shares of Qwest Common Stock equal to ten times the number of the
participant's growth shares. See "--Equity Incentive Plan." The following
provisions apply to the options granted to participants other than Mr. Nacchio
(see "Employment Contracts and Termination of Employment and Change-in-Control
Arrangements" for a description of Mr. Nacchio's options). The exercise price
is equal to the $11.00 price per share (as adjusted to reflect the Qwest Stock
Split) in the Initial Public Offering. The options will vest 20% per year
beginning at the same time as the growth shares and will become fully vested
upon the participant's death, disability, retirement or a change in control of
Qwest. The options will become exercisable at the rate of 15% per year for
each of the first four years and 40% in the fifth year, in each case, on the
date of vesting. If the participant is terminated for cause, or if the
participant voluntarily terminates employment, he will forfeit all unvested
options and the vested portion that is not exercisable. The participant may
exercise the exercisable portion of the vested options at any time before the
options expire. The options will terminate and expire at the end of the 18-
month period

119

following the vesting of the final 20% increment, provided that if the
participant is terminated for cause, the vested and exercisable options will
terminate and expire six months after the date of termination of employment.
As of December 31, 1997, 379,500 growth shares had been granted and remained
outstanding. Future compensation expense relating to the nonvested growth
shares is estimated to be up to approximately $23.4 million as of December 31,
1997, and will be recognized over the remaining approximately four-year
vesting period.

The following table sets forth the growth shares that were granted to the
named executive officers in 1997.

LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR 1997

NAME NUMBER OF GROWTH SHARES PERFORMANCE PERIOD
---- ----------------------- -----------------------

Joseph P. Nacchio............... 300,000 January 1, 1997 to 2001
Stephen M. Jacobsen............. 30,000 January 1, 1997 to 2001

See "--Employment Contracts and Termination of Employment and Change-in-
Control Arrangements" for further information regarding Mr. Nacchio's growth
share grant.

EQUITY INCENTIVE PLAN

Qwest adopted the Qwest Communications International Inc. Equity Incentive
Plan (the "Equity Incentive Plan") effective June 23, 1997.

The Equity Incentive Plan permits the grant of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock, stock
units and other stock grants to employees of Qwest and affiliated companies
and consultants to Qwest and affiliated companies. A maximum of 20,000,000
shares of Qwest Common Stock may be subject to awards under the Equity
Incentive Plan. The number of shares is subject to adjustment on account of
stock splits, stock dividends and other dilutive changes in the Qwest Common
Stock. Shares of Qwest Common Stock covered by unexercised non-qualified or
incentive stock options that expire, terminate or are canceled, together with
shares of Qwest Common Stock that are forfeited pursuant to a restricted stock
grant or any other award (other than an option) under the Equity Incentive
Plan or that are used to pay withholding taxes or the option exercise price,
will again be available for option or grant under the Equity Incentive Plan.

Participation. The Equity Incentive Plan provides that awards may be made to
eligible employees and consultants who are responsible for Qwest's growth and
profitability. Qwest currently considers all of its employees and consultants
to be eligible for grant of awards under the Equity Incentive Plan. As of
December 31, 1997, there were approximately 1,700 eligible participants.

Administration. The Equity Incentive Plan is administered by Qwest's
Compensation Committee (the "Committee"). The Committee must be structured at
all times so that the Equity Incentive Plan satisfies the requirements of Rule
16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"). To the
extent practicable, Qwest intends to satisfy the requirement for
administration by "outside" directors under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), with respect to grants to
employees whose compensation is subject to Section 162(m) of the Code. The
Committee has the sole discretion to determine the employees and consultants
to whom awards may be granted under the Equity Incentive Plan and the manner
in which such awards will vest. Options, stock appreciation rights, restricted
stock and stock units are granted by the Committee to employees and
consultants in such numbers and at such times during the term of the Equity
Incentive Plan as the Committee shall determine, except that the maximum
number of shares subject to one or more awards that can be granted during the
term of the Equity Incentive Plan to any

120

employee or consultant is 20,000,000 shares of Qwest Common Stock, and except
that incentive options may be granted only to employees. In granting options,
stock appreciation rights, restricted stock and stock units, the Committee
will take into account such factors as it may deem relevant in order to
accomplish the Equity Incentive Plan's purposes, including one or more of the
following: the extent to which performance goals have been met, the duties of
the respective employees and consultants and their present and potential
contributions to Qwest's success.

Exercise. The Committee determines the exercise price for each option;
however, incentive stock options must have an exercise price that is at least
equal to the fair market value of the Qwest Common Stock on the date the
incentive stock option is granted (at least equal to 110% of fair market value
in the case of an incentive stock option granted to an employee who owns Qwest
Common Stock having more than 10% of the voting power). An option holder may
exercise an option by written notice and payment of the exercise price in (i)
cash or certified funds, (ii) by the surrender of a number of shares of Qwest
Common Stock already owned by the option holder for at least six months with a
fair market value equal to the exercise price, or (iii) through a broker's
transaction by directing the broker to sell all or a portion of the Qwest
Common Stock to pay the exercise price or make a loan to the option holder to
permit the option holder to pay the exercise price. Option holders who are
subject to the withholding of federal and state income tax as a result of
exercising an option may satisfy the income tax withholding obligation through
the withholding of a portion of the Qwest Common Stock to be received upon
exercise of the option. Options, stock appreciation rights, stock units and
restricted stock awards granted under the Equity Incentive Plan are not
generally transferable other than by will or by the laws of descent and
distribution.

Change in Control. All awards granted under the Equity Incentive Plan shall
immediately vest upon any "change in control" of Qwest unless provided
otherwise by the Committee at the time of grant. A "change in control" occurs
if (i) 20% or more of Qwest's voting stock or outstanding stock is acquired by
persons or entities (other than any entity controlled by Philip F. Anschutz
("Anschutz Entities")) and the beneficial ownership so acquired exceeds the
beneficial ownership of the Anschutz Entities or (ii) the Anschutz Entities no
longer have beneficial ownership of at least 20% of Qwest's voting stock or
outstanding stock.

Merger and Reorganization. Upon the occurrence of (i) the reorganization
(other than a bankruptcy reorganization), merger or consolidation of Qwest
(other than a reorganization, merger or consolidation in which Qwest is the
continuing company and that does not result in any change in the outstanding
shares of Qwest Common Stock), (ii) the sale of all or substantially all of
the assets of Qwest (other than a sale in which Qwest continues as a holding
company of an entity that conducts the business formerly conducted by Qwest),
or (iii) the dissolution or liquidation of Qwest, all outstanding options will
terminate automatically when the event occurs if Qwest gives the option
holders 30 days' prior written notice of the event. Notice is also given to
holders of other awards. Notice is not required for a merger or consolidation
or for a sale if Qwest, the successor, or the purchaser makes adequate
provision for the assumption of the outstanding options or the substitution of
new options or awards on terms comparable to the outstanding options or
awards. When the notice is given, all awards shall immediately vest and all
restrictions shall lapse and all outstanding options can be immediately
exercised prior to the event and all other awards become exercisable and/or
payable.

Amendment and Termination. The Qwest Board may amend the Equity Incentive
Plan in any respect at any time provided shareholder approval is obtained when
necessary or desirable, but no amendment can impair any option, stock
appreciation right, award or unit previously granted or deprive an option
holder, without his or her consent, of any Qwest Common Stock previously
acquired. The Equity Incentive Plan will terminate in 2007 unless sooner
terminated by the Qwest Board.

121

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

Qwest and Joseph P. Nacchio entered into an employment agreement dated as of
December 21, 1996 and amended as of January 3, 1997, pursuant to which Mr.
Nacchio joined Qwest as its President and Chief Executive Officer effective
January 4, 1997 for a term through the close of business on December 31, 2001,
unless terminated earlier by either party. The agreement provides for an
annual base salary of $600,000, a $300,000 bonus for 1997, and a $300,000
bonus for 1998. Mr. Nacchio may participate in the employee benefit plans
available to Qwest's senior executives according to the plans' terms and
conditions. Under the agreement, Mr. Nacchio has been granted 300,000 growth
shares under Qwest's Growth Share Plan, with a five year performance cycle
commencing January 1, 1997 and a "beginning company value" of $1 billion. See
"--Growth Share Plan."

The value of the growth shares is capped at a value generally determined by
the $11.00 per share price (as adjusted to reflect the Qwest Stock Split) of
the Qwest Common Stock in the Initial Public Offering. The growth shares will
vest in 20% increments on each January 1 beginning January 1, 1998, provided
that the final 20% increment will vest on the date in 2001 that ends the
performance cycle, as determined by Qwest in its sole discretion. The growth
share agreement between Qwest and Mr. Nacchio provides for terms that are
different from the general terms of the Growth Share Plan in certain respects.
Annually, Mr. Nacchio may elect to receive payment for up to 20% of his vested
growth shares in shares of Qwest Common Stock; the growth shares for which he
has received payment will be canceled. The number of growth shares granted to
Mr. Nacchio are subject to adjustment upon changes in Qwest's capital
structure in connection with mergers and other reorganizations. If Mr.
Nacchio's employment is terminated for good reason (generally, resignation
after a reduction in title or responsibility) or other than for cause (as
defined below), he will vest in one-twelfth of the 20% of growth shares
subject to annual vesting for the year of termination for each full month of
employment in such calendar year. A change in control (as defined in the
employment agreement) will not result in full vesting of, or payment for, the
growth shares unless Mr. Nacchio is terminated without cause or resigns for
good reason after the change in control. If his employment is terminated for
cause, he will be paid for his vested growth shares based on the value of
Qwest as of the end of the immediately preceding calendar year. Upon payment
of certain dividends, the growth shares will vest 100% and Mr. Nacchio will be
paid for a portion of the growth shares. Termination of the Plan will not be a
"triggering event," see "--Growth Share Plan," with respect to Mr. Nacchio's
growth shares.

Qwest has granted Mr. Nacchio an option under Qwest's Equity Incentive Plan
to purchase six million shares of Qwest Common Stock. See "--Equity Incentive
Plan." The exercise price is $11.00 per share. The option will vest 20% per
year beginning on December 31, 1997 and will become fully vested upon Mr.
Nacchio's death, disability or retirement. If Mr. Nacchio resigns for good
reason (as defined in the growth share agreement) or if Qwest terminates his
employment other than for cause, he will vest in one-twelfth of the 20%
increment scheduled to vest for the year of termination for each full month of
employment with Qwest during such year. If Qwest terminates his employment
without cause or if he resigns for good reason (as defined in the employment
agreement, provided that for this purpose the occurrence of a change in
control by itself is not good reason), in each case following a change in
control, the option will become fully vested. If Mr. Nacchio's employment
terminates for any other reason, he will forfeit the unvested portion of his
option and retain the vested portion of his option, provided that if his
employment is terminated for cause, he can exercise the vested portion of the
option only until the first to occur of (1) the date that is six months after
the day after his termination or (2) June 30, 2003. He can exercise the vested
portion of the option at any time before the option expires. Generally, the
option will terminate and expire on June 30, 2003.

The employment agreement also provides that in order to compensate Mr.
Nacchio for certain benefits from his former employer, AT&T, that Mr. Nacchio
may lose or forfeit as a result of his

122

termination of employment and commencement of employment with Qwest, Qwest
will pay him $10,735,861, as adjusted (the "equalization payment"). The
equalization payment is to be made in three installments. The first
installment of $7,232,000 was paid in 1997 and the second installment of
$1,469,861, together with interest of $78,128, was paid in January 1998. The
remaining installment of $2,034,000 is scheduled to be paid on January 1,
1999, with annual interest at the rate of 5% from January 7, 1997 to the date
of payment. If Mr. Nacchio's employment is terminated for cause (including any
willful misconduct materially detrimental to Qwest, felony conviction, or
nonfeasance with respect to duties set forth in the employment agreement) on
or before December 31, 1999, the agreement provides that he will repay to
Qwest a portion of the equalization payment previously paid. If a termination
for cause occurs after December 31, 1999, the equalization payment will not be
repaid. If Qwest terminates Mr. Nacchio's employment other than for cause or
if Mr. Nacchio resigns for good reason, which for this purpose includes a
change in control of Qwest or certain other events, Qwest will be obligated to
make certain payments to him, including an amount equal to two times his base
salary at the rate in effect on the date of employment termination and any
installments of the equalization payment that have not yet been made, with
interest. Mr. Nacchio will also be entitled to continuation of certain
benefits, including welfare benefits and participation in the Growth Share
Plan for a two-year period following termination. For this purpose, change in
control means the acquisition of 20% or more of Qwest by an individual, entity
(not controlled by Philip F. Anschutz) or group if the new acquirors own a
larger percentage of Qwest than entities controlled by Philip F. Anschutz. The
agreement provides that if Mr. Nacchio receives any payments upon a change in
control that are subject to the excise tax of Section 4999 of the Internal
Revenue Code, Qwest will pay Mr. Nacchio an amount that reimburses him in full
for the excise tax.

In November 1996 QCC extended Robert S. Woodruff an unsecured, noninterest-
bearing loan in the principal amount of $100,000. The principal amount is
forgiven in monthly increments of $2,083 beginning December 1, 1996. As of
December 1997 the outstanding principal balance of the loan was $72,921. If
Mr. Woodruff terminates employment voluntarily or if QCC terminates his
employment on account of willful misconduct, QCC may declare the unforgiven
outstanding principal amount due and payable within 45 days after the date he
terminates employment. If Mr. Woodruff's employment terminates for any other
reason, the outstanding principal balance will be forgiven. In December 1996,
QCC and Mr. Woodruff entered into a letter agreement to provide that if his
employment is terminated for reasons other than willful misconduct, he will
receive either a lump sum payment equal to one year's compensation at his then
current rate or payment in accordance with QCC's severance policy then in
effect, as he elects.

Qwest and Lewis O. Wilks entered into an employment letter agreement dated
October 8, 1997 pursuant to which Mr. Wilks joined Qwest as President--
Business Markets. Under the agreement, Mr. Wilks is entitled to an annual base
salary of $273,000 and a minimum bonus at the end of his first year of
employment of $100,000. Mr. Wilks also received reimbursement for relocation
expenses in the amount of $200,000. The agreement also provides for the grant
to Mr. Wilks of a stock option pursuant to the Qwest's Equity Incentive Plan
covering 700,000 shares of Qwest Common Stock with an exercise price per share
of $23.75. The option becomes exercisable as to 140,000 shares of Qwest Common
Stock at the end of each of the first four years of employment and an
additional 70,000 shares at the end of each of the fifth and sixth years of
employment. Mr. Wilks will also receive a transition payment of $200,000 in
1998, payable $50,000 during each calendar quarter beginning January 1, 1998.
If Mr. Wilks' employment with Qwest terminates for any reason other than cause
during his first year of employment, he will be entitled to a lump sum payment
of one year's base salary.

Qwest and Brij Khandelwal entered into an employment letter agreement dated
September 26, 1997 pursuant to which Mr. Khandelwal joined Qwest as its
Executive Vice President and Chief Information Officer. Under the agreement,
Mr. Khandelwal is entitled to an annual base salary of

123

$225,000 and a minimum bonus at the end of the first year of employment of
$112,500. Mr. Khandelwal also received reimbursement for relocation expenses
of $150,000. The agreement also provides for the grant to Mr. Khandelwal of a
stock option pursuant to Qwest's Equity Incentive Plan covering 700,000 shares
of Qwest Common Stock with an exercise price of $22.875. The option becomes
exercisable as to 140,000 shares of Qwest Common Stock at the end of each of
the first five years of employment. If Mr. Khandelwal's employment with Qwest
terminates for any reason other than cause during his first year of
employment, he will be entitled to a lump sum payment of one year's base
salary.

Qwest and Larry A. Seese entered into an employment letter agreement dated
September 19, 1997 pursuant to which Mr. Seese joined Qwest as Executive Vice
President--Network Engineering and Operations. Mr. Seese is entitled to an
annual base salary of $230,000 and a minimum bonus at the end of his first
year of employment of $92,000. Mr. Seese also received reimbursement for
relocation expenses of $200,000. The agreement also provides for the grant to
Mr. Seese of a stock option pursuant to Qwest's Equity Incentive Plan covering
750,000 shares of Qwest Common Stock with an exercise price per share of
$22.875. The option becomes exercisable as to 200,000 shares of Qwest Common
Stock at the end of each of the first two years of employment, an additional
100,000 shares of Qwest Common Stock at the end of each of the third through
the fifth years of employment and an additional 50,000 shares of Qwest Common
Stock at the end of the sixth year of employment. Qwest has agreed to pay Mr.
Seese up to $1,000,000 under certain conditions on the sixth anniversary of
his employment. In the event of a Change in Control (as defined in the Equity
Incentive Plan), all of Mr. Seese's option shares will vest immediately. If
Mr. Seese's employment is terminated for any reason other than cause during
his first two years of employment, he will be entitled to a lump sum payment
of one year's base salary.

Qwest and Stephen M. Jacobsen entered into an employment letter agreement
dated March 7, 1997 pursuant to which Mr. Jacobsen joined Qwest as its Senior
Vice President--Consumer Markets. Under the agreement, Mr. Jacobsen is
entitled to an annual base salary of $185,000, which has been increased to
$192,770 for 1998. Mr. Jacobsen also received reimbursement for relocation
expenses in the amount of $132,085. The agreement provides for the grant to
Mr. Jacobsen of 30,000 growth shares pursuant to the Growth Share Plan. If Mr.
Jacobsen's employment with Qwest terminates for any reason other than cause,
he will be entitled to a lump sum payment of one year's base salary.

The Growth Share Plan provides that, upon a change in control, the
outstanding growth shares will become fully vested. See "--Growth Share Plan"
above.

The Equity Incentive Plan provides that, upon a change in control, all
awards granted under the Equity Incentive Plan will vest immediately. See "--
Equity Incentive Plan" above.

DIRECTOR COMPENSATION

Directors who are officers or employees of Qwest or any of its affiliates do
not receive compensation, except as officers or employees of Qwest or its
affiliates.

Directors who are neither officers nor employees of Qwest or any of its
affiliates, other than Mr. Liebhaber, are entitled to receive $24,000 per
annum for serving as directors of Qwest. Each director who is neither an
officer nor an employee of Qwest or any of its affiliates, other than Mr.
Leibhaber, is entitled to receive an attendance fee of $2,000 per meeting of
the Qwest Board and of a committee of which he is a member.

Mr. Liebhaber has a consulting agreement with QCC that is described under
"CERTAIN TRANSACTIONS." The consulting agreement provides that he will be paid
an annual retainer fee of

124

$250,000 plus reimbursement for out-of-pocket expenses not to exceed $10,000
without QCC's prior approval. Mr. Liebhaber agreed to waive director's fees in
consideration for these payments.

Messrs. Slater, Polson, and Liebhaber, directors of Qwest, have each been
granted a total of 20,000, 7,500 and 10,000 growth shares, respectively. All
of Mr. Polson's growth shares became 100% vested and payable at the time of
the Initial Public Offering and he received compensation attributable to his
growth shares in 1997 of $1,772,449. 7,500 of Mr. Slater's growth shares
became 100% vested and payable at the time of the Initial Public Offering and
he received compensation attributable to such growth shares in 1997 of
$1,772,449. The balance of Mr. Slater's growth shares and all of Mr.
Liebhaber's growth shares remain outstanding.

Messrs. Slater and Liebhaber have each been granted stock options pursuant
to the Equity Incentive Plan covering a total of 250,000 and 200,000 shares of
Qwest Common Stock, respectively. The stock options have an exercise price of
$11.00 per share and vest at the rate of 20% per year beginning at the same
time as the growth shares. The options would also become fully vested upon
death, disability, retirement or a change in control of Qwest (see "--Growth
Share Plan").

The Qwest Board has adopted the Qwest Communications International Inc.
Equity Compensation Plan for Non-Employee Directors (the "Director Equity
Plan") pursuant to which each director who is not an employee of Qwest or any
of its affiliates may elect to receive directors' fees in the form of Qwest
Common Stock. Directors may elect on a quarterly basis to receive their
directors' fees either in Qwest Common Stock or in cash.

Audit Committee. The Qwest Board established an Audit Committee in May 1997
to: (i) make recommendations concerning the engagement of independent public
accountants; (ii) review with Qwest management and the independent public
accountants the plans for, and scope of, the audit procedures to be utilized
and results of audits; (iii) approve the professional services provided by the
independent public accountants; (iv) review the adequacy and effectiveness of
Qwest's internal accounting controls; and (v) perform any other duties and
functions required by any organization under which Qwest's securities may be
listed. Cannon Y. Harvey, Jordan L. Haines and W. Thomas Stephens are the
members of the Audit Committee.

Compensation Committee. In December 1996, the board of directors of Qwest's
predecessor company created a Compensation Committee and appointed Philip F.
Anschutz and Cannon Y. Harvey to serve on the committee. In July 1997, Mr.
Harvey resigned from the committee. Since July 1997, Philip F. Anschutz,
Jordan L. Haines and W. Thomas Stephens have served on the committee. The
Compensation Committee determines the salaries, cash bonuses, and fringe
benefits of the executive officers, reviews the salary administration and
benefit policies of Qwest and administers the Growth Share Plan and the Equity
Incentive Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Anschutz is a Director and Chairman of Qwest, a Director and Chairman of
Anschutz Company, Qwest's parent, and a Director and Chairman of The Anschutz
Corporation, a subsidiary of Anschutz Company. Mr. Harvey is a Director of
Qwest and President and Chief Operating Officer of Anschutz Company and The
Anschutz Corporation.

125

PRINCIPAL STOCKHOLDER

Philip F. Anschutz is the sole beneficial owner of approximately 83.7% of
the outstanding shares of Qwest Common Stock. Qwest has granted a warrant to
Anschutz Family Investment Company LLC, an affiliate of Anschutz Company, to
purchase 8,600,000 shares of Qwest Common Stock. See "CERTAIN TRANSACTIONS."
Anschutz Company has granted or expects to grant from time to time security
interests in all or part of its shares of the Qwest Common Stock in connection
with transactions entered into by it or its affiliates. Although not
anticipated, under certain circumstances, shares of Qwest Common Stock could
be sold pursuant to such security interests, which could result in a change of
control of Qwest for purposes of Delaware law.

CERTAIN TRANSACTIONS

Qwest has easement agreements with certain railroads owned by Union Pacific
Corporation ("Union Pacific") arising from the 1996 merger between a
subsidiary of Union Pacific and Southern Pacific Rail Corporation ("Southern
Pacific"). Qwest's majority beneficial owner, Mr. Philip F. Anschutz, was the
principal stockholder of Southern Pacific prior to the merger and holds
approximately 5.2% of Union Pacific. The easement agreements provide for
payment by Qwest to Southern Pacific of specified amounts based on miles of
conduit used by Qwest or sold to third parties. The amounts paid by Qwest to
Southern Pacific under these easement agreements for the years 1996, 1995 and
1994 and to reimburse Southern Pacific for expenses related to the
construction, operation and maintenance of Qwest's fiber optic system were
approximately $3.5 million, $2.2 million and $0.9 million, respectively.

In October and November 1996, Union Pacific entered into agreements with
Qwest to survey, construct and operate a fiber optic telecommunications system
on Union Pacific rights-of-way between Alazon, Nevada and Salt Lake City,
Utah. Fees paid or accrued by Qwest during 1996 pursuant to these agreements
totaled $0.9 million.

Southern Pacific performed certain administrative functions for Qwest for
which it charged Qwest approximately $0.1 million for 1994. Charges to Qwest
were not material in amount for each of the years 1996 and 1995. Qwest
provides telecommunications services to Southern Pacific. For these services,
Southern Pacific paid Qwest $1.6 million, $3.6 million and $3.4 million in the
years 1996, 1995 and 1994, respectively.

Certain affiliates of Anschutz Company indirectly provide facilities to
Qwest at prevailing market rates. Qwest rents its corporate office in Denver,
Colorado from a limited partnership in which Mr. Anschutz serves as a general
partner and indirectly holds limited partner interests and rents certain
telecommunications equipment used by Qwest at its corporate office from an
affiliate of Anschutz Company. Such expenses totaled $1.4 million, $1.2
million and $1.0 million in the years ended December 31, 1997, 1996 and 1995,
respectively, and were not material in amount in 1994.

Affiliates of Anschutz Company incur certain costs on Qwest's behalf,
including primarily insurance and corporate transportation services, and
allocate such costs to Qwest based on actual usage. The cost to Qwest for such
services was approximately $4.3 million, $2.1 million and $2.5 million for the
years ended December 31, 1997, 1996 and 1995, respectively, and was not
material in 1994.

Qwest historically has received capital contributions and noninterest-
bearing advances from Anschutz Company and an affiliate of Anschutz Company to
fund operations. Qwest received capital contributions from Anschutz Company of
$28.0 million and $20.9 million in 1995 and 1994, respectively. Neither
Anschutz Company nor any of its affiliates made cash capital contributions to

126

Qwest during 1996. Outstanding advances totaled $19.1 million at December 31,
1996. In May 1997, all outstanding advances, totaling approximately $28.0
million, were repaid.

Effective May 23, 1997, Qwest sold to the Anschutz Family Investment Company
LLC, for $2.3 million in cash, a warrant to acquire 8,600,000 shares of Qwest
Common Stock at an exercise price of $14.00 per share, exercisable on May 23,
2000. The warrant is not transferable. Shares of Qwest Common Stock issued
upon exercise of the warrant would be subject to restrictions on sale and
transfer for two years after exercise. Anschutz Company is the manager of, and
owns a 1% equity interest in, the Anschutz Family Investment Company LLC, and
a trust, of which members of Mr. Anschutz's immediate family are
beneficiaries, owns the remainder of the equity interests.

Qwest has a tax sharing agreement with Anschutz Company that provides for
the allocation of tax liabilities and benefits. In general, the agreement
requires Qwest to pay to Anschutz Company the applicable income taxes for
which Qwest would be liable if it filed a separate return and requires
Anschutz Company to pay Qwest for losses or credits which would have resulted
in a refund of taxes as if Qwest had filed a separate return. The payments
under the agreement may be made in the form of cash, setoffs, contributions to
capital, dividends, notes or any combination of the foregoing. The tax
benefits payable to Qwest under the existing agreement through December 31,
1996 of $11.1 million were forgiven.

The tax sharing agreement was amended, effective as of January 1, 1997 (the
"Effective Date"), to provide that Qwest will be responsible to Anschutz
Company to the extent of income taxes for which Qwest would have been liable
if it had filed a separate return after giving effect to any loss or credit
carryover belonging to Qwest from taxable periods after the Effective Date.
Anschutz Company will be responsible to Qwest to the extent an unused loss or
credit can be carried back to an earlier taxable period after the Effective
Date.

The ABN AMRO $100.0 million revolving credit facility was collateralized by
shares owned and pledged by an affiliate of Anschutz Company. For a
description of this facility, see "Qwest's Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

Anschutz Company has guaranteed a QCC construction loan with an outstanding
balance at September 30, 1997 of approximately $15.0 million. The construction
loan pertains to a network construction project undertaken by QCC for an
interexchange carrier. The guarantee is limited to indemnification against
defective construction, warranty or other claims of the interchange carrier
that would reduce or eliminate the interexchange carrier's obligation to pay
QCC. In addition, Anschutz Company has guaranteed bonds totaling $175.0
million furnished by Qwest to support its construction obligations under the
Frontier contract for sale of dark fiber. See "BUSINESS OF QWEST--The Qwest
Network--Dark Fiber Sales." Qwest has agreed to indemnify Anschutz Company and
its subsidiaries against any cost or losses incurred by any of them as a
result of their providing credit support to Qwest (in the form of collateral
pledges, guarantees, bonds or otherwise).

Richard T. Liebhaber, a Director of Qwest, entered into a consulting
agreement with an affiliate of Anschutz Company in December 1996 to provide
consulting services in 1997 and serve on the board of directors of Qwest and
its subsidiaries upon request. The agreement was assigned to Qwest in February
1997 and Qwest renewed the agreement for 1998. Mr. Liebhaber is required under
the contract to provide a minimum of 30 days of consulting services to QCC
during 1997 and will be paid $250,000 plus out-of-pocket expenses not to
exceed $10,000. Mr. Liebhaber, was granted 10,000 growth shares, effective
December 1, 1996, with a performance cycle ending December 31, 2001. See
"MANAGEMENT OF QWEST--Growth Share Plan." Mr. Liebhaber was granted an option
to purchase 200,000 shares of Qwest Common Stock. See "MANAGEMENT OF QWEST--
Growth Share Plan" and "--Equity Incentive Plan."

127

BENEFICIAL OWNERSHIP OF QWEST COMMON STOCK

The following table sets forth certain information regarding the beneficial
ownership of Qwest Common Stock as of December 31, 1997 by (i) each person
known by Qwest to beneficially own more than five percent of the Qwest Common
Stock; (ii) each director of Qwest; (iii) each of the named executive
officers; and (iv) all current directors and executive officers of Qwest as a
group, in each case giving effect to the Qwest Stock Split.

ADDRESS FOR AMOUNT AND NATURE OF PERCENT OF
5% OWNERS BENEFICIAL OWNERSHIP(1) OUTSTANDING SHARES(2)
NAME ---------------------- ----------------------- ---------------------

Philip F. Anschutz...... 555 Seventeenth Street 173,019,002(3) 83.7%
Suite 1000
Denver, CO 80202
Joseph P. Nacchio....... 1,201,600(4) *
Robert S. Woodruff...... 358,710 *
Cannon Y. Harvey........ 6,000 *
Richard T. Liebhaber.... 30,000(5) *
Douglas L. Polson....... 68,008 *
Craig D. Slater......... 98,668(6) *
Jordan L. Haines........ 4,000 *
W. Thomas Stephens...... 4,000 *
Richard L. Smith........ 108,658(7) *
A. Dean Wandry.......... 277,222 *
Anthony J. Brodman...... 242,402(8) *
Stephen M. Jacobsen..... 90,000(9) *
Lewis O. Wilks.......... -- *
Brij Khandelwal......... -- *
Larry A. Seese.......... -- *
Directors and Executive
Officers as a Group (21
persons)............... 175,508,270 84.9%

- --------
* Less than one percent.
(1) Except as otherwise indicated, Qwest believes that the persons listed in
the above table have sole investment and voting power with respect to all
shares beneficially owned by them, subject to applicable community
property laws. For purposes of this table, beneficial ownership is
determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended, and generally includes voting or investment power
with respect to securities. Under that Rule, securities relating to
options are deemed to be beneficially owned if they are currently
exercisable or exercisable within 60 days. The amounts shown in the table
do not include shares relating to options not currently exercisable or
exercisable within 60 days.
(2) Based upon 206,669,874 shares of Qwest Common Stock issued and outstanding
plus, as to the holder thereof only and no other person, exercise of all
derivative securities that are exercisable or convertible currently or
within 60 days of December 31, 1997.
(3) Includes 20,336 shares held as custodian for one of Mr. Anschutz's
children, as to which beneficial ownership is disclaimed. Does not include
8,600,000 shares issuable upon exercise of a warrant held by Anschutz
Family Investment Company LLC of which Anschutz Company, a corporation
wholly owned by Mr. Anschutz, is the manager and one percent equity owner.
(4) Includes 1,200,000 shares currently issuable upon exercise of options and
1,600 shares owned by or for the benefit of Mr. Nacchio's children.
(5) Represents shares issuable within 60 days upon exercise of options.
(6) Includes 37,500 shares currently issuable upon exercise of options.
(7) Includes 12,000 shares owned by or for the benefit of Mr. Smith's children
and 400 shares owned through a partnership of which Mr. Smith is a general
partner.
(8) Includes 7,500 shares currently issuable upon exercise of options.
(9) Represents shares issuable within 60 days upon exercise of options.

128

DESCRIPTION OF QWEST CAPITAL STOCK

The following summary description of the capital stock of Qwest does not
purport to be complete and is subject to the provisions of the Qwest
Certificate of Incorporation and Qwest Bylaws, which are included as exhibits
to the Registration Statement of which this Proxy Statement/Prospectus forms a
part and by the provisions of applicable law.

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

Pursuant to the Qwest Certificate of Incorporation, Qwest has authority to
issue 425,000,000 shares of capital stock, consisting of 400,000,000 shares of
Qwest Common Stock and 25,000,000 shares of Qwest Preferred Stock.

As of December 31, 1997, 206,669,874 shares of Qwest Common Stock and no
shares of Qwest Preferred Stock were issued and outstanding. The rights of the
holders of Qwest Common Stock discussed below are subject to such rights as
the Qwest Board may hereafter confer on the holders of Qwest Preferred Stock;
accordingly, rights conferred on holders of Qwest Preferred Stock that may be
issued in the future under the Qwest Certificate of Incorporation may
adversely affect the rights of the holders of Qwest Common Stock.

Effective May 23, 1997, Qwest sold to the Anschutz Family Investment Company
LLC a warrant to acquire 8,600,000 shares of Qwest Common Stock, exercisable
on May 23, 2000. See "CERTAIN TRANSACTIONS."

COMMON STOCK

Voting Rights. Each holder of the Qwest Common Stock shall be entitled to
attend all special and annual meetings of the stockholders of Qwest and,
together with the holders of all other classes of stock entitled to attend and
vote at such meetings, to vote upon any matter or thing (including, without
limitation, the election of one or more directors) properly considered and
acted upon by the stockholders. Holders of the Qwest Common Stock are entitled
to one vote per share.

Liquidation Rights. In the event of any dissolution, liquidation or winding
up of Qwest, whether voluntary or involuntary, the holders of the Qwest Common
Stock and holders of any class or series of stock entitled to participate
herewith, shall become entitled to participate in the distribution of any
assets of Qwest remaining after Qwest shall have paid, or provided for payment
of, all debts and liabilities of Qwest and after Qwest shall have paid, or set
aside for payment, to the holders of any class of stock having preference over
the Qwest Common Stock in the event of dissolution, liquidation or winding up
the full preferential amounts (if any) to which they are entitled.

Dividends. Dividends may be paid on the Qwest Common Stock and on any class
or series of stock entitled to participate therewith when and as declared by
the Qwest Board.

AUTHORIZED QWEST PREFERRED STOCK

The Qwest Certificate of Incorporation authorizes the Qwest Board, from time
to time and without further stockholder action, to provide for the issuance of
up to 25,000,000 shares of Qwest Preferred Stock, par value $.01 per share, in
one or more series, and to fix the relative rights and preferences of the
shares,including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion privileges. As of the date hereof, the Qwest
Board has not provided for the issuance of any series of such Qwest Preferred
Stock. Through its broad discretion with respect to the creation and issuance
of Qwest Preferred Stock without stockholder approval, the Qwest Board could
adversely affect the voting power of the holders of Qwest Common Stock and, by
issuing shares of Qwest Preferred Stock with certain voting, conversion or
redemption rights or all of them, could discourage any attempt to obtain
control of Qwest.

129

CERTAIN CHARTER AND STATUTORY PROVISIONS

The Qwest Certificate of Incorporation and Qwest Bylaws include certain
provisions that may have the effect of delaying, deterring or preventing a
future takeover or change in control of Qwest unless such takeover or change
in control is approved by the Qwest Board. See "RISK FACTORS--Risks Relating
to Qwest and Its Business--Anti-Takeover Provisions."

The Qwest Certificate of Incorporation places certain restrictions on who
may call a special meeting of stockholders. In addition, the Qwest Board has
the authority to issue up to 25,000,000 shares of Qwest Preferred Stock and to
determine the price, rights, preferences, and privileges of those shares
without any further vote or actions by the stockholders. The rights of the
holders of Qwest Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Qwest Preferred Stock that may
be issued in the future. The issuance of such shares of Qwest Preferred Stock,
while potentially providing desirable flexibility in connection with possible
acquisitions and serving other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or may discourage a
third party from attempting to acquire, a majority of the outstanding voting
stock of Qwest.

Qwest is subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to such
date, the board approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in such person becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding, for purposes of determining the number of shares
outstanding, shares owned by certain directors or certain employee stock
plans), or (iii) on or after the date the stockholder became an interested
stockholder, the business combination is approved by the board of directors
and authorized by the affirmative vote (and not by written consent) of at
least two-thirds of the outstanding voting stock excluding that stock owned by
the interested stockholder. A "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who (other than the
corporation and any direct or indirect majority owned subsidiary of the
corporation), together with affiliates and associates, owns (or, as an
affiliate or associate, within three years prior, did own) 15% or more of the
corporation's outstanding voting stock. The application of Section 203 could
have the effect of delaying or preventing a change of control of Qwest.

The Qwest Certificate of Incorporation allows Qwest to require
certifications with respect to, beneficial ownership of Qwest Common Stock by
"aliens." For purposes of this restriction, the term "alien" means aliens and
their representatives, foreign governments and their representatives and
corporations organized under the laws of a foreign country. The Communications
Act of 1934 limits the ownership by non-U.S. citizens, foreign corporations
and foreign governments of an entity directly or indirectly holding a common
carrier radio license. See "REGULATION."

Certain provisions of the Qwest Bylaws may have the effect of delaying or
preventing changes in control or management of Qwest. See "RISK FACTORS--Risks
Relating to Qwest and Its Business--Anti-Takeover Provisions."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Qwest Common Stock is ChaseMellon
Shareholder Services, L.L.C.

130

BUSINESS OF PHOENIX

GENERAL

Phoenix is a publicly-owned interexchange carrier of long distance
telecommunications services. Phoenix believes that it offers "simple, honest
and straightforward" pricing plans that are generally priced lower than many
plans of larger carriers such as AT&T, MCI and Sprint. Moreover, Phoenix
believes that it provides more attentive customer service than its larger
competitors. In addition to "1 plus" domestic long distance service, Phoenix
offers its customers a wide range of value-added products and services,
including inbound "800" service, dedicated access and private line service,
Internet access, calling cards, international call-back, conference calling,
debit cards and customized management reports.

Since May 1995, Phoenix has acquired 10 companies or customer bases,
including one switched reseller, two switchless resellers, one international
call-back company, and six customer bases. These acquired companies and
customer bases have added significant amounts of revenue, new products and
services, enhanced marketing capabilities and provided technical and network
infrastructure. See "--Acquisitions."

COMPANY STRATEGY

Phoenix's objective is to grow revenue and cash flow by being a leading
provider of telecommunications services. Phoenix's strategy for achieving this
goal is to: (i) provide customers a full range of telecommunications products
and services and (ii) consummate a business combination transaction with a
company operating its own long distance network and loading such network with
Phoenix's long distance traffic.

Phoenix seeks to provide a full range of telecommunications products and
services. As competition increases in the telecommunications industry, Phoenix
believes that the successful companies will be those that can offer a wide
range of products and services, acting as a "one-stop-shop" for customers who
are confronted with a proliferation of products and technologies. In addition
to providing extra sources of revenue, Phoenix believes that cross-selling a
variety of products and services to its customers builds customer loyalty. See
"--Products and Services."

ACQUISITIONS

Since May 1995, Phoenix has acquired 10 companies or customer bases,
including one switched reseller, two switchless resellers, one international
call-back company, and six customer bases. The following acquired companies
and customer bases have added significant amounts of revenue, new products and
services, enhanced marketing capabilities and/or provided technical and
network infrastructure:

APPROXIMATE
MONTHLY APPROXIMATE
ACQUISITION REVENUE PURCHASE FORM OF TYPE OF
ACQUISITION DATE (000S)(1) PRICE (000S) CONSIDERATION ACQUISITION
----------- ------------- ----------- ------------ -------------- -------------

AMERICOM................ July 1995 $ 30 $ 98 Cash Customer base
Bright Telecom, L.P..... August 1995 $ 50 $ 356 Cash Company
Interstate Savings, August 1995 Cash Customer base
Inc.................... $ 367 $ 1,450
Tele-Trend August 1995 Cash Company
Communications, LLC.... $ 725 $ 4,430
Education Communications December 1995 Cash Customer base
Systems, Inc........... $ 175 $ 525
Automated January 1996 $1,917 $17,522 Cash, common Company
Communications, Inc.... stock and note
King Communications..... January 1996 $ 54 $ 203 Cash Customer base
Baldcor Capital Group... January 1996 $ 28 $ 119 Cash Customer base
Connections March 1996 Cash Customer base
Communications Source.. $ 20 $ 36
AmeriConnect, Inc....... October 1996 $1,442 $12,820(2) Common stock Company

- --------
(1) Monthly revenue for first month's billing following the acquisition.
(2) Represents estimated fair market value, as of the closing date of the
acquisition, of Phoenix Common Stock issued in connection with this
transaction, which was accounted for as a pooling of interests.

131

OPERATIONS

Phoenix's strategy is to reduce its line costs by either moving traffic to
its lowest cost wholesale provider or placing the traffic on one of its three
switches. Through a combination of use of its three switches and agreements
with vendor carriers, Phoenix is able to complete point-to-point long distance
calls from anywhere within the United States and various foreign countries to
anywhere in the world.

Transmission Facilities. On routes where Phoenix has leased IMTs, such IMTs
interconnect Phoenix's switches and transport long distance telephone calls
between such switches. Where the volume of long distance traffic on a
particular route between such switches justifies leasing a fixed-cost IMT,
access to the IMT affords Phoenix the opportunity to reduce line costs by
transmitting its long distance traffic over such IMT, where available. Because
fees for IMTs are fixed and do not vary with usage, additional minutes of use
may be loaded on the IMTs without incurring additional costs for such IMTs,
thereby improving Phoenix's margins. Phoenix leases its fixed cost IMT's from
several carriers. Fixed cost IMT's leased by Phoenix are sometimes referred to
herein as "Phoenix's IMT's."

PRODUCTS AND SERVICES

Phoenix offers a wide variety of long distance and value-added products and
services to its customers. These products and services include: "1 plus"
domestic long distance service, inbound (800) service, dedicated access and
private line services, Internet access, calling cards, international call-
back, conference calling and debit cards. Phoenix also provides customized
management reports to help its customers better understand and manage their
telecommunications costs. In addition, Phoenix's business strategy includes
opportunistically adding additional telecommunications products and services,
such as local service and cellular service.

Phoenix's pricing structure for its products and services is established on
the basis of cost and competition. Phoenix believes that its customers
generally select Phoenix because it offers lower cost long distance
transmission than larger interexchange carriers, such as AT&T, MCI and Sprint,
while providing more attentive customer service. Phoenix offers a variety of
rate plans that it believes meet the needs of its customers. Under Phoenix's
most commonly subscribed long distance rate plans, customers are generally
sold flat per minute rates for interstate and intrastate long distance calls.
Such rates generally are determined based upon the customers' usage levels at
the time of the sale and do not vary based upon the time of day of a call.

CUSTOMERS

At December 31, 1997, Phoenix's customer base was comprised of over 40,000
customers, consisting primarily of small and medium-size business customers
and, to a much lesser extent, residential customers. Phoenix targets its
marketing efforts primarily to business customers spending $10,000 or less per
month on long distance services. For the year ended December 31, 1997,
Phoenix's 20 largest customers accounted for less than 10% of revenue and no
one customer accounted for more than 2% of revenue.

Phoenix is presently serving customers in 49 states. Through its
international call-back service, Phoenix serves approximately 1,000 customers
in various countries worldwide.

MARKETING AND SALES

Overview. Phoenix's marketing and sales efforts are designed to
differentiate Phoenix from its competitors through simple low-cost pricing,
customization of products and services and person-to-person customer service.
Phoenix's pricing schedules typically include a flat-rate cost per minute,
with additional discounts available for higher volume use. While a variety of
rate plans are offered, Phoenix attempts to price its long distance service
below the basic rates of AT&T, MCI and Sprint.

132

Phoenix emphasizes to its business customers that its menu of services can
be customized to meet each individual company's needs, including monthly
management reports and specially formatted invoices that help identify and
sort calling patterns and track non-business calling. Phoenix also highlights
the high level of regular personal contact in its approach to customer
service, including a three to five person team of customer service
representatives that is assigned to each business customer throughout its
relationship with Phoenix.

Phoenix believes that a key attraction of its marketing and sales
presentations to business customers is its invoice system, which utilizes
simple and understandable formats for conveying billing information and
presents most services provided by Phoenix to a customer on a single bill.

Under Phoenix's "clear billing" system, since January 1996, charges for "1
plus" calls to new customers are based upon six-second increments and the
applicable per-minute rate charge. Phoenix believes that this calculation
method differs from that currently employed by certain of its competitors, who
use minutes as the minimum billing increment and round up partial minutes of
calling time to the next whole minute. In addition, under Phoenix's most
recent rate plans, per call charges are calculated out to four decimal places
while many of Phoenix's competitors round charges for each call up to two
decimal places. The resulting charges for the "rounded-up" portion of calling
time can be significant for business customers with a high volume of short
calls, and Phoenix's billing method is thus presented to potential customers
as a cost-saving feature. Phoenix views its clear billing policies as a
competitive advantage when compared to the billing practices of certain of its
competitors.

Phoenix conducts its marketing efforts through a focused program that
combines direct sales offices located in selected metropolitan areas with a
network of master sales agents and independent distributors, and a group that
focuses on larger volume wholesale and retail customers ("National Accounts").
Phoenix believes that utilizing a staff of dedicated sales employees promotes
lower turnover, better training and more consistency in presenting Phoenix's
image to the marketplace. At the same time, its network of agents and
distributors serves to extend Phoenix's marketing reach and coverage
efficiently and economically.

For the year ended December 31, 1997, Phoenix's direct sales, independent
distributors and National Accounts contributed approximately 51%, 13% and 36%,
respectively, of the total number of new customers.

Direct Sales Offices. Phoenix currently operates 2 sales offices located in
Minneapolis and Tampa. At December 31, 1997, Phoenix employed 15 direct sales
representatives, 2 sales managers that support, train and assist the direct
sales representatives and 2 supervisory and administrative personnel in its
sales offices.

Distribution Network. Phoenix's distributor network consists primarily of
master sales agents and independent distributors. Master sales agents are
either individuals or marketing companies with their own experienced sales
forces and established networks of business customers. They typically sell
telecommunications products and services offered by other companies in
addition to Phoenix. Independent, or "standard," distributors are non-employee
contractors who generally have not developed the larger sales staffs that
characterize master sales agents. Phoenix estimates that the number of its
standard distributor relationships that produce sales on a regular monthly
basis is currently in the range of 30-35, although Phoenix has approximately
50 standard distributor relationships that occasionally produce sales.

National Accounts. National Accounts consists of 4 employees who solicit
large, nationwide organizations to purchase Phoenix's products and services.
Typically products are offered to those organization at lower prices and
Phoenix provides expanded customer service and sales support in return for
higher levels of business.

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CUSTOMER SERVICE

Phoenix places a strong emphasis on customer service and believes that
frequent contact with customers is a significant factor in customer retention.
Phoenix has recently completed a new Customer Service Call Center (the
"Center") that has state-of-the-art telephone systems, data systems and
operating maps to assist in the customer service function. The Center is
located adjacent to Phoenix's headquarters and houses all of Phoenix's
customer service representatives. Phoenix believes that its new Center further
enhances its ability to serve its customers.

Customer service representatives are available from 6:00 a.m. to 6:00 p.m.
Mountain Standard Time (encompassing the business day on both coasts) by
dialing a toll-free number to handle any customer inquiries regarding their
service. To assess satisfaction with the services and products being provided
by Phoenix, customer service representatives call existing business customers
on a routine basis.

Phoenix's customer service department is organized into three to five person
teams, with each having a team leader that supervises activities. Each
customer is assigned to one of the teams which is responsible for all the
service needs of that customer. Phoenix employed 27 customer service
representatives as of December 31, 1997.

EMPLOYEES

As of December 31, 1997, Phoenix had approximately 138 full-time employees.
Of the full-time employees, 24 are engaged in sales and marketing, 27 in
customer service, and the remainder in management, development, finance and
administrative capacities.

MCI AND SPRINT PAYABLES

MCI Payable. The Carrier Agreement by and between MCI and Phoenix dated
March 1996 (the "MCI Agreement") requires that Phoenix place long distance
traffic on MCI's long distance network having a minimum "postalized" (as
defined in the MCI Agreement) value of $900,000 per year during the two year
term beginning on January 1, 1996 and ending on December 31, 1997. During the
first year of the term of the MCI Agreement, Phoenix did not place long
distance traffic with a postalized value of $900,000 on MCI's long distance
network. However, Phoenix was not invoiced for any shortfall amount and was
verbally notified by MCI's representatives that MCI considered the minimum
postalized value requirement as having been satisfied by Phoenix for that
year. During the second year of the term of the MCI Agreement, Phoenix did not
place long distance traffic with a postalized value of $900,000 on MCI's long
distance network. In December 1997, an MCI representative informed Phoenix
that the shortfall amount for the second year of the MCI Agreement was
approximately $420,000 (the "MCI Shortfall Amount"). As of January 30, 1998,
MCI had not invoiced Phoenix for any portion of the MCI Shortfall Amount and
Phoenix had not received any written or verbal notice from MCI of its
intentions with respect to the MCI Shortfall Amount. Phoenix management has
contacted representatives of MCI and is in the process of scheduling a meeting
with MCI representatives regarding a new carrier agreement and the MCI
Shortfall Amount. It is expected that such meeting will take place prior to
February 28, 1998.

Sprint Communications Payable. The Resale Solutions Switched Services
Agreement by and between Sprint Communications and Phoenix dated December 1996
(the "Sprint Communications Agreement") requires that Phoenix pay to Sprint
Communications minimum usage fees of $20.0 million during the two year term
beginning October 1, 1996 and ending on September 30, 1998, of which a minimum
of $12.0 million must be paid in the first year of the term. During the first
year of the term of the Sprint Communications Agreement, Phoenix placed long
distance traffic having a value of approximately $10.725 million on Sprint
Communications's long distance network resulting in a

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shortfall amount of approximately $1.275 million (the "Sprint Communications
Shortfall Amount" and together with the MCI Shortfall Amount, the "Shortfall
Amounts") for the first year of the Sprint Communications Agreement. In
November 1997 Sprint Communications invoiced Phoenix for the Sprint
Communications Shortfall Amount. Pursuant to the terms of the Sprint
Communications Agreement, Phoenix cannot incur any further shortfall amounts
until September 30, 1998. Accordingly Phoenix does not expect the Sprint
Communications Shortfall Amount to increase prior to the anticipated Closing
Date.

While Phoenix management is in negotiations with each of Sprint
Communications and MCI with respect to the elimination or reduction of the
Shortfall Amounts, there can be no assurance that the Shortfall Amounts will
in fact be eliminated or reduced. In addition, pursuant to the Merger
Agreement, Phoenix will require Qwest's consent prior to entering into any
agreement relating to the Shortfall Amounts. Any Shortfall Amounts paid or
payable as of the Closing Date will reduce the Acquisition Value and,
consequently, the value of the Stock Consideration to be received by the
Phoenix Stockholders.

PHOENIX CREDIT FACILITY

In September 1995, Phoenix renewed the Phoenix Credit Facility to make
available to Phoenix a line of credit of up to $10,000,000. Phoenix may borrow
up to the lesser of $10,000,000 or its borrowing base, which is defined as a
percentage of its eligible receivables. The term of the Phoenix Credit
Facility is three (3) years, expiring October 1998, with automatic renewal
opinions. There are penalties for early termination by Phoenix. Borrowings
bear interest at 1.75% over the "reference rate," as defined in the Phoenix
Credit Facility.

The loan is collateralized by Phoenix's accounts receivable, equipment,
general intangibles and other personal property assets. Among other
provisions, Phoenix must maintain certain minimum financial covenants, is
prohibited from paying dividends without the approval of Foothill Capital
Corporation, and is subject to limits on capital expenditures.

On March 12, 1997, the Phoenix Credit Facility was amended to provide for a
$2,000,000 bridge loan with the principal amount to be paid in eight (8) equal
monthly installments between July 1, 1997 and January 1, 1998. Phoenix made
installment payments of $250,000 on the principal amount of the bridge loan
during each of June, July and August, 1997. On September 1, 1997, the parties
entered into an amendment to provide for a temporary moratorium on payments in
respect of the bridge loan with a final payment of all outstanding principal
and accrued and unpaid interest being due on January 9, 1998. On December 12,
1997, the Phoenix Credit Facility was amended to provide for an additional
bridge loan of $1,825,000 and the retention of an over-advance of $300,000. On
December 31, 1997, the Phoenix Credit Facility was further amended to provide
that Foothill Capital Corporation may, in its sole discretion, lend Phoenix up
to $1.25 million, to be treated either as an increase to the Bridge Loan
Amount or as an over-advance, which must be repaid on the earliest to occur of
(a) April 30, 1998, (b) the Effective Time and (c) termination of the Phoenix
Credit Facility. On February 2, 1998, the Phoenix Credit Facility was amended
to provide for an additional over-advance of $500,000 and to reduce the amount
that Foothill Capital Corporation may lend Phoenix from $1.25 million to
$750,000.

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meet the continuing requirements of the Phoenix Credit Facility. Such
requirements include (a) the execution of the Merger Agreement by January 8,
1998; (b) the filing with the Commission of a preliminary proxy statement with
respect to the Merger Agreement by January 31, 1998; (e) the prompt response
to any comments the Commission might have with respect to such preliminary
proxy statement; (d) the Registration Statement being declared effective by
the Commission by April 30, 1998; (e) the filing with the Commission of
Phoenix's Annual Report on Form 10-K for the year ended December 31, 1997 by
March 31, 1998; (f) the approval of the Merger Agreement and Merger by the
holders of a majority of the shares of Phoenix Common Stock by April 30, 1998;
and (g) the consummation of the Merger by April 30, 1998. A failure by Phoenix
to meet any of such requirements would constitute an event of default under
the Phoenix Credit Facility. In the future, should Phoenix violate, or have a
continuing violation of, any of the covenants constituting an event of default
under the Phoenix Credit Facility, there can be no assurance that it will
receive a waiver of such violation. Under the terms of the Phoenix Credit
Facility, upon the occurrence of an event of default, the lender may, among
other things, declare all amounts outstanding under the Phoenix Credit
Facility immediately due and payable, cease advancing money or extending
credit to Phoenix and/or during the continuance of an event of default,
increase the interest rate on amounts outstanding under the Phoenix Credit
Facility.

As of February 9, 1998, $3,129,602 was outstanding under the line of credit
(including over-advances of $800,000, in the aggregate) provided by the
Phoenix Credit Facility and the interest rate was 9.25%. The average daily
outstanding borrowing for the year ended December 31, 1997 was $4,092,859. The
highest month-end balance outstanding for the year ended December 31, 1997 was
$5,621,926. As of January 27, 1998, the Phoenix Credit Facility was fully
drawn upon.

As of January 30, 1998, Phoenix estimated that it will require financing
between $6 million and $9 million in order to repay the Bridge Loan Amount and
fund operating losses, working capital requirements and capital expenditures
during the remainder of 1998. This amount is in addition to funds provided by
operations and funding available, if any, under the Phoenix Credit Facility.
The exact amount and timing of these working capital requirements and
Phoenix's ability to continue as a going concern will be determined by
numerous factors, including (i) of the level of, and gross margin on, future
sales; (ii) the outcome of outstanding contingencies and disputes, including
the LDDS Litigation and other pending lawsuits; (iii) payment terms achieved
by Phoenix; and (iv) the timing of capital expenditures.

If the Merger is not concluded, there can be no assurance that Phoenix will
be able to obtain additional equity or debt financing on terms that Phoenix
will find acceptable. Any additional equity or debt financing may involve
substantial dilution to the interests of Phoenix Stockholders. If Phoenix is
unable to obtain sufficient funds to satisfy its cash requirements, it will be
forced to curtail operations, dispose of assets, seek extended payment terms
from its vendors or seek protection under federal bankruptcy laws. There can
be assurance that Phoenix will be able to obtain additional working capital,
reduce expenses or successfully complete other steps necessary to continue as
a going concern. See "PHOENIX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources."

GOVERNMENT REGULATION

The terms and conditions under which Phoenix provides telecommunications
products and services are subject to government regulation. Federal laws and
FCC regulations apply to interstate and international telecommunications,
while particular state regulatory authorities have jurisdiction over
telecommunications that originate and terminate within the same state.

Federal Regulation. Phoenix is classified by the FCC as a non-dominant
carrier, and therefore is subject to significantly reduced federal regulation.
After the reclassification of AT&T as a non-dominant

136

carrier in its provision of domestic services, among domestic carriers only
the LECs are classified as dominant carriers for the provision of interstate
access services. As a consequence, the FCC regulates many of the rates,
charges, and services of the LECs to a greater degree than Phoenix's. The FCC
has proposed that the RBOCs offering out-of-region interstate inter-exchange
services be regulated as non-dominant carriers, as long as such services are
offered by an affiliate of the RBOC that complies with certain structural
separation requirements, which may make it easier for the RBOCs to compete
directly with Phoenix for long distance subscribers. These would be the same
separation requirements that currently are applicable to independent LECs that
provide interstate inter-exchange services, although the FCC on March 21, 1996
initiated a rule-making proceeding in which it is considering whether to
modify or eliminate these separation requirements.

Because AT&T is no longer classified as a dominant carrier, certain pricing
restrictions that formerly applied to AT&T have been eliminated, which may
make it easier for AT&T to compete with Phoenix for low volume long distance
subscribers. International carriers may also be classified as dominant if they
exercise market power or are considered to be affiliated with foreign
carriers, as defined under the FCC's rules. Non-dominant carriers are
currently required to file international tariffs. The FCC generally does not
exercise direct oversight over cost justification and the level of charges for
service of non-dominant carriers, such as Phoenix, although it has the
statutory power to do so. Non-dominant carriers are required by statute to
offer interstate and international services under rates, terms, and conditions
that are just, reasonable, and not unduly discriminatory. The FCC has the
jurisdiction to act upon complaints filed by third parties or brought on the
FCC's own motion against any common carrier, including non-dominant carriers,
for failure to comply with its statutory obligations. Additionally, the
Telecommunications Act grants explicit authority to the FCC to "forbear" from
regulating any telecommunications services provider in response to a petition
and if the agency determines that the public interest will be served. On
October 29, 1996, the FCC exercised this authority and released an order
which, among other things, requires nondominant interexchange carriers to
cancel their currently-filed tariffs for interstate domestic services within
nine months of the effective date of the order and prohibits such filings in
the future. However, on February 19, 1997, the United States Court of Appeals
for the District of Columbia Circuit stayed the FCC's order pending further
expedited judicial review or FCC reconsideration or both. In August 1997, the
FCC issued an order on reconsideration in which it affirmed its decision to
impose complete or mandatory detariffing, although it decided to allow
optional or permissive tariffing in certain limited circumstances (including
for interstate, domestic, interexchange dial-around services, which end users
access by dialing a carrier's 10XXX access code). Petitions for further
reconsideration of this order are pending, and this order also remains subject
to the Court of Appeals' stay pending further judicial review and any appeals
of the order on reconsideration. Phoenix cannot predict the ultimate outcome
of these or other proceedings on its service offerings or operations.

The FCC imposes only minimal reporting requirements on non-dominant
resellers, although Phoenix is subject to certain reporting, accounting, and
record keeping obligations. A number of these requirements are imposed, at
least in part, on all carriers, and others are imposed on carriers whose
annual operating revenue exceed $100 million. Phoenix has been granted
authority by the FCC to provide international telecommunication services
through the resale of switched services of various vendor carriers. The FCC
reserves the right to condition, modify, or revoke such international
authority for violations of the Communications Act of 1934 or its rules.

Phoenix currently has two tariffs on file with the FCC, one covering its
domestic interstate services and one covering international services. As an
international non-dominant carrier, Phoenix has been required to include, and
has included, detailed rate schedules in its international tariffs, which are
filed on 14-days' notice without cost support to justify rates. Resale
carriers, like all other interstate carriers, are also subject to a variety of
miscellaneous regulations that, for instance, govern the documentation and
verifications necessary to change a subscriber's long distance carrier, limit
the use of "800"

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numbers for pay-per-call services, require disclosure of certain information
if operator assisted services are provided, and govern interlocking directors
and management.

The Telecommunications Act authorizes the RBOCs to provide inter-LATA inter-
exchange telecommunication services, upon the receipt of any necessary state
and/or federal regulatory approvals that are otherwise applicable to the
provision of intrastate or interstate long distance services and, for in-
region long distance services, upon specific FCC approval and upon satisfying
other conditions, including a checklist of interconnection and other
requirements. The Telecommunications Act also provides for certain safeguards
against anticompetitive conduct by the RBOCs in the provision of inter-LATA
service including a requirement for a separate subsidiary and certain joint
marketing limitations.

GTE was previously prohibited from providing inter-exchange
telecommunications services, however, the Telecommunications Act authorizes
GTE to provide inter-LATA inter-exchange telecommunications services without
regard to limitations by region, although the necessary state and/or federal
regulatory approvals that are otherwise applicable to the provision of
intrastate and/or interstate long distance service must be obtained by the
various operating companies of GTE prior to the provision of long distance
service, and GTE is subject to the provisions of the Telecommunications Act
that impose interconnection and other requirements on the LECs.

Like substantially all other long distance carriers, Phoenix has been the
subject of complaints before the FCC regarding the unauthorized switching of
subscribers' long distance carriers, also known in the industry as "slamming."
Phoenix believes that most of such complaints arose from telemarketing efforts
by Phoenix, a marketing practice that Phoenix discontinued in early 1996.
Phoenix has never been penalized or cited for "slamming" by the FCC. As to all
complaints pending at December 31, 1997 Phoenix has filed or is in the process
of filing responses to such complaints and believes that such complaints will
be resolved without a material adverse impact upon Phoenix.

In addition, the Telecommunications Act adds a new provision that imposes
liability upon all telecommunications carriers to the carrier previously
selected by the subscriber for unauthorized switching of subscribers' long
distance carriers. Liability is imposed in an amount equal to all charges paid
by the subscriber after the unauthorized conversion. The FCC is required to
adopt new rules to implement this new statutory requirement. The impact that
this statutory provision will have on Phoenix cannot be determined at this
time.

State Regulation. Phoenix is subject to varying levels of regulation in the
49 states in which it is currently authorized to provide originating
interstate telecommunications services and the 47 states in which it is
currently authorized to provide intrastate telecommunications services. The
vast majority of the states require Phoenix to apply for certification, which
entails proof of technical, managerial and financial ability, to provide
intrastate telecommunications services, or at least to register or to be found
exempt from regulation, before commencing intrastate service. A majority of
states also require Phoenix to file and maintain detailed tariffs listing
their rates for intrastate service. Many states also impose various reporting
requirements and/or require prior approval or notice for transfers of control
of certified carriers, and/or for corporate reorganizations; acquisitions of
telecommunications operations; assignments of carrier assets, including
subscriber bases; and carrier securities offerings. In certain instances
Phoenix has sought retroactive authority in various jurisdictions for certain
acquisitions and other reportable events. While Phoenix expects to receive all
requested approvals with respect to such retroactive filings, Phoenix had not
received all of such approvals as of December 31, 1997. Certificates of
authority can generally be conditioned, modified, canceled, terminated, or
revoked by state regulatory authorities for failure to comply with state law
and/or the rules, regulations, and policies of the state regulatory
authorities. Fines and other penalties, including the return of all monies
received for intrastate traffic from residents of a state, may be imposed for
such violations. If state regulatory agencies conclude that Phoenix has taken
steps without obtaining the required authority, they may impose one or more of
the sanctions listed above.

138

Currently, Phoenix can provide originating interstate and intrastate service
to customers in 47 states and the District of Columbia. Of the states in which
Phoenix provides originating service, 39 have PUCs that actively assert
regulatory oversight over the services offered by Phoenix.

Additionally, the rules for each state vary in regard to the authorization
of inter-LATA versus intra-LATA service. Upon initial certification, Phoenix
generally requested approval to provide resold intrastate long distance
telecommunications services, unless a state had specific rules pertaining to
LATAs. At the time, depending on the individual state regulations, some states
only allowed Phoenix to provide inter-LATA services, and the LECs typically
provided intra-LATA services. However, many states have modified their rules
to allow competition in the intra-LATA market. Generally speaking, as the
rules have been modified, the states have either ordered that all certified
inter-LATA carriers now have the authority to provide intra-LATA services, or
directives have been given for companies to apply for intra-LATA authority or
revise existing tariffs to comply with state regulations. In those states
which issued directives for companies to apply for intra-LATA authority or
revise tariffs, Phoenix has complied with such orders.

Phoenix continuously monitors regulatory developments in all states in which
it does business in order to ensure regulatory compliance. To the extent that
Phoenix converts from a switchless reseller to a switched reseller,
modification or amendment of Phoenix's state certifications may be required.

Additional complaints for unauthorized switching of subscribers' long
distance carriers and for other issues involving subscriber liability for
billed calls for which the subscriber denies responsibility and other billing
issues have been lodged against Phoenix before other state public utilities
commissions. Although such complaints could result in additional legal actions
or proceedings being initiated against Phoenix, Phoenix believes that such
matters would be satisfactorily resolved without a material adverse impact
upon Phoenix's results of operations or financial condition. A final
determination by one or more jurisdictions that Phoenix engaged in the
unauthorized switching of subscribers' long distance carriers or other
unauthorized conduct could have a material adverse effect upon Phoenix's
results of operations or financial condition as, among other things, Phoenix
would be subject to financial penalties and potential revocation of its
operating authority in the particular jurisdiction, as well as other possible
restrictions.

Phoenix believes that it is in compliance in all material respects with the
requirements of federal and state regulatory authorities and maintains
communications regularly with the various regulatory authorities in each
jurisdiction.

PROPERTIES

Phoenix leases its principal executive offices in Golden, Colorado. In June
1996, Phoenix completed the relocation of its corporate headquarters from San
Francisco. In December 1997, Phoenix relocated its corporate headquarters from
1687 Cole Boulevard, Golden, Colorado to 13952 Denver West Parkway, Golden,
Colorado. Phoenix's headquarters is now located in the same building as its
Customer Service Call Center. Phoenix's lease at that site terminates on
October 14, 2001. Phoenix leases sales offices in the following cities:
Lombard, Illinois; Overland Park, Kansas; Los Angeles; San Francisco;
Bellevue, Washington; Costa Mesa, California; and Clearwater, Florida. Phoenix
currently leases approximately 45,000 square feet of office space for an
aggregate of $51,174 per month. In addition, Phoenix currently leases space
for switches in Colorado Springs, Minneapolis and Phoenix for an aggregate of
$15,740 per month.

LEGAL PROCEEDINGS

LDDS Litigation. LDDS Communications, Inc. (now known as WorldCom) commenced
an action in the United States District Court for the Southern District of
Mississippi in July of 1993 against ACI

139

and Van Essen, the former owner of ACI asserting claims relating to alleged
breaches of noncompete and confidentiality agreements the defendants had
signed in connection with two transactions in which WorldCom was involved. The
alleged breaches primarily relate to ACI's hiring of sales representatives
employed by Dial-Net, Inc., a long distance company WorldCom acquired in a
merger transaction, before the Phoenix/ACI merger was consummated. ACI and Van
Essen filed certain counterclaims against WorldCom. Shortly after the closing
of the Phoenix/ACI merger, ACI informed WorldCom of the acquisition but
WorldCom has taken no steps to add Phoenix to the litigation.

A bench trial was conducted in the United States District Court in Jackson,
Mississippi from October 2 through October 17, 1996; final arguments were made
on November 15, 1996. Pursuant to the Van Essen Indemnification and Hold
Harmless Agreement, Van Essen has the right to control, and did control, the
defense on behalf of herself and ACI. The potential liability of Phoenix and
its subsidiaries, based on the damages asserted by WorldCom, exceeds $4
million, and includes (1) compensatory damages of approximately $3,020,000;
(2) attorneys' fees in excess of $700,000; (3) punitive damages in an
unspecified amount; and (4) pre-judgment interest. Phoenix is entitled to be
indemnified for any liability with respect to the LDDS Litigation, pursuant to
the Van Essen Indemnification and Hold Harmless Agreement summarized below.

On February 2, 1998, the trial court issued a Memorandum Opinion and Order
("Order") addressing only the liability issues that were tried in the LDDS
Litigation, not causation or damages. With respect to WorldCom's various
claims against ACI and Van Essen, the Order states that ACI and Van Essen
breached the merger agreement and the noncompete agreement arising out of
WorldCom's acquisition of Dial-Net, Inc. The trial court did not impose
liability on ACI or Van Essen for WorldCom's other claims of (1) fraud and
misrepresentation, (2) securities fraud, (3) tortious interference, (4)
misappropriation of trade secrets, and (5) civil conspiracy. The trial court
did not find WorldCom liable for any of the claims asserted in ACI's and Van
Essen's counterclaims.

The court has informed the parties that it will hear oral arguments with
respect to damages at a hearing currently scheduled to be held on February 16,
1998. ACI currently intends to engage separate counsel to represent it in
connection with such hearing and all further proceedings in connection with
the LDDS Litigation.

Van Essen Indemnification and Hold Harmless Agreement. The following
description summarizes the terms of the Van Essen Indemnification and Hold
Harmless Agreement and is qualified in its entirety by the Van Essen
Indemnification and Hold Harmless Agreement, a copy of which is attached to
this Proxy Statement/Prospectus as Exhibit D and incorporated herein by
reference.

The Van Essen Indemnification and Hold Harmless Agreement was entered into
on January 16, 1996 among Phoenix, PNAC, ACI and Van Essen in connection with
a merger agreement among those parties pursuant to which Phoenix acquired ACI.
Pursuant to the Indemnification Agreement, Van Essen agreed, among other
things, to (i) be solely responsible for the defense (and related fees and
costs) relating to or arising from all pending and threatened litigation
against ACI (including certain named claims) as well as all claims that might
arise in the future relating solely to actions by ACI prior to January 16,
1996 (the "ACI Legal Claims") and (ii) fully indemnify, defend and hold
harmless Phoenix, PNAC and ACI against any and all claims, judgments,
payments, expenses, liabilities and actual damages, including reasonable
attorneys' fees, that Phoenix, PNAC and/or ACI incurred relating to any ACI
Legal Claim. The Van Essen Indemnification and Hold Harmless Agreement does
not specifically list the LDDS Litigation as one of the legal claims subject
to the indemnity. However, because the list of claims does not purport to be
exhaustive and based on the parties' course of dealing, Phoenix believes that
the LDDS Litigation qualifies as an ACI Legal Claim, and, therefore, is
subject to the indemnity.

140

Phoenix expresses no view as to whether Van Essen now has, or in the future
will have, the financial capability to perform her obligations under the Van
Essen Indemnification and Hold Harmless Agreement. The obligations of Van
Essen to indemnify Phoenix under the Van Essen Indemnification and Hold
Harmless Agreement are unsecured, although certain shares of Phoenix Common
Stock have been deposited in escrow in support of Van Essen's indemnification
obligations, as described below. As the value of the shares of Phoenix Common
Stock held in escrow is considerably less than the potential liability that
ACI faces, Phoenix's, and after the Effective Time, Qwest's ability to enforce
any right of indemnification will be dependent on, among other things, the
financial resources of Van Essen. There can be no assurance that Van Essen
will have adequate financial resources to pay Phoenix any or all amounts that
may be owed pursuant to the Van Essen Indemnification and Hold Harmless
Agreement.

Van Essen has deposited in escrow 727,273 shares of Phoenix Common Stock
pursuant to an escrow agreement (the "Van Essen Escrow Agreement") among
Phoenix, PNAC, Van Essen and Vectra Bank. Van Essen has asserted that none of
Phoenix, ACI or their subsidiaries has a security interest in the shares
subject to the escrow. The Van Essen Escrow Agreement provides that all or a
portion of the shares of Phoenix Common Stock held in escrow will be released
to Phoenix and/or PNAC upon a showing by PNAC of the liability of Van Essen to
make payment pursuant to the Van Essen Indemnification and Hold Harmless
Agreement. The Van Essen Escrow Agreement does not address whether any shares
of Qwest Common Stock issued to Van Essen in the Merger in substitution for
the escrowed shares of Phoenix Common Stock would be subject to the escrow.
Van Essen has asserted that such shares of Qwest Common Stock will not be
subject to the Van Essen Escrow Agreement and should be released from the
escrow and delivered to her. Accordingly, there can be no assurance that the
shares of Qwest Common Stock received after the Effective Time will be subject
to the Escrow Agreement.

Pursuant to the terms of the Merger Agreement, Qwest is obligated to
exercise no more than commercially reasonable efforts to recover any amounts
under the Van Essen Indemnification and Hold Harmless Agreement and only
amounts so recovered on or prior to the third anniversary of the Closing Date
will be included in calculating the Contingent Cash Consideration, if any. If,
however, there is no settlement or other final, nonappealable resolution of
the LDDS Litigation on or prior to the third anniversary of the Closing Date,
the liability is assumed to be $4.0 million and the Contingent Cash
Consideration will be $0. In any case, any amounts recovered by any of Qwest
or its subsidiaries after the third anniversary of the Closing Date will be
retained by Qwest and will not be distributed to the Phoenix Stockholders. In
addition, in exercising commercially reasonable efforts Qwest is not required
to incur expenses in excess of that which it reasonably expects to recover by
reason of such efforts, and no person other than Qwest has been selected to
monitor Qwest's recovery efforts.

Van Essen Threatened Litigation. On January 16, 1998, Phoenix failed to make
a scheduled payment under the Van Essen Note and is currently in default
thereon. On January 17, 1998, Phoenix received a notice from Van Essen
declaring a default under the Van Essen Note and notifying Phoenix that if the
scheduled payment is not received by February 2, 1998, the entire unpaid
principal balance of the Van Essen Note will become due and payable and that
Van Essen will pursue all remedies available to her. Phoenix currently does
not have sufficient cash to make the scheduled payment.

Other Legal Proceedings. In addition, Phoenix is a party, from time to time,
in litigation incident to its business. Phoenix is not aware of any such
current or pending litigation that it believes will have a material adverse
affect on Phoenix's results of operations or financial condition.

141

PHOENIX SELECTED FINANCIAL DATA

The selected consolidated financial data presented below for, and as of the
end of, the years ended December 31, 1996, 1995, 1994, 1993 and 1992 have been
derived from the consolidated financial statements of Phoenix, which
statements have been audited by Grant Thornton LLP, independent certified
public accountants. This data should be read in conjunction with the
consolidated financial statements, related notes and other financial
information included elsewhere herein.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- ------------------
1992 1993 1994 1995 1996 1997 1996
------- ------- ------- ------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS
DATA:
Revenue................. $36,502 $53,905 $74,405 $75,855 $ 99,307 $ 59,932 $ 78,234
Cost of revenue......... 27,352 39,381 52,650 53,776 73,438 43,942 56,676
------- ------- ------- ------- -------- -------- --------
Gross profit............ 9,150 14,524 21,755 22,079 25,869 15,990 21,558
Selling, general and
administrative
expenses............... 9,438 15,851 21,075 22,323 31,115 20,010 22,104
Depreciation and
Amortization........... 254 538 678 1,126 4,358 2,961 3,240
Relocation expenses..... -- -- -- -- 1,133 -- 982
Acquisition expenses.... -- -- -- -- 1,309 -- --
Loss on abandonment of
fixed assets........... -- -- -- 1,020 15 -- --
Aborted bond offering
expenses............... -- -- -- -- 246 -- --
------- ------- ------- ------- -------- -------- --------
9,692 16,389 21,753 24,469 38,176 22,971 26,326
------- ------- ------- ------- -------- -------- --------
Operating income (loss). (542) (1,865) 2 (2,390) (12,307) (6,981) (4,768)
Other income (expense):
Interest income........ 40 19 36 104 85
Interest expense....... (42) (186) (425) (261) (626) (797) (399)
Miscellaneous income
(expense)............. (11) (10) 43 (7) 4 -- --
------- ------- ------- ------- -------- -------- --------
(13) (177) (346) (164) (537) (797) (399)
------- ------- ------- ------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
accounting change...... (555) (2,042) (344) (2,554) (12,844) (7,778) (5,167)
Income tax benefit
(expense).............. -- 494 (16) (500) -- -- --
------- ------- ------- ------- -------- -------- --------
Income (loss) before
cumulative effect of
accounting change...... (555) (1,548) (360) (3,054) (12,844) (7,778) (5,167)
Cumulative effect of
change in amortization
of deferred
commissions............ -- -- 123 -- -- -- --
------- ------- ------- ------- -------- -------- --------
Net income (loss)....... $ (555) $(1,548) $ (483) $(3,054) $(12,844) $ (7,778) $ (5,167)
======= ======= ======= ======= ======== ======== ========
Net income (loss)
attributable to common
shares:
Net income (loss)...... $ (555) $(1,548) $ (483) $(3,054) $(12,844) $ (7,778) $ (5,167)
Preferred dividends.... (262) (268) (232) (594) (1,206) (163) (941)
------- ------- ------- ------- -------- -------- --------
$ (817) $(1,816) $ (715) $(3,648) $(14,050) $ (7,942) $ (6,107)
======= ======= ======= ======= ======== ======== ========
Loss per common share:
Loss before cumulative
effect of accounting
change................ $ (0.08) $ (0.15) $ (0.04) $ (0.24) $ (0.68) $ (0.29) $ (0.30)
Cumulative effect of
accounting change..... -- -- (0.01) -- -- -- --
------- ------- ------- ------- -------- -------- --------
Net loss per common
share................. $ (0.08) $ (0.15) $ (0.05) $ (0.24) $ (0.68) $ (0.29) $ (0.30)
======= ======= ======= ======= ======== ======== ========

142

NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ----------------
1992 1993 1994 1995 1996 1997 1996
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(deficit).............. $ 370 $ 1,478 $ 1,409 $10,252 $(7,786) $(8,542) $ (107)
Total assets............ 11,340 17,317 17,568 33,028 45,794 40,965 51,283
Long term debt.......... -- -- -- -- 2,213 1,704 2,122
Stockholders' equity
(deficit).............. (2,825) 3,668 4,512 19,188 18,172 16,535 25,730

Phoenix has not, since 1983, declared or paid any dividends on its common
stock.

143

PHOENIX'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to the historical information contained herein, the following
discussion contains certain forward-looking statements that involve risks and
uncertainties. Phoenix's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled
"BUSINESS OF PHOENIX" and the section entitled "RISK FACTORS--Risk Factors
Relating to Phoenix and Its Business." The following discussion reflects the
merger with AmeriConnect, Inc. (the "AmeriConnect Merger") on a pooling of
interests basis and is based upon and should be read in conjunction with
Phoenix's consolidated financial statements and the notes thereto included
elsewhere in this Proxy Statement/Prospectus.

INTRODUCTION

Phoenix entered the telecommunications industry as a switchless long
distance reseller in 1985, and Phoenix grew internally on the efforts of its
sales and marketing force during the following decade. Additionally, since May
1995, Phoenix has completed 10 acquisitions of companies or customer bases,
thereby strengthening Phoenix's customer base, product and service offerings
and sales distribution. The largest of these acquisitions include: Bright
Telecom L.P. ("Bright"), a San Francisco-based international call-back
company, Tele-Trend Communications, LLC ("Tele-Trend"), a switchless reseller
based in Denver, and a portion of the customer base of Interstate Savings,
Inc. ("ISI"), a switched reseller, all of which were completed in the last
half of 1995. In January 1996, Phoenix acquired Automated Communications, Inc.
("ACI") and, in October 1996, Phoenix completed the acquisition of
AmeriConnect, Inc. See "BUSINESS OF PHOENIX--Acquisitions."

Phoenix derives revenue through the sale of telecommunications services to
its customers including, (i) "1 plus" and (800) service and (ii) dedicated
service and private lines. Revenues are based upon rates set by Phoenix and
billed to its customers for the services utilized. Phoenix's other revenue are
primarily derived from calling cards, Internet access, international call-back
and conference calling.

Phoenix's cost of revenue consists of amounts paid to switching services
providers and to carriers for bundled switching and transmission services.
Switching services rates are fixed on a contractual, per minute basis. The
rates Phoenix pays for bundled switching and transmission service vary
depending on which underlying carrier is used for service and the volume of
traffic on such carriers.

SG&A consist of personnel costs, sales commissions and marketing costs,
facilities costs, billing costs, bad debt expense and other general expenses.
Sales commissions represent the amounts paid to employees and independent
contractors for the procurement of new customers. Commissions paid are a
combination of one-time up-front payments for new customers and residual
commissions paid based upon customers' usage. One-time up-front commissions
paid to independent contractors are amortized primarily over a four year
period. All other commissions are expensed as earned. Bad debt expense is
provided for on a monthly basis as a charge to earnings based upon estimated
uncollectible accounts. Accounts are written off against the reserve when
deemed to be uncollectible.

SUPPLIER RELATIONSHIPS

Phoenix currently has agreements with major long distance carriers, such as
WorldCom, Sprint, Frontier, AT&T and others, to carry the majority of its long
distance traffic. Phoenix's agreements with vendors specify minimum volume
usage requirements, but, in contrast to many of its competitors, such
requirements scale down or expire over the next 12 months, thereby freeing
traffic to be loaded on the Qwest Network. Accordingly, minimum volume usage
requirements under these agreements, where

144

they exist, should not limit Phoenix's ability to load a substantial portion
of its traffic on the Qwest Network as it is deployed.

RESULTS OF OPERATIONS

The following table sets forth for the years and periods indicated the
respective percentages of revenue represented by certain items in Phoenix's
statements of operations.

NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
(UNAUDITED)

STATEMENT OF OPERATIONS DATA:
Revenue.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue...................... 70.8 70.9 74.0 72.4 73.3
Gross profit......................... 29.2 29.1 26.0 27.6 26.7
Selling, general and administrative.. 28.3 29.4 31.3 28.3 33.4
Depreciation and amortization........ 0.9 1.5 4.4 4.1 4.9
Relocation expenses.................. -- -- 1.1 1.3 --
Acquisition expenses................. -- -- 1.3 -- --
Loss on abandonment of fixed assets.. -- 1.3 -- -- --
Aborted bond offering expenses....... -- -- 0.2 -- --
----- ----- ----- ------ ------
29.2 32.2 38.3 33.7 38.3
Operating income (loss).............. -- (3.1) (12.3) (6.1) (11.6)
Interest income...................... -- 0.1 -- -- --
Interest expense..................... (0.5) (0.3) (0.6) (0.5) (1.3)
Miscellaneous income................. -- -- -- -- --
Income tax benefit (expense)......... -- (0.7) -- -- --
----- ----- ----- ------ ------
Loss before cumulative effect of
accounting change................... (0.5) (4.0) (12.9) (6.6) (12.9)
Cumulative effect of change in
amortization of deferred
commissions......................... (0.2) -- -- -- --
----- ----- ----- ------ ------
Net income (loss).................... (0.7)% (4.0)% (12.9)% (6.6)% (12.9)%
===== ===== ===== ====== ======
Preferred dividends.................. (0.3) (0.8) (1.2) (1.2) (0.3)
----- ----- ----- ------ ------
Net income (loss) attributable to
common shares....................... (1.0)% (4.8)% (14.1)% (7.8)% (13.2)%
===== ===== ===== ====== ======

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996

Revenue. For the quarter ended September 30, 1997 revenues decreased to
$18.6 million compared with revenues of $24.6 million for the comparable
period of the prior year. The decrease was due to an overall decrease in
billed minutes of 16.0% and a drop in the average revenue per minute of
approximately 9.9%. The rate per minute decline was due to Phoenix's customers
continuing to utilize more competitively priced services offered by Phoenix.
These new services have been a result of Phoenix's reaction to an overall
decline in retail rates and price sensitivity in the telecommunications
industry. For the nine months ended September 30, 1997, revenues decreased to
$59.9 million compared with revenues of $78.2 million for the comparable
period of the prior year due to the same reasons as the quarterly comparison.
For the nine month period billed minutes decreased by 14.8%, with the average
rate per minute down by 10.0%.

Cost of Revenue. For the three months ended September 30, 1997, cost of
revenue decreased to $13.5 million from $17.7 million in the prior year's
period; however, as a percentage of revenue, cost

145

of revenue increased to 72.6% compared to 72.2% for the prior year's period.
For the nine month period, cost of revenue increased as a percentage of
revenue to 73.3% from 72.4%. Although Phoenix's average cost per minute of
usage has declined by 9.2% for the three months ended September 30, 1997 and
9.0% for the nine months ended September 30, 1997, compared to the prior
year's comparable periods, the higher percentage decrease in the average
revenue per minute resulted in the decline in Phoenix's gross profit margin
percentage.

Selling, General and Administrative Expenses. SG&A decreased from $7.1
million for the third quarter of 1996 to $5.8 million for the third quarter of
1997. For the nine month period ending September 30, 1997, SG&A also decreased
to $20.0 million as compared to $22.1 million for the comparable period in
1996. However, as a percentage of revenue, for the third quarter of 1997 SG&A
increased by 2.6% as compared to the third quarter of 1996. For the nine month
period ended September 30, 1997, these costs as a percentage of revenue
increased by 5.1% over the comparable period of the prior year.

Depreciation and Amortization. Depreciation and amortization expense for the
quarter ended September 30, 1997 decreased by $14,000 as compared to the
quarter ended September 30, 1996. These costs also decreased from $3.2 million
for the nine month period ended September 30, 1996 to $2.9 million for the
nine month period ended September 30, 1997. The decrease resulted primarily
from the write-down of prepaid telemarketing commissions at year end. However,
as a percentage of revenue these costs increased from the prior year periods
by 1.3% for the third quarter and by 0.8% for the nine month period. The
reasons for the changes in the nine month periods are the same as for the
quarterly comparisons.

1996 COMPARED TO 1995

Revenue. Revenue increased by $23.4 million or 30.8%, to $99.3 million for
the year ended December 31, 1996 from $75.9 million for the year ended
December 31, 1995. This increase was primarily the result of an increase in
minutes of usage ("MOU") of 214,484,000 minutes, to 628,352,000 minutes for
1996, from 413,868,000 minutes for 1995 which was partially offset by a 13.7%
decrease in the average revenue per MOU to $.158 per MOU for 1996 from $.183
per MOU for 1995. Revenue per MOU decreased primarily as a result of Phoenix's
customers utilizing more competitively priced services offered by Phoenix
during 1996 and the effect of acquired companies' rate structures which
generally were lower than those offered by Phoenix. The customers gained from
the ACI acquisition during 1996 accounted for approximately 26.8% of total MOU
in the period.

Cost of Revenue. Cost of revenue increased by $19.6 million or 36.4%, to
$73.4 million for 1996 from $53.8 million for 1995. This increase was
primarily the result of an increase in MOU resulting from acquisitions. Cost
of revenue per MOU decreased 10.0% to $.117 per MOU for 1996 from $.130 per
MOU for 1995 primarily as a result of the acquisition of ACI, which had a cost
per MOU which was lower than Phoenix's, and, to a lesser extent, Phoenix being
able to place new business on its most favorably priced vendor carrier
contracts. As a percentage of revenue, cost of revenue increased to 74.0% for
1996 from 70.9% for 1995. The increase in cost of revenue as a percentage of
revenue was primarily the result of Phoenix providing lower-priced services to
its customers without a corresponding decrease in the cost of providing such
services. Historically, as Phoenix's traffic volume with its vendor carriers
has increased, it has been able to negotiate more favorable rates with such
vendor carriers, usually in conjunction with an increased volume commitment.
However, in order to pursue its long-term strategy of deploying and loading a
network, Phoenix did not renegotiate any of its material vendor carrier
contracts in the first half of 1996 in order to avoid increased vendor carrier
commitments.

Selling, General and Administrative Expenses. SG&A increased by $8.8
million, or 39.4%, to $31.1 million for 1996 from $22.3 million for 1995. This
increase was primarily the result of incremental

146

SG&A associated with the ACI acquisition. SG&A as a percentage of revenue
increased to 31.3% for 1996 from 29.4% of revenue for 1995. During 1996,
Phoenix was incurring certain duplicative operating costs in connection with
the operation of ACI, such as facilities expense and salaries of
administrative personnel performing similar functions. Phoenix consolidated
its San Francisco operations into the former ACI facilities in July 1996.
During 1996, Phoenix incurred approximately $1.0 million in duplicative
operating costs which were eliminated as of July 1996.

Depreciation and Amortization. Depreciation and amortization increased by
$3.3 million to $4.4 million for 1996 from $1.1 million for 1995. This
increase is primarily attributable to the increased amortization of goodwill
and customer bases recorded as a result of the acquisitions discussed above.

Relocation Expenses. Relocation expenses of $1.1 million were incurred in
1996 from Phoenix's relocation of its primary operations from San Francisco to
Golden, Colorado.

Acquisition Expenses. Acquisition expenses of $1.3 million were incurred in
connection with the AmeriConnect acquisition and consist primarily of
transaction fees to third parties, legal and accounting fees and a contractual
severance payment to AmeriConnect's chief executive officer.

Aborted Bond Offering Expenses. Aborted bond offering expenses related to
legal and accounting fees in connection with a proposed bond offering Phoenix
began in the last half of 1996. Phoenix decided to discontinue the offering in
January 1997 due to unfavorable market conditions.

Interest Income. Interest income decreased by $18,000 to $85,000 for 1996
from $103,000 for 1995, as a result of lower cash balances in Phoenix's
interest bearing bank accounts.

Interest Expense. Interest expense increased by $364,000 to $625,000 for
1996 from $261,000 for 1995. This increase was primarily the result of
increased borrowings under the Phoenix Credit Facility. Interest expense will
increase substantially in future periods as a result of increased indebtedness
under the Phoenix Credit Facility.

Net Loss. Net loss increased by $9.8 million to a net loss of $12.8 million
for 1996 from a net loss of $3.0 million for 1995 for the reasons discussed
above.

Preferred Dividends. Preferred dividend requirements increased by $612,000
to $1,206,000 for 1996 from $594,000 for 1995 primarily as a result of the
issuance of 1,176,056 shares of Series F Preferred Stock in June 1995.
Effective in December 1996, Phoenix converted its outstanding Series F
Preferred Stock into Phoenix Common Stock in accordance with the terms of the
Series F Preferred Stock. As a result of the conversion of the Series F
Preferred Stock, Phoenix's preferred dividend requirements have decreased.

Net Loss Attributable to Common Shares. Net loss attributable to common
shares increased by $10.4 million to a net loss attributable to Phoenix Common
Stock of $14.0 million for 1996 from a net loss attributable to Phoenix Common
Stock of $3.6 million for 1995 for the reasons discussed above.

1995 COMPARED TO 1994

Revenue. Revenue increased by $1.5 million, or 1.9%, to $75.9 million for
the year ended December 31, 1995 from $74.4 million for 1994. This increase
was primarily the result of an increase in MOU of 35,222,000 minutes, from
378,646,000 minutes for 1994 to 413,868,000 minutes for 1995, which was
partially offset by a 7.1% decrease in the average revenue per MOU from $0.197
per MOU for 1994 to $0.183 for 1995. Revenue per MOU decreased primarily as a
result of Phoenix's customers utilizing more competitively priced services
offered by Phoenix during 1995 and the effect of acquired companies' rate
structures which generally were lower than those offered by Phoenix. In August
1995, Phoenix acquired Bright, Tele-Trend and selected customers from ISI. The
customers gained from these acquisitions accounted for approximately 5.1% of
total MOU for 1995.

147

Cost of Revenue. Cost of revenue increased by $1.2 million, or 2.1%, to
$53.8 million for 1995 from $52.6 million for 1994. This increase was
primarily the result of an increase in MOU resulting from acquisitions. Cost
of revenue per MOU decreased 6.5% to $0.130 per MOU for 1995 from $0.139 per
MOU for 1994 as a result of Phoenix being able to place new business on its
most favorably priced vendor carrier contracts. As a percentage of revenue,
cost of revenue remained comparable between periods at 70.9% for 1995 compared
to 70.8% for 1994.

Selling, General and Administrative Expenses. SG&A increased by $1.2
million, or 5.9%, to $22.3 million for 1995 from $21.1 million for 1994. This
increase was due in part to $423,000 of incremental SG&A as a result of the
Tele-Trend acquisition. SG&A as a percentage of revenue increased to 29.4% for
1995 from 28.3% for 1994 primarily due to the acquisition.

Depreciation and Amortization. Depreciation and amortization increased by
$448,000, or 66.1%, to $1.1 million for 1995 from $678,000 for 1994. This
increase is primarily attributable to the increased amortization of goodwill
and customer bases recorded as a result of the acquisitions of Bright and
Tele-Trend and the acquisition of selected customers from ISI, discussed
above.

Interest Income. Interest income increased by $67,000 to $103,000 for 1995
from $36,000 for 1994 due to the investment of the proceeds from certain of
Phoenix's equity offerings.

Interest Expense. Interest expense decreased by $164,000 to $261,000 for
1995 from $425,000 for 1994 primarily due to a lower average outstanding
balance under the Phoenix Credit Facility.

Loss on Abandonment of Fixed Assets. Phoenix recorded a loss on abandonment
of fixed assets of $1.0 million in 1995. The loss relates to a write off of
software development costs during the fourth quarter of 1995 incurred in
connection with the development of a new billing system to replace Phoenix's
existing systems. Phoenix ultimately decided to license an outside vendor's
software for its billing system. Accordingly, the cost of the in-house
software development was written off during 1995.

Income Tax Expense. Income tax expense increased by $484,000 to $500,000 for
1995 from $16,000 for 1994. The increase relates to an increase in the income
tax valuation allowance by Phoenix's subsidiary, AmeriConnect, Inc., as a
result of its determination that realization of net operating losses was
doubtful due to its increasing operating losses.

Net Income (Loss). Net loss increased by $2.6 million to $3.0 million for
1995 from a net loss of $483,000 for 1994 for the reasons described above.

Preferred Dividends. Preferred dividend requirements increased by $363,000
to $594,000 for 1995 from $231,000 for 1994 primarily due to the issuance of
the 1,176,056 shares of Series F Preferred Stock in 1995.

Net Income (Loss) Attributable to Common Shares. Net loss attributable to
common shares increased by $2.9 million to $3.6 million for 1995 from a net
loss of $715,000 for 1994 for the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operations for the nine months ended September 30, 1997
resulted in a net negative cash flow of $3.4 million compared to a negative
cash flow of $1.6 million for the nine months ended September 30, 1996,
primarily as a result of the loss incurred for the period.

Phoenix's capital expenditures were $3.6 million, $589,000 and $991,000 in
1996, 1995 and 1994, respectively. Phoenix has financed approximately $1.4
million of the 1996 costs associated with implementation of a new billing and
customer care platform (the "New Billing and Customer Care

148

Platform") (implementation of which was suspended as of May 1997) through a
financing company over a three year term. During 1996, and during 1995,
Phoenix spent $17.6 million and $6.2 million, respectively, on acquisitions,
of which $4.6 million and $6.2 million, respectively, was paid in cash. The
cash for such acquisitions was raised through equity offerings and short-term
borrowings.

Phoenix's principal source of cash to fund its liquidity needs is
anticipated to be raising cash through the issuance of additional equity
securities and borrowings under the Phoenix Credit Facility. The Phoenix
Credit Facility allows for borrowings of up to $10 million based upon
Phoenix's qualified accounts receivable. The loan balance as of September 30,
1997 was $4.6 million. Net cash used in operating activities for 1996 was $4.0
million compared to $1.7 million for 1995, primarily as a result of the loss
incurred for the period. Net cash used in operating activities for 1995 was
$1.7 million, a decrease of $3.1 million from $1.4 million of positive net
cash flow provided by operating activities for 1994. The total net cash used
by operations over the periods discussed above has generally been a result of
the losses incurred by Phoenix over such periods.

On January 16, 1998, Phoenix failed to make a scheduled payment under the
Van Essen Note (as defined herein) and is currently in default thereon. On
January 17, 1998, Phoenix received a notice from Van Essen declaring a default
under the Van Essen Note and notifying Phoenix that if the scheduled payment
is not received by February 2, 1998, the entire unpaid principal balance of
the Van Essen Note will become due and payable and that Van Essen will pursue
all remedies available to her. Phoenix currently does not have sufficient cash
to make the scheduled payment.

From time to time Phoenix has been in violation of certain of its covenants
in the Phoenix Credit Facility. Phoenix has received waivers of its violations
of these covenants so long as it continues to meet the continuing requirements
of the Phoenix Credit Facility. Such requirements include (a) the execution of
the Merger Agreement by January 8, 1998; (b) the filing with the Commission of
a preliminary proxy statement with respect to the Merger Agreement by January
31, 1998; (e) the prompt response to any comments the Commission might have
with respect to such preliminary proxy statement; (d) the Registration
Statement being declared effective by the Commission by April 30, 1998; (e)
the filing with the Commission of Phoenix's Annual Report on Form 10-K for the
year ended December 31, 1997 by March 31, 1998; (f) the approval of the Merger
Agreement and Merger by the holders of a majority of the shares of Phoenix
Common Stock by April 30, 1998; and (g) the consummation of the Merger by
April 30, 1998. A failure by Phoenix to meet any of such requirements would
constitute an event of default under the Phoenix Credit Facility. In the
future, should Phoenix violate, or have a continuing violation of, any of the
covenants constituting an event of default under the Phoenix Credit Facility,
there can be no assurance that it will receive a waiver of such violation.
Under the terms of the Phoenix Credit Facility, upon the occurrence of an
event of default, the lender may, among other things, declare all amounts
outstanding under the Phoenix Credit Facility immediately due and payable,
cease advancing money or extending credit to Phoenix and/or during

149

the continuance of an event of default, increase the interest rate on amounts
outstanding under the Phoenix Credit Facility.

As of February 9, 1998, $3,129,602 was outstanding under the line of credit
(including over-advances of $800,000, in the aggregate) provided by the
Phoenix Credit Facility and the interest rate was 9.25%. Average daily
outstanding borrowing for the year ended December 31, 1997 was $4,092,859. The
highest month-end balance outstanding for the year ended December 31, 1997 was
$5,621,926.

If the Merger is not concluded, there can be no assurance that Phoenix will
be able to obtain additional equity or debt financing on terms that Phoenix
will find acceptable. Any additional equity or debt financing may involve
substantial dilution to the interests of Phoenix Stockholders. If Phoenix is
unable to obtain sufficient funds to satisfy its cash requirements, it will be
forced to curtail operations, dispose of assets, seek extended payment terms
from its vendors or seek protection under federal bankruptcy laws. There can
be assurance that Phoenix will be able to obtain additional working capital,
reduce expenses or successfully complete other steps necessary to continue as
a going concern.

Given its history of operating losses and the expectation that the losses
will continue for the foreseeable future, Phoenix will need to raise
additional capital to cover its operating losses and continue to support its
business. Phoenix will attempt to raise the capital by either selling
additional stock, expanding its borrowing from its lender or arranging for
more flexible payment terms with its major vendors. There can be no assurance
that Phoenix will be successful in any of these fund raising efforts.

For additional limitations on Phoenix's liquidity and capital resources, see
"RISK FACTORS--Risk Factors Relating to Phoenix and Its Business--Substantial
Doubt about Ability to Continue as a Growing Concern; Need for Additional
Working Capital," "--Negative Cash Flow From Operations," "--History of
Operating Losses; Anticipated Future Losses," "--Possible Volatility of Stock
Price," "--Substantial Leverage" and "--Credit Facility Covenants."

SEASONALITY

Phoenix's revenue, and thus its potential earnings, are affected by holiday
and seasonal variations. A substantial portion of Phoenix's revenue are
generated by direct dial domestic long distance business customers, and,
accordingly, Phoenix experiences a decrease in revenue around holidays,
particularly the quarter ending December 31, when business customers reduce
their usage. Phoenix's fixed operating expenses, however, do not decrease
during the fourth fiscal quarter. Accordingly, Phoenix has experienced, and
may continue to experience, lower revenue and earnings in its fourth fiscal
quarter when compared with the other fiscal quarters.

TAX BENEFIT

As of December 31, 1996, Phoenix had available to offset future federal
taxable income, net operating loss carryforwards ("NOLs") of approximately
$20.4 million which expire in varying amounts from 2002 through 2011. A
portion of the NOLs may be subject to limitations as a result of provisions of
the Code relating to changes in ownership and utilization of losses by
successor entities.

150

COMPARATIVE MARKET PRICE INFORMATION

QWEST QWEST PHOENIX PHOENIX
HIGH LOW HIGH LOW
-------- -------- ------- -------

On January 5, 1998, the last full trading day prior to the announcement of
the execution of the Merger Agreement, the reported American Stock Exchange
Composite Transactions closing price per share of Phoenix Common Stock was
$0.50. On February 10, 1998, the most recent practicable trading day prior to
the printing of this Proxy Statement/Prospectus, the reported American Stock
Exchange Composite Transactions closing price per share of Phoenix Common
Stock was $0.5625. On the Phoenix Record Date, there were approximately 1,252
Phoenix Stockholders of record.

No cash dividends were declared or paid by Phoenix during any of the periods
presented above.

Qwest has not declared or paid cash dividends on Qwest Common Stock since
the Initial Public Offering, and Qwest anticipates that any future earnings
will be retained for investment in its business. Any payment of cash dividends
in the future will be at the discretion of the Qwest Board and will depend
upon, among other things, Qwest's earnings, financial condition, capital
requirements, extent of indebtedness and contractual restrictions with respect
to the payment of dividends.

151

COMPARATIVE RIGHTS OF PHOENIX STOCKHOLDERS
AND QWEST STOCKHOLDERS

Upon consummation of the Merger, the Phoenix Stockholders will become
stockholders of Qwest ("Qwest Stockholders") whose rights will continue to be
defined and governed by the DGCL. As Qwest Stockholders, however, the rights
of former Phoenix Stockholders will no longer be defined and governed by the
restated certificate of incorporation of Phoenix (the "Phoenix Certificate of
Incorporation") and the bylaws of Phoenix (the "Phoenix Bylaws"). Instead, as
Qwest Stockholders, their rights will be defined and governed by the
certificate of incorporation of Qwest (the "Qwest Certificate of
Incorporation") and the bylaws of Qwest (the "Qwest Bylaws").

The significant rights and privileges of Phoenix Stockholders under the
Phoenix Certificate of Incorporation and Phoenix Bylaws are substantially
similar to those of Qwest Stockholders under the Qwest Certificate of
Incorporation and Qwest Bylaws. Both sets of organizational documents provide
for the election of directors at annual meetings, and the indemnification of
directors and officers to the fullest extent permitted by the DGCL.

The Phoenix Certificate of Incorporation gives Phoenix's board of directors
the authority to issue up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences, and privileges of those shares
without any further vote or actions by the stockholders. The Qwest Certificate
of Incorporation gives Qwest's board of directors the authority to issue up to
25,000,000 shares of preferred stock and to determine the price, rights,
preferences, and privileges of those shares without any further vote or
actions by the stockholders.

However, the Phoenix Bylaws provide that any of the chairman of the board of
directors, the president, a vice president, the board of directors or the
secretary upon the written request of the holders of 10% of the voting power
of the shares of Phoenix may call a special meeting of the Phoenix
Stockholders. A special meeting of Qwest Stockholders may be called by the
chairman of the board of directors, a majority of the members of the board of
directors or the chairman upon the written request of the holders of 25% of
the outstanding shares of capital stock of Qwest voting as a single class.

152

PRO FORMA COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 1997
(UNAUDITED)

The unaudited pro forma financial statements presented below are derived
from the historical consolidated financial statements of Qwest Communications
International Inc. ("Qwest"), SuperNet, Inc., a Colorado Corporation
("SuperNet"), and Phoenix Network, Inc., a Delaware Corporation ("Phoenix").
The unaudited pro forma combined balance sheet as of September 30, 1997,
excluding Phoenix, gives pro forma effect to: (i) the acquisition by Qwest of
all issued and outstanding shares of capital stock, and capital stock issued
at the closing of the acquisition in October 1997, of SuperNet; (ii) the
issuance by Qwest of $555,890,000 aggregate principal amount at maturity of
9.47% Senior Discount Notes (the "Senior Discount Notes"); and (iii) the
issuance by Qwest of $450,505,000 aggregate principal amount at maturity of
8.29% Senior Discount Notes (the "New Senior Discount Notes") ((ii) and (iii)
are herein collectively referred to as the "issuances") as if the acquisition
of Super Net and the issuances had occurred on September 30, 1997. The
unaudited pro forma balance sheet as of September 30 1997, including Phoenix,
gives pro forma effect to (i), (ii) and (iii), above, and (iv) the proposed
acquisition by Qwest of all the issued and outstanding shares of capital stock
of Phoenix as if (i), (ii), (iii) and (iv) had occurred on September 30, 1997.
The unaudited pro forma combined statement of operations for the nine months
ended September 30, 1997 and for the year ended December 31, 1996 excluding
Phoenix gives pro forma effect to the acquisition of SuperNet as if it had
occurred on January 1, 1996. The unaudited pro forma combined statement of
operations for the nine months ended September 30, 1997 and for the year ended
December 31, 1996, including Phoenix, gives pro forma effect to the
acquisitions of SuperNet and Phoenix as if they had occurred on January 1,
1996. There are no pro forma operating statement effects of the Senior
Discount Notes or the New Senior Discount Notes since they have been issued to
fund the future construction and activation of the Qwest Network. Further,
primarily all interest expense attributable to these notes will be capitalized
as a cost of constructing the Qwest Network.

The unaudited pro forma combined financial statements give effect to the
acquisitions described above under the purchase method of accounting and are
based on the assumptions and adjustments described in the accompanying notes
to the unaudited pro forma financial statements presented on the following
pages. The allocations of the total purchase price for the acquisitions
presented are based on preliminary estimates and are subject to final
allocation adjustments.

On January 20, 1998, the Board of Directors of Qwest declared a stock
dividend of one share for every share outstanding to stockholders of record as
of February 2, 1998, to be distributed on February 24, 1998. This dividend is
accounted for as a two for one stock split. All share and per share
information included in the Pro Forma Combined Financial Statements have been
adjusted to give retroactive effect to the change in capitalization.

The unaudited pro forma financial statements do not purport to represent
what the Qwest's results of operations or financial condition would have
actually been or what operations would be if the transactions that give rise
to the pro forma adjustments had occurred on the dates assumed. The unaudited
pro forma financial statements presented below should be read in conjunction
with the audited and unaudited historical consolidated financial statements
and related notes thereto of Qwest, SuperNet, and Phoenix, and "Qwest's
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Proxy Statement/Prospectus.

153

PRO FORMA COMBINED BALANCE SHEET

SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------ COMBINED, ---------- COMBINED,
PRO FORMA EXCLUDING PRO FORMA INCLUDING
QWEST SUPERNET ADJUSTMENTS PHOENIX PHOENIX ADJUSTMENTS PHOENIX
-------- -------- ----------- ---------- ---------- ----------- ---------- ---

ASSETS
Current assets:
Cash and cash
equivalents........... $186,731 38 (20,000)(3) $ 808,569 1,068 -- $ 809,637
342,600 (5)
299,200 (6)
Accounts receivable,
net................... 64,719 626 -- 65,345 12,165 -- 77,510
Costs and estimated
earnings in excess of
billings.............. 164,986 -- -- 164,986 -- -- 164,986
Deferred commissions... -- -- -- -- 475 (475)(11) --
Deferred income tax
asset................. -- 325 (325)(7) -- -- -- --
Notes and other
receivables........... 14,936 -- -- 14,936 -- -- 14,936
Other current assets... 7,063 116 -- 7,179 476 -- 7,655
-------- ------ ------- ---------- ------- ------- ----------
Total current assets... 438,435 1,105 621,475 1,061,015 14,184 (475) 1,074,724
Property and equipment,
net.................... 444,816 2,928 -- 447,744 6,228 -- 453,972
Deferred commissions.... -- -- -- -- 145 (145)(11) --
Customer acquisition
costs, net............. -- -- -- -- 1,608 -- 1,608
Deferred income tax
asset.................. 8,902 -- -- 8,902 -- -- 8,902
Notes and other
receivables............ 115 -- -- 115 -- -- 115
Intangible and other
long-term assets, net.. 16,210 -- 19,574 (7) 43,983 18,800 15,385 (8) 78,168
7,399 (9)
800 (10)
-------- ------ ------- ---------- ------- ------- ----------
Total assets........... $908,478 4,033 649,248 $1,561,759 40,965 14,765 $1,617,489
======== ====== ======= ========== ======= ======= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses...... $178,676 1,315 100 (3) 180,091 17,208 500 (4) $ 197,799
Bank line of credit.... -- 600 -- 600 4,678 -- 5,278
Deferred revenue....... 4,044 462 -- 4,506 -- -- 4,506
Billings in excess of
costs and estimated
earnings.............. 12,440 -- -- 12,440 -- -- 12,440
Deferred income tax
liability............. 6,432 -- -- 6,432 -- -- 6,432
Current portion of
long-term debt........ 15,782 306 -- 16,088 840 -- 16,928
-------- ------ ------- ---------- ------- ------- ----------
Total current
liabilities........... 217,374 2,683 100 220,157 22,726 500 243,383
Long-term debt.......... 268,946 454 349,999 (5) 919,399 1,704 -- 921,103
300,000 (6)
Deferred income tax
liability.............. -- 45 -- 45 -- -- 45
Other liabilities....... 53,307 -- -- 53,307 -- 4,000 (4) 57,307
-------- ------ ------- ---------- ------- ------- ----------
Total liabilities...... 539,627 3,182 650,099 1,192,908 24,430 4,500 1,221,838
-------- ------ ------- ---------- ------- ------- ----------
Stockholders' equity:
Preferred stock........ -- -- -- -- -- -- --
Common stock........... 2,066 1 (1)(12) 2,066 30 10 (4) 2,076
-- (30)(13)
Additional paid-in
capital................ 410,972 4,514 (4,514)(12) 410,972 52,218 26,790 (4) 437,762
(52,218)(13)
Treasury stock.......... -- -- -- -- (2) 2 (13) --
Accumulated deficit..... (44,187) (3,664) 3,664 (12) (44,187) (35,711) 35,711 (13) (44,187)
-------- ------ ------- ---------- ------- ------- ----------
Total stockholders'
equity................ 368,851 851 (851) 368,851 16,535 10,265 395,651
-------- ------ ------- ---------- ------- ------- ----------
Commitments and
contingencies
Total liabilities and
stockholders' equity.. $908,478 4,033 649,248 $1,561,759 40,965 14,765 $1,617,489
======== ====== ======= ========== ======= ======= ==========

See accompanying notes to unaudited pro forma combined financial statements.

154

PRO FORMA COMBINED STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)

Revenue:
Carrier services...... $ 39,062 -- -- $39,062 -- -- $ 39,062
Commercial services... 38,033 5,128 -- 43,161 59,932 -- 103,093
-------- ----- ------ ------- ------ ---- --------
77,095 5,128 -- 82,223 59,932 -- 142,155
Network construction
services............. 413,226 -- -- 413,226 -- -- 413,226
-------- ----- ------ ------- ------ ---- --------
490,321 5,128 -- 495,449 59,932 -- 555,381
-------- ----- ------ ------- ------ ---- --------
Operating expenses:
Telecommunications
services............. 65,310 2,624 -- 67,934 43,942 -- 111,876
Network construction
services............. 282,472 -- -- 282,472 -- -- 282,472
Selling, general and
administrative....... 59,987 1,950 -- 61,937 20,010 (765)(11) 81,182
Growth share and stock
option plans......... 69,320 341 -- 69,661 -- -- 69,661
Depreciation and amor-
tization............. 13,114 586 2,936 (14) 16,636 2,961 807 (15) 20,404
-------- ----- ------ ------- ------ ---- --------
490,203 5,501 2,936 498,640 66,913 42 565,595
-------- ----- ------ ------- ------ ---- --------
Income (loss) from oper-
ations................. 118 (373) (2,936) (3,191) (6,981) (42) (10,214)
Other (expense) income:
Gain on sale of
contract rights...... 9,296 -- -- 9,296 -- -- 9,296
Interest expense,
net.................. (2,974) (98) -- (3,072) (797) (210)(16) (4,079)
Other (expense) in-
come, net............ (1,986) -- -- (1,986) -- -- (1,986)
-------- ----- ------ ------- ------ ---- --------
Income (loss) before
income tax expense
(benefit)............ 4,454 (471) (2,936) 1,047 (7,778) (252) (6,983)
Income tax expense (ben-
efit).................. 2,191 (3) -- 2,188 -- 222 (17) 2,410
-------- ----- ------ ------- ------ ---- --------
Net income (loss)... $ 2,263 (468) (2,936) $(1,141) (7,778) (474) $ (9,393)
======== ===== ====== ======= ====== ==== ========
Net income (loss) per
share.................. $ 0.01 $ (0.01) $ (0.05)
======== ======= ========

See accompanying notes to unaudited pro forma combined financial statements.

155

PRO FORMA COMBINED STATEMENT OF OPERATIONS

TWELVE MONTHS ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)

HISTORICAL HISTORICAL
------------------ ----------
PRO FORMA PRO FORMA
COMBINED COMBINED,
EXCLUDING PRO FORMA PRO FORMA INCLUDING
QWEST SUPERNET PHOENIX COMBINED, PHOENIX ADJUSTMENTS PHOENIX
-------- -------- --------- --------- ---------- ----------- --------- ---

Revenue:
Carrier services...... $ 57,573 -- -- $ 57,573 -- -- $ 57,573
Commercial services... 34,265 5,542 -- 39,807 99,307 -- 139,114
-------- ------ ------ -------- ------- ------ --------
91,838 5,542 -- 97,380 99,307 -- 196,687
Network construction
services............. 139,158 -- -- 139,158 -- -- 139,158
-------- ------ ------ -------- ------- ------ --------
230,996 5,542 -- 236,538 99,307 -- 335,845
-------- ------ ------ -------- ------- ------ --------
Operating expenses:
Telecommunications
services............. 80,368 2,994 -- 83,362 73,439 -- 156,801
Network construction
services............. 87,542 -- -- 87,542 -- -- 87,542
Selling, general and
administrative....... 45,755 2,011 -- 47,766 33,817 (1,718)(11) 79,865
Growth share and stock
option plans......... 13,100 3,500 -- 16,600 -- -- 16,600
Depreciation and amor-
tization............. 16,245 563 3,915 (14) 20,723 4,358 1,191 (15) 26,272
-------- ------ ------ -------- ------- ------ --------
243,010 9,068 3,915 255,993 111,614 (527) 367,080
-------- ------ ------ -------- ------- ------ --------
Loss from operations.... (12,014) (3,526) (3,915) (19,455) (12,307) 527 (31,235)
Other (expense) income:
Gain on sale of
telecommunication
service agreements... 6,126 -- -- 6,126 -- -- 6,126
Interest expense,
net.................. (4,373) (84) -- (4,457) (541) (280)(16) (5,278)
Other (expense) in-
come, net............ 60 -- -- 60 4 -- 64
-------- ------ ------ -------- ------- ------ --------
Loss before income tax
benefit.............. (10,201) (3,610) (3,915) (17,726) (12,844) 247 (30,323)
Income tax expense (ben-
efit).................. (3,234) (191) -- (3,425) -- 799 (17) (2,626)
-------- ------ ------ -------- ------- ------ --------
Net Loss............ $ (6,967) (3,419) (3,915) $(14,301) (12,844) (552) $(27,697)
======== ====== ====== ======== ======= ====== ========
Net loss per share...... $ (0.04) $ (0.08) $ (0.16)
======== ======== ========

See accompanying notes to unaudited pro forma combined financial statements.

156

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 1997
(UNAUDITED)

(1) On September 30, 1997, Qwest entered into a Stock Purchase Agreement
with NEWSUPERNET, a Colorado nonprofit corporation and the sole shareholder of
SuperNet, for all the issued and outstanding shares of capital stock, and
capital stock issued at the closing of the acquisition of SuperNet. For
accounting purposes the acquisition will be accounted for using the purchase
method of accounting. The fair value of the cash consideration will be
allocated to the assets and liabilities acquired based upon the estimated fair
values of such assets and liabilities. The estimated fair values of the assets
and liabilities acquired, as reflected in the accompanying unaudited pro forma
financial statements, is based upon information available at the date of
preparation of these unaudited pro forma financial statements, and will be
adjusted upon the final determination of such fair values.

(2) In January 1998 Qwest, its newly-formed wholly owned subsidiary, Qwest
1997-5 Acquisition Corp. ("Qwest Subsidiary"), and Phoenix entered into the
Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger
Agreement, Qwest Subsidiary will merge with and into Phoenix (the "Merger"),
with Phoenix being the surviving corporation of the Merger. In the Merger,
each outstanding share of Phoenix Common Stock will be acquired for that many
shares of Qwest Common Stock having an aggregate market value equal to $28.5
million, reduced by certain adjustments and limitations to approximately $26.8
million ("Stock Consideration"), and future payments of $4 million. The
proposed acquisition is subject to certain closing conditions that include
approval by the stockholders of Phoenix.

For accounting purposes the proposed acquisition will be accounted for using
the purchase method of accounting. The fair value of the consideration will be
allocated to the assets and liabilities acquired based upon the estimated fair
values of such assets and liabilities. The estimated fair values of the assets
and liabilities acquired, as reflected in the accompanying unaudited pro forma
financial statements, is based upon information available at the date of
preparation of these unaudited pro forma financial statements, and will be
adjusted upon the final determination of such fair values.

(3) Represents the purchase by Qwest of SuperNet's outstanding capital stock
and capital stock issued at the closing of the acquisition and the incurrence
of related transaction costs. Additional information regarding the aggregate
purchase price is set forth below (amounts in thousands):

Cash consideration paid for all the issued and outstanding capital
stock of SuperNet.................................................. $15,900
Cash consideration paid for the capital stock issued at the closing
of the acquisition................................................. 4,100
Estimated direct costs of the acquisition........................... 100
-------
Aggregate purchase price to be allocated to net assets acquired..... $20,100
=======

(4) Represents the purchase by Qwest of Phoenix's outstanding capital stock
and the incurrence of related transaction costs. Additional information
regarding the aggregate purchase price is set forth below (amounts in
thousands):

Aggregate value of the Stock Consideration........................... $26,800
Future payments...................................................... 4,000
Estimated direct costs of the acquisition............................ 500
-------
Aggregate purchase price to be allocated to net assets acquired...... $31,300
=======

157

QWEST COMMUNICATIONS INTERNATIONAL, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997
(UNAUDITED)

(5) Represents the issuance by Qwest of the Senior Discount Notes. The
Senior Discount Notes were issued at a price of 62.962% of their principal
amount at maturity, representing a yield to maturity of 9.47% and yielding
gross proceeds to Qwest of approximately $350 million. The Senior Discount
Notes will mature on October 15, 2007.

(6) Represents the issuance by Qwest of the New Senior Discount Notes. The
New Senior Discount Notes were issued at a price of 66.592% of their principal
amount at maturity, representing a yield to maturity of 8.29% and yielding
gross proceeds to Qwest of approximately $300 million. The New Senior Discount
Notes will mature on February 1, 2008.

(7) Represents the increase to SuperNet's intangible assets to reflect the
preliminary allocation of the purchase price. The increase to SuperNet's
intangible assets represents the excess of the purchase price over the
identifiable net tangible assets of SuperNet and the establishment of a
valuation allowance for SuperNet's deferred tax assets. Such intangible assets
are assumed to be primarily associated with the customer base, trademarks, and
goodwill of SuperNet, and, for pro forma purposes, have been amortized over an
assumed weighted average life of five years. The actual purchase price
allocation that will be made may differ from such assumptions, and the actual
lives assigned to the intangible assets may differ from the assumed weighted
average life used in preparing the pro forma financial statements.

(8) Represents the increase to Phoenix's intangible assets to reflect the
preliminary allocation of the purchase price. Such intangible assets are
assumed to be primarily associated with the customer base, trademarks, and
goodwill of Phoenix, and, for pro forma purposes, have been amortized over an
assumed weighted average useful life of fifteen years. The actual purchase
price allocation that will be made may differ from such assumptions, and the
actual useful lives assigned to the intangible assets may differ from the
assumed weighted average useful life used in preparing the pro forma financial
statements.

(9) Represents deferred issuance costs related to the Senior Discount Notes.

(10) Represents deferred issuance costs related to the New Senior Discount
Notes.

(11) Represents the reduction to deferred commissions and the associated
amortization to selling, general and administrative expenses to conform with
Qwest's policy to expense sales commissions as incurred. Phoenix had
capitalized certain sales commissions, all of which had been incurred prior to
1996.

(12) Represents the elimination of the historical equity of SuperNet.

(13) Represents the elimination of the historical equity of Phoenix.

(14) Represents the amortization of the intangible assets that results from
the preliminary SuperNet purchase price allocation. Such amortization is
calculated using an estimated weighted average life of five years. See note 6.

(15) Represents the amortization of the intangible assets that results from
the preliminary Phoenix purchase price allocation. Such amortization is
calculated using an estimated weighted average useful life of 15 years. See
note 7.

158

QWEST COMMUNICATIONS INTERNATIONAL, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 1997
(UNAUDITED)

(16) Represents interest expense on the future payments related to the
Phoenix acquisition at 7% per annum.

(17) Represents the assumed income tax effect of the pro forma adjustment
relating to interest expense and deferred commissions. The other pro forma
adjustments are not expected to have an income tax impact because
substantially all of the excess purchase price has been assumed to be
goodwill.

(18) Transactions among Qwest, SuperNet and Phoenix are not significant.

159

PROPOSAL 2--ELECTION OF PHOENIX DIRECTORS

NOMINEES

There are seven nominees for the seven Phoenix Board positions authorized in
the Phoenix Bylaws. Each director to be elected would hold office only until
consummation of the Merger, if the Merger Agreement and the Merger are
approved by the Phoenix Stockholders. If such actions are not approved and the
Merger is not consummated, each director would hold office until the next
Phoenix Annual Meeting and until his successor has been duly elected and
qualified, or until such director's earlier death, resignation,
disqualification or removal. Each nominee listed below is currently a director
of Phoenix. All of the current directors of Phoenix, other than Messrs.
Singleton and Thornhill, were previously elected by the Phoenix Stockholders.
Messrs. Singleton and Thornhill were originally elected to the Phoenix Board
by the other directors to fill new directorships created by an amendment to
the Phoenix Bylaws, effective as of October 31, 1995, to represent the holders
of the then-outstanding Phoenix Series F Preferred Stock, and were re-elected
to the Phoenix Board at Phoenix's Annual Meeting of Stockholders held on
September 26, 1996 by the holders of the Phoenix Series F Preferred Stock.
Effective in December 1996, all of the Phoenix Series F Preferred Stock was
converted into Phoenix Common Stock. In connection with such conversion,
Messrs. Singleton and Thornhill tendered their resignations from the Phoenix
Board, but the Phoenix Board elected not to accept such resignations.

Shares of Phoenix Common Stock represented by executed proxies will be
voted, if authority to do so is not withheld, for the election of the nominees
named below. In the event that any nominee should be unavailable for election
as a result of an unexpected occurrence, such shares will be voted for the
election of such substitute nominee as management may propose. Each person
nominated for election has agreed to serve if elected and management has no
reason to believe that any nominee will be unable to serve.

Directors of Phoenix are elected by the holders of a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of such directors.

MANAGEMENT RECOMMENDS A VOTE "FOR" EACH NAMED NOMINEE

The names of the nominees are set forth below:

NAME AGE DIRECTOR SINCE
---- --- --------------

Thomas H. Bell(1),(3)..................................... 50 1985
James W. Gallaway(2)...................................... 57 1988
Merrill L. Magowan(2),(3)................................. 59 1990
Wallace M. Hammond........................................ 52 1994
David Singleton(1),(3).................................... 58 1995
Max E. Thornhill(2)....................................... 65 1995
Charles C. McGettigan(1).................................. 52 1996

- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.

Certain biographical information regarding the nominees is set forth in
"MANAGEMENT OF PHOENIX." In considering whether to vote for each of the
nominees, Phoenix Stockholders are encouraged to read this entire Proxy
Statement/Prospectus.

160

MANAGEMENT OF PHOENIX

DIRECTORS AND EXECUTIVE OFFICERS

The names of the directors and executive officers of Phoenix and certain
information about them is set forth below:

NAME AGE POSITION
---- --- --------

Thomas H. Bell(1)(3)(5).. 50 Chairman of the Board and Director
James W. Gallaway(2)..... 57 Director
Merrill L. Magowan(2)(3). 59 Director
Wallace M. Hammond....... 52 President, Chief Executive Officer and Director
David Singleton(1)(3)(4). 58 Director
Max E. Thornhill(2)(4)... 65 Director
Charles C. McGettigan(1). 52 Director
J. Rex Bell(5)........... 43 Senior Vice President
Jon Beizer............... 32 Senior Vice President and Chief Financial Officer

- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
(4) Messrs. Singleton and Thornhill were elected to the Phoenix Board by the
holders of Phoenix's Series F Preferred Stock. Effective in December,
1996, all of the Series F Preferred Stock was converted into Phoenix
Common Stock. Messrs. Singleton and Thornhill tendered their resignations
from the Phoenix Board, but the Phoenix Board elected not to accept such
resignations.
(5) Thomas H. Bell, a director of Phoenix, and J. Rex Bell, Senior Vice
President of Phoenix, are brothers. With the exception of that
relationship, there are no other family relationships among officers or
directors of Phoenix.

Thomas H. Bell is the founder of Phoenix. He has served as the Chairman of
the Phoenix Board since its inception under the name Phoenix Telcom, Inc. in
1985, as Phoenix's Chief Executive Officer from 1985 to January 1992, and as
President of Phoenix from 1985 to September 1990. Mr. Bell is also an
independent consultant in the telecommunications industry. Mr. Bell is the
brother of J. Rex Bell, Phoenix's Senior Vice President.

James W. Gallaway has served as a director of Phoenix since July 1988. He
was a founder, director from 1984 to 1988, and Vice President from 1983 to
1986, of Centex Telemanagement, Inc., a telecommunications company that resold
local telephone service. Since 1980, he has been the chairman of the board of
directors of Gallaway Enterprises, Inc., a telecommunications company. From
February 1988 through December 1994, he served as a director and Vice
President of StellarNet, Inc., an information management company in the health
care industry. Mr. Gallaway is a U.S. Marine Corps Reserve (Retired) Colonel.

Merrill L. Magowan became a director of Phoenix in September 1990. Since
1982, Mr. Magowan has been a principal of S F Associates, a California
registered investment advisory firm (formerly known as Magowan Dirickson
Investment Company). He is also currently a director of Nordeman Grimm (since
1975), an executive search consulting firm. From 1968 to 1986, he was a
director of Safeway Stores, Inc., a retail grocery chain.

Wallace M. Hammond joined Phoenix as Executive Vice President in February
1994. He was elected to the Phoenix Board and named President and Chief
Operating Officer of Phoenix in May 1994. Mr. Hammond was elected Chief
Executive Officer of Phoenix in December 1994. From 1992 to 1993, he was
President and Chief Executive Officer of ANSCO & Associates, Inc., a telephone
engineering

161

and plant construction company. From 1979 to 1992, he was with BellSouth
Communication Systems, Inc., a nationwide division of BellSouth Corporation
involved in the customer premises equipment after-market, where he was
promoted to Vice President-Operations in 1989.

David Singleton has served as a director of Phoenix since October 1995. He
was a founding director of WorldCom and served as a director of that company
from 1983 to 1992. Mr. Singleton also serves as a director of Red Fox
Environmental Services. Mr. Singleton has worked in personal and small
business financial planning for 25 years and currently manages a private
portfolio.

Max E. Thornhill has served as a director of Phoenix since October 1995. He
was a founding director of WorldCom and served as a director of that company
from 1983 to September 1993. Mr. Thornhill is currently the owner and
president of Mineral Resources, Inc., a company engaged in real estate
development and oil and gas exploration and production.

Charles C. McGettigan served as a director of Phoenix from November 1990
through December 1991 and was re-elected as a director in September 1996. He
was a co-founder (in 1991) and presently is a general partner of Proactive
Investment Managers, L.P., which is the general partner of Proactive Partners,
L.P., a merchant banking fund. Mr. McGettigan was a co-founder (in 1988) and
is a managing director of McGettigan, Wick & Co., Inc., an investment banking
firm. From 1984 to 1988, he was a Principal, Corporate Finance, of Hambrecht &
Quist, Incorporated. Prior to that, Mr. McGettigan was a Senior Vice President
of Dillon, Read & Co. Inc. He currently serves on the boards of directors of
digital dictation, inc.; I-Flow Corporation; Modtech, Inc.; NDE Environmental
Corporation; Onsite Energy, Inc.; PMR Corporation; Sonex Research, Inc.; and
Wray-Tech Instruments, Inc.

J. Rex Bell has been Senior Vice President of Phoenix since May 1993. From
March 1991 to May 1993, he was Vice President of Operations. From January 1990
to March 1991, he held the position of Director of Marketing of Phoenix. Prior
to joining Phoenix, Mr. Bell was a Senior Telecommunications Consultant from
1984 to 1990 for two California consulting firms, COMSUL, Ltd. and Robin &
Dackerman, Inc. Between 1980 and 1984, he held management positions with MCI
Communications and Cable and Wireless, Ltd. Mr. Bell is the brother of Thomas
H. Bell, a director of Phoenix.

Jon Beizer was promoted to Senior Vice President and Chief Financial Officer
in March 1997. Since joining Phoenix in July 1992, he has held various
management positions. Mr. Beizer holds an M.B.A. from Stanford University,
where he attended from 1990 to 1992. Mr. Beizer worked from 1987 through 1990
as a consultant for Braxton Associates, a management consulting firm
specializing in corporate strategy.

PHOENIX BOARD COMMITTEES AND MEETINGS

During the year ended December 31, 1996, the Phoenix Board met or acted by
written consent in lieu of a meeting a total of nine times and during the year
ended December 31, 1997, the Phoenix Board met or acted by written consent a
total of 24 times. In each of the years ended December 31, 1996 and December
31, 1997, the Phoenix Board appointed an Audit Committee, a Compensation
Committee and a Nominating Committee.

The Audit Committee meets with Phoenix's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements. The Audit Committee also receives and considers the auditors'
comments as to controls, adequacy of staff and management performance and
procedures in connection with audit and financial controls. The Audit
Committee is composed of three directors, Messrs. Gallaway, Magowan and
Thornhill, and met three times during the year ended December 31, 1996 and
three times during the year ended December 31, 1997.

The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants
under the Phoenix 1989 Plan and

162

performs all such other functions regarding compensation as the Phoenix Board
may delegate. The Compensation Committee is composed of three directors,
Messrs. Bell, Singleton and McGettigan. It met three times during the year
ended December 31, 1996 and once during the year ended December 31, 1997.

The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Phoenix Board and nominates specific
individuals to be elected as officers of Phoenix by the Phoenix Board. No
procedure has been established for the consideration of nominees recommended
by Phoenix Stockholders. The Nominating Committee is composed of three
directors: Messrs. Bell, Magowan and Singleton. It met once during the year
ended December 31, 1996 and once during the year ended December 31, 1997.

During the fiscal years ended December 31, 1996 and December 31, 1997, each
director attended at least 75% of the aggregate of the meetings of the Phoenix
Board and of the committees on which he served, held during the period for
which he was a Phoenix Board member, and, if applicable, a committee member.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires Phoenix's directors and executive
officers, and persons who own more than ten percent (10%) of a registered
class of Phoenix's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of Phoenix Common
Stock and other equity securities of Phoenix. Officers, directors and greater
than ten percent (10%) Phoenix Stockholders are required by Commission
regulation to furnish Phoenix with copies of all Section 16(a) forms they
file.

To Phoenix's knowledge, based solely on a review of the copies of such
reports furnished to Phoenix and representations that no other reports were
required, during the fiscal years ended December 31, 1996 and December 31,
1997, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent (10%) beneficial owners were complied
with.

163

PHOENIX EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

No cash fees are paid to directors for serving on the Phoenix Board. The
members of the Phoenix Board are, however, eligible for reimbursement for
their expenses incurred in connection with attendance at Phoenix Board and
Committee meetings in accordance with Phoenix policy. Furthermore, each non-
employee director of Phoenix also receives stock option grants under the
Phoenix 1992 Plan, as described below. Directors who are employees of Phoenix
are not eligible to participate in the Phoenix 1992 Plan, but are eligible to
participate in the Phoenix 1989 Plan. See "--Compensation of Executive
Officers--Stock Option Grants and Exercises."

Option grants under the Phoenix 1992 Plan are non-discretionary. Each person
who is elected or appointed on or after January 4, 1993 to be a non-employee
director of Phoenix is automatically granted an option to purchase 10,000
shares of Phoenix Common Stock. In addition, on the first business day of each
year thereafter, each non-employee director of Phoenix is automatically
granted an option to purchase shares of Phoenix Common Stock (rounded to the
nearest 100 shares) equal to the Proration Factor (as hereinafter defined)
multiplied by the sum of (i) 10,000 and (ii) 2,500 multiplied by the number of
full years such non-employee director has served in such capacity. The
"Proration Factor" is a fraction, the numerator of which is the number of
calendar days during the preceding year on which such person served as a non-
employee director and the denominator of which is 365. No other options may be
granted at any time under the Phoenix 1992 Plan. The exercise price of options
granted under the Phoenix 1992 Plan is equal to the fair market value of the
Phoenix Common Stock subject to the option on the date of grant. The number of
options granted under the Phoenix 1992 Plan is subject to certain anti-
dilution protections in favor of the participants, and options granted under
the Phoenix 1992 Plan expire ten years from the date of grant. Options granted
under the Phoenix 1992 Plan vest and become exercisable at the rate of one-
sixteenth of the shares subject to such options per quarter for sixteen
quarters following the date of the grant.

164

COMPENSATION OF EXECUTIVE OFFICERS

Summary of Compensation. The following table shows for the fiscal years
ending December 31, 1997, 1996, 1995 and 1994, compensation awarded or paid
to, or earned by Phoenix's Chief Executive Officer and each other officer at
December 31, 1997 who received total annual salary and bonus in excess of
$100,000 for the years ended December 31, 1997 or 1996 (the "Named Executive
Officers"):

SUMMARY ANNUAL COMPENSATION TABLE

LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL YEAR ENDED SALARY OPTIONS(1)/ ALL OTHER
POSITION DECEMBER 31 (1)($) BONUS ($) SARS(2) (#) COMPENSATION(3)
------------------ ----------- ------- --------- ------------ ---------------

Mr. Wallace M. 1997 275,000 60,000 -- 1,000
Hammond(4)............. 1996 252,500 60,000 400,000 --
President and Chief 1995 203,511 67,451 300,000 2,320
Executive Officer 1994 127,885 -- 300,000(2) --
Mr. Jeffrey L. 1997 110,910 -- -- 28,905
Bailey(5).............. 1996 137,934 -- 60,000 23,499
1995 129,219 15,193 50,000 2,320
1994 120,573 -- -- 500
Mr. J. Rex Bell......... 1997 126,600 -- -- 1,000
Senior Vice President 1996 127,721 -- 50,000 15,427
1995 117,657 15,193 50,000 2,320
1994 109,585 -- -- --
Mr. Jon Beizer.......... 1997 149,166 40,000 -- 11,964
Senior Vice President 1996 105,417 -- 125,000 10,544
and Chief Financial 1995 96,418 -- 60,000 --
Officer 1994 78,663 -- -- --

- --------
(1) Includes amounts earned but deferred at the election of the executives. As
permitted by Commission rules, no amounts are shown for certain
perquisites, where such amounts do not exceed the lesser of 10% of bonus
plus salary or $50,000.
(2) Repriced options treated as new grants. Phoenix has no stock appreciation
rights (SARs).
(3) In each case, "All Other Compensation" includes $500 in matching Section
401(k) plan contributions made by Phoenix in 1994, $1,000 in 1995, $1,000
in 1996 and $1,000 in 1997. The balance in 1994 and 1995 of the amount
reported for each officer represents a reimbursement of parking expenses.
In addition to a parking reimbursement, the balance of the amount reported
for each officer in 1996 represents relocation expenses paid for the
officers' move to Colorado from California. The balance of the amount
reported in 1997 for (i) Mr. Bailey includes relocation expenses paid for
Mr. Bailey's move to California from Colorado and unused vacation time
payments and (ii) Mr. Beizer includes relocation expenses for Mr. Beizer's
move to California from Colorado.
(4) Mr. Hammond was not employed by Phoenix before February 1994, thus amounts
disclosed include compensation commencing in February 1994 for Mr.
Hammond, when he joined Phoenix as Executive Vice President. Mr. Hammond
was elected President and Chief Operating Officer of Phoenix in May 1994
and Chief Executive Officer in December 1994.
(5) Mr. Bailey resigned as Senior Vice President and Chief Financial Officer
of Phoenix effective March 31, 1997. The amount reported as salary in 1997
includes $70,000 in severance payments made to Mr. Bailey.

165

Employment Agreements. Effective January 1, 1996, Phoenix and Mr. Hammond
entered into an employment agreement with a term beginning January 1, 1996 and
ending December 31, 1998 which superseded the previous employment agreement
between Phoenix and Mr. Hammond. Upon each annual anniversary of the agreement
the term of the agreement is automatically extended by one year so as to
continually extend the term of the agreement to include subsequent three year
periods, unless sooner terminated as provided in the agreement. The employment
agreement provides for a salary of $250,000 during 1996, $275,000 during 1997
and $300,000 during 1998 and each year thereafter for the duration of the
agreement, unless otherwise increased at the discretion of Phoenix, in
exchange for Mr. Hammond's services to Phoenix as President and Chief
Executive Officer. The agreement further provides for an option grant in 1996
of 200,000 shares of Phoenix Common Stock vesting at the rate of 12,500 shares
per calendar quarter and an annual bonus equal to 1% of Phoenix's earnings
before interest, taxes, depreciation and amortization. In the event Mr.
Hammond is terminated without cause, the employment agreement provides that he
is to receive a severance amount equal to 18 months salary and bonus. Under
terms of the employment agreement, should an acquisition of Phoenix or a
similar corporate event constituting a "change of control" of Phoenix result
in the termination of Mr. Hammond's employment with Phoenix, any unvested
options held by Mr. Hammond will immediately vest. The Merger will constitute
a change of control of Phoenix. However, in the Merger all options held by Mr.
Hammond will terminate on the day preceding the Closing Date. In the event
Phoenix or Mr. Hammond terminates Mr. Hammond's employment as a result of an
acquisition of Phoenix or a similar corporate event constituting a change of
control of Phoenix, Mr. Hammond shall receive a severance amount equal to the
salary he would have received had he remained employed for the then current
three year term of the employment agreement. In either a termination of Mr.
Hammond's employment without cause or the termination of his employment in the
event of a change of control of Phoenix, the agreement provides that Mr.
Hammond shall receive reimbursement from Phoenix for reasonable relocation
expenses, not to exceed $20,000. See "PLAN OF MERGER--Interests of Certain
Persons in the Merger."

Effective February 1, 1997, Phoenix and Mr. Beizer entered into an
employment agreement with a term beginning February 1, 1997 and ending
December 31, 1998. The employment agreement provides for an annual salary of
$150,000 during the term of the agreement, unless otherwise increased at the
discretion of Phoenix, in exchange for Mr. Beizer's services to Phoenix as
Senior Vice President and Chief Financial Officer. The agreement further
provides for an annual bonus equal to .75% of Phoenix's earnings before
interest, taxes, depreciation and amortization. In the event Mr. Beizer is
terminated without cause, the employment agreement provides that he is to
receive a severance amount equal to the greater of 12 months salary or the
balance of the salary for the full term of the agreement and all unvested
options held by Mr. Beizer will immediately vest. Under terms of the
employment agreement, should an acquisition of Phoenix or a similar corporate
event constituting a "change of control" of Phoenix result in the termination
of Mr. Beizer's employment with Phoenix, any unvested options held by Mr.
Beizer will immediately vest and will be exercisable for a subsequent period
of 36 months. The Merger will constitute a change of control of Phoenix. Mr.
Beizer has agreed to forfeit his rights with regard to the options held by him
and the options will terminate on the day preceding the Closing Date. In the
event Phoenix or Mr. Beizer terminates Mr. Beizer's employment as a result of
an acquisition of Phoenix or a similar corporate event constituting a change
of control of Phoenix, Mr. Beizer shall receive a severance amount equal to
the greater of 18 months salary or the balance of the salary for the full term
of the agreement. In either a termination of Mr. Beizer's employment without
cause or the termination of his employment in the event of a change of control
of Phoenix, the agreement provides that Mr. Beizer shall receive reimbursement
from Phoenix for reasonable relocation expenses, not to exceed $20,000. Mr.
Beizer has previously relocated and received remibursement for such
relocation. Mr. Beizer will not receive any additional reimbursement for
relocation expenses as a result of the Merger. See "PLAN OF MERGER--Interests
of Certain Persons in the Merger."

166

Payment of Severance to Messrs. Hammond and Beizer. In the Merger Agreement,
Qwest has agreed to pay (or cause to the Surviving Corporation to pay) all
amounts then due to Wallace M. Hammond and Jon F. Beizer, respectively,
pursuant to their respective employment agreements by reason of the occurrence
of a change of control (as defined therein), subject in each case to all
necessary withholdings, and Qwest has also agreed to pay, or cause the
Surviving Corporation to pay, all reasonable out-of-pocket costs, fees and
expenses of such persons (including, without limitation, the reasonable fees
and disbursements to counsel and the expenses of litigation) incurred by them
in connection with collecting such amounts. Pursuant to the employment
agreements, the amounts payable to Mr. Hammond and Mr. Beizer are $875,000
(less any amounts paid to Mr. Hammond as salary after January 31, 1998, which
is approximately $25,000 per month) and $225,000, respectively. Upon
consummation of the Merger, Mr. Hammond and Mr. Beizer will also be paid
approximately $26,538 and $8,759, respectively, in respect of accrued paid
time off pursuant to the terms of their respective employment agreements.

Stock Option Grants and Exercises. Phoenix grants options to its executive
officers under the Phoenix 1989 Plan. As of December 31, 1996, options to
purchase a total of 2,277,506 shares were outstanding under the Phoenix 1989
Plan and 631,736 shares remained available for grant thereunder. As of
December 31, 1997, options to purchase a total of 1,830,633 shares were
outstanding under the Phoenix 1989 Plan and 1,084,395 shares remained
available thereunder.

The following tables show, for the fiscal year ended December 31, 1996,
certain information regarding options granted to, exercised by, and held at
year end by the Named Executive Officers. All of such options will be
cancelled if the Merger is consummated. For the fiscal year ended December 31,
1997 there were no options granted to the Named Executive Officers.

OPTION GRANTS IN 1996

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
OPTION TERM(2)
---------------------
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE/BASE EXPIRATION
NAME GRANTED IN 1996(1) $ PER SHARE DATE 5% ($) 10% ($)
---- ---------- ---------- ------------- ---------- --------- -----------

Wallace M. Hammond...... 200,000 22% 3.0000 4/12/2006 377,337 956,245
200,000 22% 3.5625 12/16/2006 448,087 1,135,542
Jeffrey L. Bailey(3).... 60,000 6% 3.0000 4/12/2006 113,201 286,873
J. Rex Bell............. 50,000 5% 3.0000 4/12/2006 94,334 239,061
Jon Beizer.............. 50,000 5% 3.5625 1/03/2006 112,022 283,885
75,000 8% 3.0000 4/12/2006 141,501 358,592

- --------
(1) Based on options to purchase 921,600 shares of Phoenix Common Stock
granted in 1996.
(2) The potential realizable value is based on the term of the option at its
time of grant (10 years in each case). The potential realizable value is
calculated by assuming that the stock price on the date of grant
appreciates at the indicated annual rate, compounded annually for the
entire term of the option and that the option is exercised and sold on the
last day of its term for the appreciated stock price. No gain to the
optionee is possible unless the stock price increases over the option
term, which will benefit all stockholders.
(3) Mr. Bailey resigned as Senior Vice President and Chief Financial Officer
of Phoenix effective March 31, 1997.

167

AGGREGATED 1996 YEAR-END OPTIONS

NUMBER OF
SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996 ($)(2)
ACQUIRED ON REALIZED ------------------------- ------------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ------------- --------------

Jeffrey L. Bailey(3).... 15,000 66,562 128,748 91,252 274,139 40,861
Jon Beizer.............. 24,750 67,586 21,500 154,000 468 35,312
J. Rex Bell............. 14,000 65,750 93,748 81,252 191,014 37,110
Wallace M. Hammond...... 50,000 116,087 275,000 675,000 419,062 249,218

- --------
(1) Value realized is based on the fair market value of Phoenix Common Stock
on the date of exercise minus the exercise price and does not necessarily
indicate that the optionee sold such stock.
(2) Fair market value of Phoenix Common Stock at December 31, 1996 ($3.375)
minus the exercise price of the options.
(3) Mr. Bailey resigned as Senior Vice President and Chief Financial Officer
of Phoenix effective March 31, 1997.

AGGREGATED 1997 YEAR-END OPTIONS

NUMBER OF
SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE DECEMBER 31, 1997 (#) AT DECEMBER 31, 1997 ($)(2)
ACQUIRED ON REALIZED ------------------------- --------------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ------------- --------------

Jeffrey L. Bailey(3).... 110,000 244,375 110,000 0 0 0
Jon Beizer.............. 52,500 16,406 35,500 87,500 0 0
J. Rex Bell............. 0 0 131,248 43,752 0 0
Wallace M. Hammond...... 50,000 53,625 525,000 375,000 0 0

- --------
(1) Value realized is based on the fair market value of Phoenix Common Stock
on the date of exercise minus the exercise price and does not necessarily
indicate that the optionee sold such stock.
(2) Fair market value of Phoenix Common Stock at December 31, 1997 ($0.375)
minus the exercise price of the options.
(3) Mr. Bailey resigned as Senior Vice President and Chief Financial Officer
of Phoenix effective March 31, 1997.

COMPENSATION COMMITTEE REPORT(1)

The Compensation Committee consists of Messrs. Thomas Bell, David Singleton
and Charles McGettigan, all of whom are non-employee directors. The
Compensation Committee is responsible for setting Phoenix's policies governing
employee compensation, administering Phoenix's employee benefit plans and
determining the compensation of Phoenix's executive officers. The Compensation
Committee annually evaluates the performance, and determines the compensation,
of the Chief Executive Officer and the other executive officers of Phoenix
based upon a mix of the achievement of corporate goals, individual performance
and comparisons with comparable companies. The Chief Executive Officer and
other executive officers are not present during the discussion of their
compensation.
- --------
(1) The material in this report is not "soliciting material," is not deemed
filed with the Commission and is not to be incorporated by reference in
any filing of Phoenix under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.

168

The Compensation Committee attempts to design compensation policies that
will attract and retain the highest quality executives and will reward them
for Phoenix's progress towards its long-term goal of increasing corporate
revenue and attaining profitability in line with averages for companies within
the telecommunications industry. The Compensation Committee considers a
variety of factors, both personal and corporate, in evaluating Phoenix's
executive officers and making its compensation decisions. These include the
compensation paid by comparable companies to individuals in comparable
positions, the individual contributions of each officer to Phoenix, and, most
importantly, the progress of Phoenix toward its long-term objectives. As
Phoenix has progressed the measures of this progress have changed, and the
Compensation Committee expects them to continue to change.

The Compensation Committee has determined that the stock options granted
under the Phoenix 1989 Plan, as amended, with an exercise price at least equal
to the fair market value of Phoenix Common Stock on the date of grant
generally shall be treated as "incentive stock options" as that term is
defined in Section 422 of the Code.

Executive Officer Compensation. Phoenix's executive officer compensation
program is comprised of base salary, annual cash incentive compensation in the
form of a bonus and long-term incentive compensation in the form of stock
option grants at current market prices.

Base Salary. In establishing base salaries, the Compensation Committee first
considers a number of surveys of compensation levels at comparably-sized
companies in comparable industries, including companies in the
telecommunications industries. The companies included in the surveys are not
necessarily the same as the companies included in the market indices included
in the performance graph in this Proxy Statement/Prospectus.

Based on the data generated in the surveys, the Compensation Committee then
sets a target base salary level applicable to all executive officers. The
Compensation Committee then considers the level of responsibility, experience
and contributions of each executive officer. The Compensation Committee then
sets each officer's base salary taking into account the target salary and the
Compensation Committee's evaluation of individual performance.

Annual Cash Incentive Bonus. There were no formal cash incentive bonus
programs in place for executive officers during 1995, 1996 or 1997. Under the
terms of the employment agreements described above in "PHOENIX EXECUTIVE
COMPENSATION--Compensation of Executive Officers," Wallace M. Hammond and Jon
Beizer are entitled to receive bonuses based on Phoenix's operating results.
As a result of Phoenix achieving profitable operating results in the first,
second and third quarters of 1995, executive officers received a total of
$24,439 in cash bonuses in 1995 relating to Phoenix's 1995 performance.
Phoenix did not achieve profitable operating results during 1996 or 1997, and,
accordingly, no performance bonuses were declared with respect to such fiscal
years.

Stock Option Grants. Phoenix grants stock options to its executive officers
in order to provide long-term incentives to executive officers and align
executive officer and stockholder long-term interests by creating a direct
link between executive compensation and stockholder return. Stock options are
granted at an option price equal to the fair market value of Phoenix Common
Stock on the date of grant. In order to facilitate long-term incentives
through the option grants, options are generally subject to ratable vesting
over four years.

Executive officer awards are subjectively determined by the Compensation
Committee after considering stock option grant data taken from the
compensation surveys referred to above, as well as the level of
responsibility, experience and contributions of each executive officer. In
determining the size of individual grants, the Compensation Committee also
considers the number of shares subject to options previously granted to each
executive officer, including the number of such shares that have vested and
that remain unvested.

169

Chief Executive Officer Compensation. In determining Mr. Hammond's
compensation package for 1995, Phoenix relied on a report prepared by an
independent executive compensation consulting firm which examined compensation
packages of chief executive officers and presidents of comparable companies.
In determining Mr. Hammond's compensation package for 1996, Phoenix relied on
an update to the report prepared in 1995 by the independent executive
compensation consulting firm. In determining Mr. Hammond's compensation
package for 1997, Phoenix relied on the reports previously prepared by the
independent executive compensation consulting firm.

Option Repricing. The Compensation Committee has from time to time approved
the repricing of option grants to employees, including executive officers,
based upon the Compensation Committee's determination of the value of the
employee's contribution to Phoenix. The intent of these repricings has been to
align the option exercise price with the fair market value of the underlying
Phoenix Common Stock as determined by the marketplace.

Thomas H. Bell
David Singleton
Charles C. McGettigan

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Thomas H. Bell, who is Chairman of the Board of Phoenix and a member of the
Compensation Committee, was the Chief Executive Officer of Phoenix from
inception through January 1992 and of its predecessor from inception to 1989.
Mr. Bell was Phoenix's President from inception through September 1990 and the
President of its predecessor from 1985 to 1989. Under the terms of an
agreement between Phoenix and Mr. Bell, Mr. Bell is enrolled in Phoenix's
health benefits plans and Phoenix pays Mr. Bell's premiums which amounted to
$17,988.68 in 1996 and $3,994.00 in 1997.

170

PERFORMANCE MEASUREMENT COMPARISON(1)(2)(3)

The following chart shows the CRSP Total Return Index from December 31, 1991
to December 31, 1997 for (i) Phoenix Common Stock, (ii) Nasdaq Stock Market
(US Companies) and (iii) Nasdaq Telecommunications Stocks. All values assume
reinvestment of the full amount of all dividends.

COMPARISON OF 6 YEAR CUMULATIVE TOTAL RETURN ON INVESTMENT

[CHART APPEARS HERE]

- ---------------------------------------------------------------------------------------------------------
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ---------------------------------------------------------------------------------------------------------

Phoenix Common Stock 100 43.9 263.4 92.7 141.5 131.7 14.6
- ---------------------------------------------------------------------------------------------------------
Nasdaq Stock Market 100 116.4 133.6 130.6 184.7 227.2 278.8
- ---------------------------------------------------------------------------------------------------------
Nasdaq Telecommunications Stock 100 122.8 189.4 158.1 207.0 211.6 312.6
- ---------------------------------------------------------------------------------------------------------

- --------
(1) This Section is not "soliciting material," is not deemed filed with the
Commission and is not to be incorporated by reference in any filing of
Phoenix under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
(2) The CRSP Total Return on investment (change in month end stock price plus
reinvested dividends) for Phoenix, the CRSP Total Return for The NASDAQ
Stock Market (US Companies) and the CRSP Total Return Index for NASDAQ
Telecommunications Stocks based on December 31, 1991 = 100.
(3) Phoenix Common Stock was traded in the over-the-counter market from
Phoenix's initial public offering in 1983 and was quoted on the NASDAQ
system under the Symbol "PHXN" from October 24, 1989 through October 4,
1993. On October 5, 1993, Phoenix changed its listing to the American
Stock Exchange and began trading under the symbol "PHX".

171

BENEFICIAL OWNERSHIP OF PHOENIX STOCK

The following table sets forth certain information regarding the beneficial
ownership of Phoenix Common Stock as of February 9, 1997 by: (i) each
director; (ii) each executive officer named above; (iii) all executive
officers and directors of Phoenix as a group; and (iv) all those known by
Phoenix to be beneficial owners of more than five percent (5%) of any class of
its voting securities. Unless otherwise indicated, Phoenix believes that each
of the persons indicated below has sole voting and investment power with
respect to the shares owned by such person subject to community property laws
where applicable.

AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF OUTSTANDING
OWNERSHIP SHARES(1)
----------------- --------------

5% STOCKHOLDERS(2):
Global Capital Management Inc.
601 Carlson Parkway, Suite 200
Minnetonka, MN 55305......................... 2,364,900 6.58%
Proactive Investment Managers, L.P.(3)(4)
50 Osgood Place
San Francisco, CA 94133...................... 1,864,760 5.16%
DIRECTORS AND EXECUTIVE OFFICERS:
Wallace M. Hammond(3)......................... 591,534 1.62%
J. Rex Bell(3)................................ 234,374 *
Jon F. Beizer(3).............................. 42,375 *
Thomas H. Bell(3)............................. 2,752,056 7.65%
James W. Gallaway(3).......................... 502,205 1.39%
Merrill L. Magowan(3)......................... 143,837 *
Charles C. McGettigan(3)...................... 52,726 *
David Singleton(3)............................ 203,792 *
Max E. Thornhill(3)........................... 1,136,527 3.15%
All directors and executive officers as a
group (9 persons)(3)......................... 5,659,426 15.26%

- --------
* Less than one percent.
(1) Percentage of ownership is based on 35,898,958 shares of Phoenix Common
Stock outstanding as of January 30, 1997.
(2) Pursuant to the Voting Agreements, Qwest has voting control of
approximately 21% of the outstanding shares of Phoenix Common Stock.
(3) Includes shares of Phoenix Common Stock which certain principal
stockholders, directors and officers of Phoenix have the right to acquire
within 60 days after the date of this table pursuant to outstanding
options and warrants as follows: Proactive Investment Managers, L.P.,
4,250; Proactive Partners, L.P., 200,225 shares; Fremont Proactive
Partners, L.P., 2,000 shares; Wallace M. Hammond, 575,000 shares; J. Rex
Bell, 134,374 shares; Jon F. Beizer, 42,375 shares; Thomas H. Bell, 48,000
shares; James W. Gallaway, 131,655 shares; Merrill L. Magowan, 118,218
shares; Charles C. McGettigan, 24,000 shares; David Singleton, 23,112
shares; and Max E. Thornhill, 125,112 shares.
(4) Includes only shares held of record by Proactive Investment Managers, L.P.
("PIM"), Proactive Partners, L.P. ("PP") and Fremont Proactive Partners,
L.P. ("FPP"), each California limited partnerships. The general partner of
PP and FPP is PIM, of which Messrs. Charles McGettigan, Myron A. Wick III,
Jon Gruber and J. Patterson McBaine are general partners. Messrs. Wick,
Gruber and McBaine own of record 103,510, 45,840 and 19,460 shares of
Phoenix Common Stock, respectively. In addition, Messrs. McGettigan and
Wick hold options to purchase 24,000 and 28,000 shares of Phoenix Common
Stock, respectively, that are exercisable within 60 days of the date of
this table. Myron A. Wick III is the trustee of the Myron A. Wick III
Trust. The Myron A. Wick III Trust owns of record 28,726 shares of Phoenix
Common Stock. Messrs. Gruber and McBaine are also general partners of
Lagunitas Partners, L.P., an entity that holds 721,334 shares of Phoenix
Common Stock, as well as a warrant, exercisable within 60 days of the date
of this table, to purchase an additional 12,000 shares of Phoenix Common
Stock. Messrs. Gruber and McBaine are also directors and/or general
partners of several entities that may own nominal amounts of Phoenix
Common Stock. Due to these relationships, PIM may be deemed to
beneficially own some or all of the shares of the capital stock of Phoenix
held of record or beneficially by such persons and/or companies.

172

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF PHOENIX

INDEMNIFICATION AGREEMENTS

Phoenix has entered into indemnity agreements with certain officers and
directors which provide, among other things, that Phoenix will indemnify such
officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings to which he is or may be made a
party by reason of his position as a director, officer or other agent of
Phoenix, and otherwise to the fullest extent permitted under Delaware law and
the Phoenix Bylaws.

In connection with the acquisition of AmeriConnect, Inc., Phoenix agreed to
maintain all rights to indemnification existing on the date of the merger
agreement between Phoenix, Phoenix Merger Corp. and AmeriConnect, Inc. in
favor of the former directors and officers of AmeriConnect, Inc. and agreed
that the certificate of incorporation and bylaws of AmeriConnect, Inc., as a
subsidiary of Phoenix, would not be amended to reduce or limit such rights. In
addition, Phoenix agreed that AmeriConnect, Inc. will indemnify to the fullest
extent possible under its certificate of incorporation, its bylaws and
applicable law the present and former directors of AmeriConnect, Inc. against
all losses, damages, liabilities or claims made against them arising from
their service in such capacities prior to and including the effective time of
the acquisition of AmeriConnect, Inc. by Phoenix, to at least the same extent
as such persons were required to be indemnified pursuant to AmeriConnect
Inc.'s certificate of incorporation and bylaws prior to the acquisition of
AmeriConnect, Inc. by Phoenix. Phoenix also agreed, with respect to matters
occurring prior to the effective time of the acquisition of AmeriConnect, Inc.
by Phoenix, that AmeriConnect, Inc. will cause to be maintained in effect for
three years from the effective time of acquisition, directors' and officers'
liability insurance providing at least the same coverage with respect to
AmeriConnect, Inc.'s present and former officers and directors as the policies
maintained by or on behalf of AmeriConnect, Inc. on the date of the merger
agreement between Phoenix, Phoenix Merger Corp. and AmeriConnect, Inc.
containing terms and conditions which are substantially similar thereto, to
the extent such insurance is currently available on commercially reasonable
terms with respect to such matters.

ACQUISITION OF ACI

In January 1996, Phoenix acquired from Van Essen all of the outstanding
shares of ACI, a Golden, Colorado facilities-based reseller of long distance
service. Consideration for the transaction was in the form of $4.0 million in
cash, 2,800,000 shares of Phoenix Common Stock valued at $10.5 million and the
issuance of a long-term note in the amount of $1.3 million (the "Van Essen
Note"). As a result of the transaction and her subsequent sale of certain
shares of Phoenix Common Stock, Van Essen held approximately 1,488,900 shares
of Phoenix Common Stock or 4.1% of the Phoenix Common Stock outstanding as of
January 27, 1998.

PREFERRED STOCK CONVERSIONS

In December 1996, Phoenix received all requisite consents of the holders of
Phoenix's Series F Preferred Stock to convert all outstanding shares of
Phoenix Series F Preferred Stock into Phoenix Common Stock. Messrs.
McGettigan, Thornhill and Singleton, directors of Phoenix, and certain of
their affiliates, were holders of such Phoenix Series F Preferred Stock prior
to such conversion. Effective

173

December 14, 1996, the Phoenix Series F Preferred Stock, together with accrued
dividends thereon, was converted into 5,191,064 shares of Phoenix Common
Stock.

The remaining holders of Phoenix's Series A, B and D Preferred Stock
converted such Preferred Stock into Phoenix Common Stock during the first
eight months of 1997. Messrs. Magowan and McGettigan, directors of Phoenix,
and certain of their affiliates were the holders of shares of such Phoenix
Preferred Stock.

On January 14, 1998, the holder of the Series I Preferred Stock converted
all outstanding shares of such stock into shares of Phoenix Common Stock
pursuant to its terms.

INVESTMENT BANKING SERVICES

Charles C. McGettigan, a director of Phoenix, is a Managing Director of
McGettigan Wick. Phoenix entered into an agreement with McGettigan Wick on
August 11, 1997 pursuant to which McGettigan Wick was engaged by Phoenix to
provide advice and counsel to the Phoenix Board regarding the financial terms
of the then proposed business combination of Phoenix and Midcom. In exchange
for such services, McGettigan Wick was to receive a fee of $125,000 only if
the business combination with Midcom was consummated. Since the Midcom merger
was aborted, Phoenix did not pay such fee to McGettigan Wick. Phoenix has
agreed, however, to pay McGettigan Wick $125,000 for past services rendered
and for providing advice and counsel to the Phoenix Board regarding the
financial terms of the Merger if the Merger is consummated.

For a description of certain fees to be paid to J.C. Bradford, see "PLAN OF
MERGER--Opinion of Phoenix's Financial Advisor."

PHOENIX INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Phoenix Board has selected Grant Thornton LLP as Phoenix's independent
auditors for the fiscal year ending December 31, 1997. Grant Thornton LLP has
audited Phoenix's financial statements since 1989.

Representatives of Grant Thornton LLP are expected to be present at the
Phoenix Annual Meeting, will have an opportunity to make a statement if they
so desire and will be available to respond to appropriate questions.

LEGAL OPINION

The legality of the Qwest Common Stock to be issued in connection with the
Merger is being passed upon for Qwest by O'Melveny & Myers LLP. The legality
of Qwest's obligation to pay the Contingent Cash Consideration, if any, in
connection with the Merger is being passed upon for Qwest by Morris, James,
Hitchens & Williams, special Delaware counsel to Qwest.

TAX OPINION

Certain of the tax consequences of the Merger are being passed upon for
Phoenix by Grant Thornton LLP.

EXPERTS

The consolidated financial statements and schedules of Qwest Communications
International Inc. and subsidiaries as of December 31, 1996 and 1995 and for
each of the years in the three-year period ended December 31, 1996 have been
included herein and in the Registration Statement in reliance

174

upon the report, pertaining to such consolidated financial statements, dated
February 19, 1997, except as to note 18, which is as of May 23, 1997, and note
1, paragraph (i) and note 20 which are as of February 2, 1998, and the report
pertaining to such schedules, dated February 19, 1997, except as to notes 2
and 3, which are as of February 2, 1998, of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and in the
Registration Statement, and upon the authority of said firm as experts in
accounting and auditing.

The financial statements of SuperNet, Inc. as of June 30, 1997 and for the
year ended June 30, 1997 have been included herein and in the Registration
Statement in reliance upon the report, dated September 26, 1997 of Dollinger,
Smith & Co., independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

The consolidated financial statements of Phoenix as of December 31, 1996 and
1995 and for each of the years in the three year period ended December 31,
1996 included in this Proxy Statement/Prospectus have been audited by Grant
Thornton LLP, independent certified public accountants, as indicated in its
reports with respect thereto, and are included herein in reliance on the
reports of Grant Thornton LLP and upon the authority of said firm as experts
in accounting and auditing.

175

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 and Septem-
ber 30, 1997 (Unaudited)................................................ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994, and for the Nine Months Ended September 30, 1997
and 1996 (Unaudited).................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended De-
cember 31, 1996, 1995 and 1994, and for the Nine Months Ended September
30, 1997 (Unaudited).................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994, and for the Nine Months Ended September 30, 1997
and 1996 (Unaudited).................................................... F-6
Notes to Consolidated Financial Statements (Information as of September
30, 1997, and for the Nine Months Ended September 30, 1997 and 1996 is
Unaudited).............................................................. F-8
SUPERNET, INC.
Independent Auditor's Report............................................. F-31
Balance Sheet as of June 30, 1997 and September 30, 1997 (Unaudited)..... F-32
Statements of Operations for the Year Ended June 30, 1997 and for the
Three-Month Period Ended September 30, 1997 and 1996 (Unaudited)........ F-33
Statements of Changes in Stockholder's Equity for the Year Ended June 30,
1997 and for the Three Months Ended September 30, 1997 (Unaudited)...... F-34
Statements of Cash Flows for the Year Ended June 30, 1997 and for the
Three Months Ended September 30, 1997 and 1996 (Unaudited).............. F-35
Notes to Financial Statements (Information as of September 30, 1997, and
for the Three Months Ended September 30, 1997 and 1996 is Unaudited).... F-36

PHOENIX NETWORK, INC.

Independent Auditor's Report............................................. F-42
Consolidated Balance Sheets as of December 31, 1996 and 1995 and
September 30, 1997 (Unaudited).......................................... F-43
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995, and 1994, and for the Nine Months Ended September 30, 1997
and 1996 (Unaudited).................................................... F-44
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994, and for the Nine Months Ended
September 30, 1997 (Unaudited).......................................... F-45
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994, and for the Nine Months Ended September 30, 1997
and 1996 (Unaudited).................................................... F-46
Notes to Consolidated Financial Statements (Information as of September
30, 1997, and for the Nine Months Ended September 30, 1997 and 1996 is
Unaudited) ............................................................. F-48

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Qwest Communications International Inc.:

We have audited the accompanying consolidated balance sheets of Qwest
Communications International Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Qwest
Communications International Inc. and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP

Denver, Colorado
February 19, 1997, except as
to note 18, which is as of May 23, 1997,
and note 1, paragraph (i)
and note 20 which are as of February 2, 1998.

F-2

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1996 AND 1995, AND SEPTEMBER 30, 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1997 1996 1995
----------- -------- --------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents.................... $186,731 $ 6,905 $ 1,484
Accounts receivable, net (notes 4, 5 and 7).. 64,719 29,248 14,871
Costs and estimated earnings in excess of
billings (note 6)........................... 164,986 4,989 24,127
Deferred income tax asset (note 12).......... -- 6,301 4,392
Notes and other receivables (note 8)......... 14,936 14,934 6,253
Other current assets (note 14)............... 7,063 328 1,260
-------- -------- --------
Total current assets....................... 438,435 62,705 52,387
-------- -------- --------
Property and equipment, net (notes 5, 9, 11 and
12)........................................... 444,816 186,535 114,748
Deferred income tax asset (note 12)............ 8,902 -- --
Notes and other receivables (note 8)........... 115 11,052 8,430
Intangible and other long-term assets, net of
amortization (notes 11 and 14)................ 16,210 3,967 8,613
-------- -------- --------
Total assets............................... $908,478 $264,259 $184,178
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses (note
10)......................................... $178,676 $ 80,129 $ 26,748
Payable to related parties, net (note 13).... -- -- 2,983
Deferred revenue............................. 4,044 2,649 3,969
Billings in excess of costs and estimated
earnings (note 6)........................... 12,440 5,034 --
Deferred income tax liability (note 12)...... 6,432 -- --
Current portion of long-term debt (note 11).. 15,782 25,193 21,270
Advances from parent (note 13)............... -- 19,138 --
-------- -------- --------
Total current liabilities.................. 217,374 132,143 54,970
-------- -------- --------
Long-term debt (note 11)....................... 268,946 109,268 68,793
Advances from Parent (note 13)................. -- -- 27,119
Deferred income tax liability (note 12)........ -- 1,708 922
Other liabilities (notes 10 and 15)............ 53,307 11,698 5,899
-------- -------- --------
Total liabilities.......................... 539,627 254,817 157,703
-------- -------- --------
Stockholders' equity (notes 18 and 20):
Preferred Stock, $.01 par value. Authorized
25,000,000 shares. No shares issued and
outstanding................................. -- -- --
Common Stock, $.01 par value. Authorized
400,000,000 shares. 206,641,532 shares
issued and outstanding at September 30,
1997, and 173,000,000 shares issued and
outstanding at December 31, 1996 and 1995... 2,066 1,730 1,730
Additional paid-in capital................... 410,972 54,162 64,228
Accumulated deficit.......................... (44,187) (46,450) (39,483)
-------- -------- --------
Total stockholders' equity................. 368,851 9,442 26,475
-------- -------- --------
Commitments and contingencies (note 14)
Total liabilities and stockholders'
equity.................................... $908,478 $264,259 $184,178
======== ======== ========

See accompanying notes to consolidated financial statements.

F-3

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)

Revenue:
Carrier services........... $ 39,062 $ 45,106 $ 57,573 $ 67,789 $ 50,240
Commercial services (note
13)....................... 38,033 25,475 34,265 20,412 8,712
-------- -------- -------- -------- --------
77,095 70,581 91,838 88,201 58,952
Network construction
services (note 6)......... 413,226 59,255 139,158 36,901 11,921
-------- -------- -------- -------- --------
490,321 129,836 230,996 125,102 70,873
-------- -------- -------- -------- --------
Operating expenses:
Telecommunications
services.................. 65,310 62,399 80,368 81,215 48,239
Network construction
services (note 13)........ 282,472 37,661 87,542 32,754 9,369
Selling, general and
administrative (notes 2
and 13)................... 59,987 34,230 45,755 37,195 21,516
Growth share plan (note
15)....................... 69,320 -- 13,100 -- --
Depreciation and
amortization.............. 13,114 11,890 16,245 9,994 2,364
-------- -------- -------- -------- --------
490,203 146,180 243,010 161,158 81,488
-------- -------- -------- -------- --------
Income (loss) from
operations.............. 118 (16,344) (12,014) (36,056) (10,615)
Other income (expense):
Gain on sale of contract
rights (note 3)........... 9,296 -- -- -- --
Gain on sale of
telecommunications service
agreements (note 4)....... -- 6,126 6,126 -- --
Interest expense, net...... (8,886) (5,004) (6,827) (4,248) (219)
Interest income............ 5,912 1,898 2,454 1,782 191
Other (expense) income, net
(note 4).................. (1,986) 113 60 55 (42)
-------- -------- -------- -------- --------
Income (loss) before
income tax expense
(benefit)............... 4,454 (13,211) (10,201) (38,467) (10,685)
Income tax expense
(benefit)(note 12).......... 2,191 (4,310) (3,234) (13,336) (3,787)
-------- -------- -------- -------- --------
Net income (loss)........ $ 2,263 $ (8,901) $ (6,967) $(25,131) $ (6,898)
======== ======== ======== ======== ========
Net income (loss) per share.. $ 0.01 $ (0.05) $ (0.04) $ (0.14) $ (0.04)
======== ======== ======== ======== ========
Weighted average common and
common equivalent shares.... 187,890 176,316 176,316 176,316 176,316
======== ======== ======== ======== ========

See accompanying notes to consolidated financial statements.

F-4

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 AND THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

COMMON STOCK
----------------------- ADDITIONAL TOTAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES (NOTE 20) AMOUNT CAPITAL DEFICIT EQUITY
---------------- ------ ---------- ----------- -------------

BALANCES, JANUARY 1,
1994................... 173,000,000 $1,730 $ 17,803 $ (7,454) $ 12,079
Contribution from
Parent................. -- -- 20,900 -- 20,900
Repurchase of warrants.. -- -- (1,500) -- (1,500)
Net loss................ -- -- -- (6,898) (6,898)
----------- ------ -------- -------- --------
BALANCES, DECEMBER 31,
1994................... 173,000,000 1,730 37,203 (14,352) 24,581
Contribution from
Parent................. -- -- 28,000 -- 28,000
Reduction in additional
paid-in capital
attributable to effect
of the tax allocation
agreement with Parent
(note 12).............. -- -- (975) -- (975)
Net loss................ -- -- -- (25,131) (25,131)
----------- ------ -------- -------- --------
BALANCES, DECEMBER 31,
1995................... 173,000,000 1,730 64,228 (39,483) 26,475
Cancellation of income
tax benefit receivable
from Parent (note 12).. -- -- (11,088) -- (11,088)
Expenses incurred by
Parent on Company's
behalf (note 13)....... -- -- 1,022 -- 1,022
Net loss................ -- -- -- (6,967) (6,967)
----------- ------ -------- -------- --------
BALANCES, DECEMBER 31,
1996................... 173,000,000 1,730 54,162 (46,450) 9,442
Issuance of common
stock, net (unaudited)
(note 18).............. 31,050,000 310 319,226 -- 319,536
Issuance of common stock
warrants (unaudited)
(note 18).............. -- -- 2,300 -- 2,300
Issuance of common stock
for growth shares
(unaudited) (note 15).. 2,591,532 26 35,284 -- 35,310
Net income (unaudited).. -- -- -- 2,263 2,263
----------- ------ -------- -------- --------
BALANCES, SEPTEMBER 30,
1997 (UNAUDITED)....... 206,641,532 $2,066 $410,972 $(44,187) $368,851
=========== ====== ======== ======== ========

See accompanying notes to consolidated financial statements.

F-5

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------
1997 1996 1996 1995 1994
--------- -------- -------- -------- --------
(UNAUDITED)

Cash flows from operating
activities:
Net income (loss)........ $ 2,263 $ (8,901) $ (6,967) $(25,131) $ (6,898)
Adjustments to reconcile
net income (loss) to net
cash (used in) provided
by operating activities:
Gain on sale of
contract rights
(note 3).............. (9,296) -- -- -- --
Gain on sale of
telecommunications
service agreements
(note 4).............. -- (6,126) (6,126) -- --
Depreciation and
amortization.......... 13,114 11,890 16,245 9,994 2,364
Deferred income tax
expense (benefit)
(note 12)............. 2,123 4,173 (1,123) (2,839) 6,920
Changes in operating
assets and
liabilities:
Receivables--accounts
and notes, net...... (24,536) (23,200) (25,680) (21,379) 910
Costs and estimated
earnings in excess
of billings......... (159,997) 14,706 19,138 (21,650) (2,210)
Accounts payable and
accrued expenses.... 59,848 (3,412) 25,381 4,339 5,795
Payable to related
parties, net........ -- (508) (2,983) 1,263 1,560
Billings in excess of
costs and estimated
earnings............ 7,406 3,158 5,034 -- (831)
Accrued growth share
plan expense and
deferred
compensation........ 33,953 -- 9,290 -- --
Other changes........ 15,050 (1,120) 315 (1,232) (4,304)
--------- -------- -------- -------- --------
Net cash (used in)
provided by
operating
activities........ (60,072) (9,340) 32,524 (56,635) 3,306
--------- -------- -------- -------- --------
Cash flows from investing
activities:
Proceeds from sale of
contract rights
(note 3)................ 9,000 -- -- -- --
Proceeds from sale of
telecommunications
service agreements (note
4)...................... -- 4,500 4,500 -- --
Expenditures for property
and equipment, net...... (205,304) (48,853) (57,122) (46,313) (40,926)
Cash paid for
acquisitions, net of
cash acquired........... -- -- -- (12,545) --
Investments in and
advances to
telecommunications
companies, net.......... -- -- -- -- (786)
--------- -------- -------- -------- --------
Net cash used in
investing
activities........ (196,304) (44,353) (52,622) (58,858) (41,712)
--------- -------- -------- -------- --------

See accompanying notes to consolidated financial statements.

F-6

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(AMOUNTS IN THOUSANDS)

NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------
1997 1996 1996 1995 1994
--------- -------- -------- -------- --------
(UNAUDITED)

Cash flows from financing
activities:
Proceeds from issuance of
common stock, net (note
18)...................... $ 319,536 $ -- $ -- $ -- $ --
Proceeds from issuance of
common stock warrants
(note 18)................ 2,300 -- -- -- --
Borrowings of long-term
debt..................... 328,000 51,000 65,000 62,606 25,401
Repayments of long-term
debt..................... (185,858) (14,689) (21,322) (2,331) (173)
Debt issuance costs....... (8,638) (459) (112) (591) (190)
Net (payments to) advances
from Parent.............. (19,138) 20,486 (19,069) 26,256 (10,174)
Contribution from Parent.. -- -- -- 28,000 20,900
Expenses incurred by
Parent on Company's
behalf (note 13)......... -- -- 1,022 -- --
Repurchase of common stock
warrants................. -- -- -- -- (1,500)
--------- -------- -------- -------- --------
Net cash provided by
financing
activities......... 436,202 56,338 25,519 113,940 34,264
--------- -------- -------- -------- --------
Net increase
(decrease) in cash
and cash
equivalents........ 179,826 2,645 5,421 (1,553) (4,142)
Cash and cash equivalents,
beginning of period........ 6,905 1,484 1,484 3,037 7,179
--------- -------- -------- -------- --------
Cash and cash equivalents,
end of period.............. $ 186,731 $ 4,129 $ 6,905 $ 1,484 $ 3,037
========= ======== ======== ======== ========
Supplemental disclosure of
cash flow information:
Cash paid for interest,
net...................... $ 4,473 $ 4,786 $ 8,825 $ 3,972 $ 128
========= ======== ======== ======== ========
Cash paid for taxes, other
than Parent.............. $ 195 $ 132 $ 160 $ 725 $ 2,232
========= ======== ======== ======== ========
Supplemental disclosure of
significant non-cash
investing and financing
activities:
Capital lease obligation.. $ -- $ 720 $ 720 $ 2,419 $ --
========= ======== ======== ======== ========
Accrued capital
expenditures............. $ 57,903 $ -- $ 28,000 $ -- $ --
========= ======== ======== ======== ========
Issuance of common stock
in settlement of a
portion of accrued Growth
Share liability (note
15)...................... $ 35,310 $ -- $ -- $ -- $ --
========= ======== ======== ======== ========
Capital expenditures
financed with equipment
credit facility.......... $ 8,125 $ -- $ -- $ -- $ --
========= ======== ======== ======== ========
Reduction in additional
paid-in capital
attributable to effect of
cancellation of income
tax benefit receivable
from Parent.............. $ -- $ -- $ 11,088 $ -- $ --
========= ======== ======== ======== ========
Reduction in additional
paid-in capital
attributable to effect of
the tax allocation
agreement with Parent.... $ -- $ -- $ -- $ 975 $ --
========= ======== ======== ======== ========

See accompanying notes to consolidated financial statements.

F-7

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996, 1995 AND 1994
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) General and Business

Qwest Communications International Inc. (the Company) was wholly-owned by
Anschutz Company (the Parent) until June 27, 1997, when the Company issued
common stock in an initial public offering (as described in note (18)--
Securities Offering). Subsequent to the initial public offering, the Parent
owns approximately 83.7% of the outstanding common stock of the Company. The
Company is the ultimate holding company for the operations of Qwest
Communications Corporation and subsidiaries (Qwest) through a merger in 1996
with another wholly-owned subsidiary of the Parent. The merger was accounted
for as a business combination of entities under common control using carryover
basis.

The Company is a developer and operator of telecommunications networks and
facilities and operates in a single business segment, the telecommunications
industry. It provides the following services within that industry:

. Telecommunications Services--the Company provides dedicated line and
switched services to interexchange carriers and competitive access
providers (Carrier Services) and long distance voice, data and video
services to businesses and consumers (Commercial Services).

. Network Construction Services--the Company installs fiber optic
communications systems for interexchange carriers, local telephone
companies, cable television companies, competitive access providers and
other communication entities, as well as for its own use.

Qwest's principal direct and indirect subsidiaries include Qwest
Transmission Inc. (QTI), Qwest Properties Inc. (QPI) and SP Servicios de
Mexico S.A. de C.V. (SP Mexico). QTI owns and operates a digital microwave
transmission network throughout the eastern and midwestern United States. QPI
is a lessor of a telecommunications switching facility in Dallas, Texas. SP
Mexico holds the rights assigned to it under construction easement agreements
in Mexico (as described in note (14)--Mexico Easement Agreement).

The accompanying audited consolidated financial statements as of December
31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994,
and the accompanying unaudited interim consolidated financial statements as of
September 30, 1997 and for the nine month periods ended September 30, 1997 and
1996 include the accounts of the Company and all majority-owned subsidiaries.
Intercompany balances and transactions have been eliminated in consolidation.

(b) Telecommunications Services Revenue

Revenue from telecommunications services is recognized monthly as the
services are provided. Amounts billed in advance of the service month are
recorded as deferred revenue.

The Company accounts for long-term construction contracts relating to the
development of telecommunications networks using the percentage of completion
method. Under the percentage of completion method, progress is generally
measured on performance milestones relating to the contract where such
milestones fairly reflect progress toward contract completion.

F-8

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

Network construction costs include all direct material and labor costs and
those indirect costs related to contract performance. General and
administrative costs are charged to expense as incurred. When necessary, the
estimated loss on an uncompleted contract is expensed in the period in which
it is identified. Revisions to estimated profits on contracts are recognized
in the period they become known.

(d) Cash and Cash Equivalents

The Company classifies cash on hand and deposits in banks, including money
market accounts, and any other investments with an original maturity of three
months or less that the Company may hold from time to time, as cash and cash
equivalents.

(e) Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the useful lives of the assets, commencing when
they are available for service. Leasehold improvements are amortized over the
lesser of the useful lives of the assets or the lease term. Expenditures for
maintenance and repairs are expensed as incurred. Network construction costs,
including interest during construction, are capitalized. Interest capitalized
in the nine months ended September 30, 1997 and 1996, and in the years ended
December 31, 1996, 1995 and 1994 was approximately $11.2 million, $1.6
million, $2.4 million, $1.9 million and $0.3 million, respectively.

The useful lives of property and equipment is as follows:

Facility and leasehold improvements............. 20-25 years or lease term
Communications and construction equipment....... 3-10 years
Fiber and conduit systems....................... 15-25 years
Office equipment and furniture.................. 3-7 years
Capital leases.................................. lease term

While constructing network systems for customers, the Company may install
additional conduit for its own use. This additional conduit is capitalized at
the incremental cost of construction. Costs of the initial conduit, fiber and
facilities are allocated to the customer and the Company based upon the number
of fibers retained by the Company relative to the total fibers installed, or
square footage in the case of facilities.

(f) Impairment of Long-Lived Assets

Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS 121) requires that long-lived assets be reviewed for impairment when
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. This review consists of a comparison of the
carrying value of the asset with the asset's expected future undiscounted cash
flows without interest costs. Estimates of expected future cash flows are to
represent management's best estimate based on reasonable and supportable
assumptions and projections. If the expected future cash flow exceeds the
carrying value of the asset, no impairment is recognized. If the carrying
value of the asset exceeds the expected future cash flows, an impairment
exists and is measured by the excess of the carrying value over the fair value
of the asset. Any impairment provisions recognized in accordance with SFAS 121
are

F-9

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

permanent and may not be restored in the future. No impairment expense was
recognized in the nine months ended September 30, 1997, or in the years ended
December 31, 1996 and 1995.

(g) Income Taxes

The Company is included in the consolidated income tax return of the Parent,
and a tax sharing agreement provides for allocation of tax liabilities and
benefits to the Company, in general, as though it filed a separate return. The
Company uses the asset and liability method of accounting for income taxes
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Income taxes
have been computed by applying the asset and liability method as if the
Company were a separate taxpayer.

(h) Intangible and Other Long-Term Assets Amortization

Intangible and other long-term assets include debt issuance costs, deferred
compensation, goodwill and acquired intangibles such as customer contracts and
non-compete covenants. Such costs are amortized on a straight-line basis over
a period ranging from three to fifteen years.

(i) Net Income (Loss) Per Share

Net income (loss) per share for the nine months ended September 30, 1997 and
1996, and for the years ended December 31, 1996, 1995 and 1994 was computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during such periods. Common stock equivalent shares from options,
warrants and common stock issuable for Growth Shares (as described in note
(15)--Growth Share Plan) are included in the computation when their effects
are dilutive, except that, pursuant to Securities and Exchange Commission
Staff Accounting Bulletin Number 83, Earnings Per Share Computations in an
Initial Public Offering, 3,316,000 common shares issuable for Growth Shares
granted during the twelve month period prior to the Company's initial public
offering at prices below the anticipated public offering price were included
in the calculation as if they were outstanding for all periods presented, up
to the close of the initial public offering.

The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS
128 requires the presentation of basic earnings per share (EPS) and, for
companies with potentially dilutive securities, such as convertible debt,
options and warrants, diluted EPS. SFAS 128 is effective for annual and
interim periods ending after December 15, 1997. The Company does not believe
that the adoption of SFAS 128 will significantly affect the calculation of the
Company's net loss per common share.

(j) Management Estimates

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

F-10

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

The accompanying interim financial statements as of September 30, 1997, and
for the nine months ended September 30, 1997 and 1996 are unaudited but, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results of such
periods. The results of operations for any interim period are not necessarily
indicative of results for the full year.

(k) Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value due to the short-
term maturities of these assets and liabilities. The carrying amounts of notes
and other receivables approximate fair value due to the relatively short
period of time between the origination of these instruments and their expected
realization. The carrying amounts of long-term debt approximate its fair value
since the interest rates on substantially all of the debt are variable and
reset periodically.

(l) Reclassification

Certain prior year amounts have been reclassified to conform with current
year presentation.

(2) RELOCATION AND RESTRUCTURING

Relocation and restructuring costs of approximately $1.6 million were
recognized in the first nine months of 1996 and relate primarily to costs
incurred in connection with the restructuring of the direct sales group. Such
costs were substantially paid in 1996 and are included in selling, general and
administrative expenses in the consolidated financial statements. Relocation
and restructuring costs of approximately $2.0 million in 1994 relate primarily
to costs incurred to consolidate the Company's operations in Denver, Colorado
and are included in selling, general and administrative expenses.

(3) GAIN ON SALE OF CONTRACT RIGHTS

On March 10, 1997, the Company entered into an agreement (the Termination
Agreement) with an unrelated third-party (the Purchaser) to terminate certain
equipment purchase and telecommunications capacity rights and options of the
Company exercisable against the Purchaser, for $9.0 million (the Termination
Agreement Consideration). In the first quarter of 1997, the Company received
$7.0 million of the Termination Agreement Consideration in cash. The remaining
consideration is payable in cash to the Company upon delivery of certain
telecommunications capacity (Capacity Obligation) to the Purchaser.

As a result of the Termination Agreement, the Company is no longer required
to relocate certain terminal facilities. Accordingly, the Company has reduced
its liability for such costs by approximately $0.7 million and has included
the adjustment in gain on sale of contract rights.

During the second quarter of 1997, the Company satisfied its Capacity
Obligation and received the remaining $2.0 million cash consideration due
under the Termination Agreement.

(4) GAIN ON SALE OF TELECOMMUNICATIONS SERVICE AGREEMENTS

On July 1, 1996, the Company sold its right, title and interest in certain
telecommunications service agreements to an unrelated third party (the Buyer)
for $5.5 million. As of December 31, 1996,

F-11

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

the Company received $4.5 million of the purchase price in cash. As a result
of the sale, the Company is no longer required to incur certain costs related
to providing service under the agreements. Accordingly, in 1996 the Company
has reduced its liability for such costs by approximately $3.9 million and has
included the adjustment in gain on sale of telecommunications service
agreements. Also included in the gain on sale of telecommunications service
agreements is the carrying value of the related customer contracts sold of
approximately $1.7 million and approximately $0.6 million of other costs
incurred as a result of the sale.

During the transition of the service agreements to the Buyer, the Company
has incurred certain facilities costs on behalf of the Buyer, which are
reimbursable to the Company. As of September 30, 1997 and December 31, 1996,
net amounts of approximately $3.5 million and $2.0 million, respectively, is
due to the Company for such costs. On March 31, 1997, the arrangement relating
to transition services expired and has not yet been renegotiated. A dispute
has arisen with respect to reimbursement of these costs and, as a result, the
Company made a provision of $2.0 million in the first quarter of 1997.
Negotiations with the Buyer are continuing. The Company believes that the net
receivable balance as of September 30, 1997 is collectible.

(5) ACQUISITIONS

On January 31, 1995, the Company purchased all of the outstanding stock of
QTI and Subsidiaries (formerly Qwest Communications, Inc.) for approximately
$18.8 million. The purchase was initially financed with an advance from the
Parent. The Company repaid a substantial portion of this advance with the
proceeds from two term notes issued in July 1995 (as described in note (11)--
Long-Term Debt). The purchase price was allocated as follows (in thousands):

Working capital.................................................. $ 7,744
Property and equipment........................................... 11,012
Other............................................................ 14
-------
$18,770
=======

The accompanying consolidated statements of operations include the operating
results of QTI since the effective date of the acquisition. The pro forma
effect of the acquisition was immaterial in 1995. The following pro forma
operating results of the Company and QTI for the year ended December 31, 1994
has been prepared assuming the acquisition had been consummated as of January
1, 1994.

YEAR ENDED
DECEMBER 31, 1994
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNT)

Revenue............................................. $84,865
Net loss............................................ $ 6,643
Loss per share...................................... $ 0.04

The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of January 1, 1994, nor is it necessarily indicative of future
operating results.

In January 1995, the Company also purchased certain assets from Fiber
Systems Inc. for approximately $1.8 million.

F-12

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

In October 1997, Qwest and an unrelated third party consummated an agreement
whereby Qwest acquired from the third party all of the issued and outstanding
shares of capital stock of the third party's then wholly owned Internet
Service Provider (the ISP), and the capital stock of the ISP issued at the
closing of the acquisition, for $20.0 million in cash. The acquisition will be
allocated to the assets and liabilities acquired based upon the estimated fair
values of such assets and liabilities.

(6) NETWORK CONSTRUCTION SERVICES REVENUE AND EXPENSES

Costs and billings on uncompleted contracts included in the accompanying
consolidated financial statements are as follows (in thousands):

DECEMBER 31,
SEPTEMBER 30, -----------------
1997 1996 1995
------------- -------- -------
(UNAUDITED)

Costs incurred on uncompleted contracts...... $359,338 $ 82,840 $23,339
Estimated earnings........................... 185,032 48,853 10,610
-------- -------- -------
544,370 131,693 33,949
Less: billings to date....................... 391,824 131,738 9,822
-------- -------- -------
$152,546 $ (45) $24,127
======== ======== =======
Included in the accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings.................................. $164,986 $ 4,989 $24,127
Billings in excess of costs and estimated
earnings.................................. (12,440) (5,034) --
-------- -------- -------
$152,546 $ (45) $24,127
======== ======== =======
Revenue the Company expects to realize for
work to be performed on the above
uncompleted contracts....................... $577,886 $328,688 $ 6,692
======== ======== =======

In 1996, the Company entered into agreements with unrelated third-parties
whereby the Company will provide indefeasible rights of use (IRUs) in multiple
fibers along base routes for a minimum purchase price of approximately $457.0
million. Under the agreements, the third-parties are entitled to require the
Company to provide IRUs along optional routes, as defined, for an additional
$65.0 million. One of the parties has the option to require the Company to
double the number of fibers along the base route for additional consideration.
These options, when combined with certain options of the Company, result in a
maximum purchase price of approximately $888.0 million. One contract provides
that in the event of delay or non-delivery of segments, the payments may be
reduced or penalties of varying amounts may be due. The Company obtained
construction performance bonds totaling $175.0 million which have been
guaranteed by the Parent. As a result of activity on these contracts, the
Company has recorded approximately $193.2 million and $121.0 million of
network construction service revenue in the nine months ended September 30,
1997, and in the year ended December 31, 1996, respectively. Earnings relating
to these contracts are estimated using allocations of the total cost of the
Company's network construction project (as described in note (14)--Commitments
and Contingencies).

F-13

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

In April 1997, certain of the options described in the previous paragraph
were exercised. In April 1997, the option to double the number of fibers along
the base route expired. In May 1997, a third customer entered into a contract
with the Company to purchase such additional fibers. These events contributed
to an increase in the purchase price to approximately $985.0 million.

(7) ACCOUNTS RECEIVABLE

Accounts receivable consists of the following (in thousands):

DECEMBER 31,
SEPTEMBER 30, ----------------
1997 1996 1995
------------- ------- -------
(UNAUDITED)

Carrier services............................. $10,847 $ 9,978 $12,634
Commercial services.......................... 14,029 5,736 3,595
Network construction services................ 39,423 13,751 111
Transition costs (note 4).................... 3,527 1,988 --
Interest receivable (note 8)................. 654 1,289 1,088
Other........................................ 658 175 64
------- ------- -------
69,138 32,917 17,492
Less allowance for doubtful accounts......... (4,419) (3,669) (2,621)
------- ------- -------
Accounts receivable, net..................... $64,719 $29,248 $14,871
======= ======= =======

(8) NOTES AND OTHER RECEIVABLES

On November 16, 1994, a third party entered into a $45.0 million agreement
to purchase a single conduit and fund a portion of the total cost of a
multiple conduit system to be constructed by the Company. Three conduits were
constructed for the Company's own use. Contract revenues from this agreement
were approximately $3.1 million, $29.7 million, and $2.0 million in the years
ended December 31, 1996, 1995 and 1994, respectively. The Company recognized
the remaining proceeds as cost recoveries in 1996 and 1995 by reducing its
cost basis in the Company-owned conduits. The Company may be required to pay
up to $13.0 million to the third party in the event of the sale of the
Company-owned conduits.

Payment for installation of each route became due upon completion of the
route and was payable in three equal installments. Prior to completion,
interest was payable on costs incurred for route construction at 7.65%.

In November 1995, the Company completed construction of the first route. The
Company received cash payments of approximately $4.1 million representing one-
third of the route's contract price, including cost recoveries, and $0.5
million representing interest earned during construction. In addition, the
Company received a promissory note for approximately $8.2 million representing
the remaining two-thirds of the contract price, including cost recoveries. The
second installment of approximately $4.1 million was received in November
1996. The remaining note balance is due on the second anniversary of the
note's issuance and accrues interest at 6.59%.

In February 1996, the Company completed construction of the second route.
The Company received cash payments of approximately $10.9 million representing
one-third of the route's contract

F-14

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

price, including cost recoveries, and $1.3 million representing interest
earned during construction. In addition, the Company received two promissory
notes for approximately $19.7 million and $2.2 million representing the
remaining two-thirds of the contract price for that route, including cost
recoveries. The notes are due in two equal annual installments on the first
and second anniversaries of the notes' issuance, and accrue interest at 7.31%
and 6.59% during the first and second years, respectively, of the notes' term.
The first installment of approximately $10.9 million was received in February
1997.

(9) PROPERTY AND EQUIPMENT

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

DECEMBER 31,
SEPTEMBER 30, ------------------
1997 1996 1995
------------- -------- --------
(UNAUDITED)

Land...................................... $ 558 $ 506 $ 420
Facility and leasehold improvements....... 12,761 7,951 5,040
Communications and construction
equipment................................ 74,751 52,076 41,104
Fiber and conduit systems................. 92,924 42,446 42,414
Office equipment and furniture............ 8,324 6,360 5,925
Network construction and other assets held
under capital leases (note 11)........... 3,071 3,197 2,419
Work in progress.......................... 288,710 99,915 29,618
-------- -------- --------
481,099 212,451 126,940
Less accumulated depreciation and
amortization............................. (36,283) (25,916) (12,192)
-------- -------- --------
Property and equipment, net............... $444,816 $186,535 $114,748
======== ======== ========

(10) ACCOUNTS PAYABLE AND ACCRUED EXPENSES, AND OTHER LIABILITIES

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

DECEMBER 31,
SEPTEMBER 30, ---------------
1997 1996 1995
------------- ------- -------
(UNAUDITED)

Accounts payable.............................. $ 40,163 $44,766 $13,587
Construction accounting accrual............... 66,976 18,071 --
Capacity service obligation................... 8,971 3,658 3,719
Property, sales and other taxes............... 28,551 3,793 2,395
Accrued interest.............................. 14,594 707 299
Other......................................... 19,421 9,134 6,748
-------- ------- -------
Accounts payable and accrued expenses......... $178,676 $80,129 $26,748
======== ======= =======

Accounts payable as of September 30, 1997 and December 31, 1996 includes
approximately $3.4 million and $37.0 million, respectively, payable for fiber
purchases under the materials purchase agreement (as described in note (14)--
Network Construction Project).

F-15

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

Other liabilities consists of the following (in thousands):

DECEMBER 31,
SEPTEMBER 30, --------------
1997 1996 1995
------------- ------- ------
(UNAUDITED)

Right-of-way obligation............................ $31,295 $ 1,297 $1,513
Growth share accrual............................... 13,996 9,291 --
Telecommunications service agreement liability..... -- -- 2,914
Other.............................................. 8,016 1,110 1,472
------- ------- ------
Other liabilities.................................. $53,307 $11,698 $5,899
======= ======= ======

(11) LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

DECEMBER 31,
SEPTEMBER 30, -----------------
1997 1996 1995
------------- -------- -------
(UNAUDITED)

Senior notes................................... $250,000 $ -- $ --
Revolving credit facility...................... 10,000 60,000 --
Customer contract credit facility.............. 15,000 25,918 40,418
Equipment credit facility...................... 8,125 -- --
Network credit facility........................ -- 27,077 29,273
Equipment loans................................ -- 9,820 6,765
Term notes..................................... -- 9,416 11,100
Capital lease obligation....................... 1,423 2,010 2,187
Other.......................................... 180 220 320
-------- -------- -------
Total debt................................... 284,728 134,461 90,063
Less current portion........................... (15,782) (25,193) (21,270)
-------- -------- -------
Long-term debt................................. $268,946 $109,268 $68,793
======== ======== =======

On March 31, 1997, the Company issued 10 7/8% Senior Notes (the Senior
Notes) due 2007 having an aggregate principal amount of $250.0 million. The
net proceeds of the Senior Notes were approximately $242.0 million, after
deducting offering costs which are included in intangible and other long-term
assets. The net proceeds were used to repay amounts due under the revolving
credit facility, network credit facility, equipment loans and term notes,
described below, and to fund a portion of capital expenditures required to
complete construction of segments of the Network currently under construction
(as described in note (14)--Commitments and Contingencies).

Interest on the Senior Notes is payable semi-annually in arrears on April 1
and October 1 of each year, commencing October 1, 1997. The Senior Notes are
subject to redemption at the option of the Company, in whole or in part, at
any time on or after April 1, 2002, at specified redemption prices. In
addition, prior to April 1, 2000, the Company may use the net cash proceeds
from certain specified equity transactions to redeem up to 35% of the Senior
Notes at specified redemption prices.

In connection with the sale of the Senior Notes, the Company agreed to make
an offer to exchange new notes, registered under the Securities Act of 1933
(the Act) and with terms identical in

F-16

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

all material respects to the Senior Notes, for the Senior Notes or,
alternatively, to file a shelf registration statement under the Act with
respect to the Senior Notes. In July 1997, the Company's registration
statement (no. 333-30449) on Form S-4 relating to its 10 7/8% Series B Senior
Notes (the Exchange Notes), having terms identical in all material respects to
the Senior Notes, became effective. The Company expects to consummate an
exchange of the Exchange Notes for all of the Senior Notes in the third
quarter of 1997. The Company will receive no proceeds from and will recognize
no profit on the exchange transaction, and no change in financial position of
the Company will occur as a result of the exchange transaction if it occurs.
If certain conditions to closing the exchange offer have not been satisfied
within specified time periods (each a Registration Default) and a shelf
registration statement has not been made effective and available for resale of
the Senior Notes, additional interest will accrue at a rate per annum equal to
0.50% of the principal amount of the Senior Notes during the 90-day period
immediately following the occurrence of a Registration Default and increasing
in increments of 0.25% per annum up to a maximum of 2.0% per annum, at the end
of each subsequent 90-day period until the Registration Default is cured.

In August 1997, the Company completed an exchange of the Exchange Notes,
registered under the Act, for all of the Senior Notes. The Exchange Notes are
identical in all material respects to the originally issued Senior Notes. The
Company received no proceeds from and recognized no profit on the exchange
transaction, and no change in the financial condition of the Company occurred
as a result of the exchange transaction.

In April 1996, the Company entered into a $100.0 million revolving credit
facility agreement (as amended in September 1996) (the Facility), the proceeds
of which will be used for working capital purposes, capital expenditures and
the issuance of letters of credit. The Facility provides for an initial $100.0
million three-year revolving loan commitment (the Revolver) which expires on
April 2, 1999. At that time, the outstanding loan amount converts to a two-
year term credit loan which matures on April 2, 2001. Quarterly mandatory
payments commence on June 30, 1999, and include equal quarterly principal
reductions, based on the amount of the outstanding loan at the date of
conversion. Letters of credit issued under the Facility are limited to a total
outstanding of $10.0 million. There were no letters of credit outstanding at
December 31, 1996 and September 30, 1997. At September 30, 1997, $10.0 million
was outstanding under the Facility. In October 1997, the Company repaid the
outstanding balance and terminated the Facility.

In February 1997, the Company entered into a one-year $50.0 million line of
credit with a commercial bank at substantially identical terms as the $100.0
million credit facility described above. No amounts were ever drawn under this
credit line, and the facility was canceled by the Company in July 1997.

In April 1995, the Company entered into a $45.0 million customer contract
credit facility agreement to finance certain construction projects undertaken
at that time. The facility converted to a term loan upon completion of the
construction projects in 1996 and 1995 and is now secured by notes receivable
issued in connection with these construction projects (as described in note
(8)--Notes and Other Receivables). The facility bears interest at the
Company's option at either (a) the higher of (i) the bank's base rate of
interest, or (ii) the Federal Funds Rate plus 1/2%; or (b) LIBOR plus 9/16%.
The outstanding balance at December 31, 1996 is due in installments on the
anniversary dates of the completion of the projects, through February 1998.

F-17

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

In June 1994, the Company entered into a $27.6 million network credit
facility agreement, secured by certain of the Company's fiber systems which
bears interest at 4.65% above the 90-day High Grade Commercial Paper rate. All
interest accrued on borrowings under this facility from June 1994 through June
1995 was added to the principal balance of the facility. Interest added as
additional principal was approximately $1.4 million and $0.3 million for 1995
and 1994, respectively. From July 1995 to June 1996, interest only payments
were paid on the loan balance. Monthly mandatory principal and interest
payments commenced on July 31, 1996 and increase from 1.25% to 2.08% of the
initial loan balance over the term of the loan, which is payable in full on
July 31, 2001. Prepayments are permitted without penalty. The credit facility
agreement contains financial covenants for Qwest regarding the maintenance of
certain key ratios. This facility was repaid in April 1997.

In August 1995, the Company executed two equipment loans for approximately
$5.0 million in aggregate, which bear interest at LIBOR plus 2.65%, and LIBOR
plus 2.55%, respectively, and are secured by certain equipment. Quarterly
mandatory payments commenced on December 1, 1995, which include $250,000
principal reductions and accrued interest, with the final installment due on
September 1, 2000. These loans were repaid in April 1997.

In 1996, the Company executed three equipment loans aggregating
approximately $5.0 million. The notes bear interest ranging from 8.86% to
10.15% per annum, and are secured by certain equipment. Monthly mandatory
payments include monthly principal reductions ranging from approximately
$20,000 to $54,000 plus accrued interest, with the final installment due
August 1, 2001. These loans were repaid in May 1997.

In December 1992, the Company executed an equipment loan for approximately
$2.6 million. The loan bears interest at 4.65% above the 90-day High Grade
Commercial Paper rate and is secured by certain communications equipment.
Monthly mandatory payments include approximately $29,000 of principal
reduction and accrued interest, with the final installment due October 2001.
The loan agreement contains financial covenants for Qwest regarding the
maintenance of certain key ratios. This loan was repaid in April 1997.

In July 1995, the Company issued two term notes totaling $12.0 million,
which are secured by all current and future assets of QTI and used the
proceeds to repay a portion of the advance from the Parent used to purchase
QTI (as described in note (5)--Acquisitions). The notes bear interest at LIBOR
plus 3%, which is to be reduced as the Company meets certain covenants.
Quarterly mandatory principal and interest payments commenced on September 30,
1995 and increase from 3.75% to 5.4% of the initial loan balance over the term
of the loan, which is payable in full on September 30, 2000. The Company may
prepay the notes without penalty. Mandatory prepayments are required within
120 days of each fiscal year end in the amount of 50% of the excess cash flow,
as defined, in excess of $0.5 million, if QTI's leverage ratio is in excess of
1.75 to 1. The note agreements contain financial covenants for QTI regarding
the maintenance of certain leverage and fixed charge coverage ratios. These
notes were repaid in April 1997.

In May 1997, the Company entered into a $90.0 million credit agreement (the
Equipment Credit Facility) with an unrelated third-party supplier (the
Supplier) of transmission electronics equipment to fund a portion of certain
capital expenditures required to equip the Network currently under
construction (as described in note (14)--Network Construction Project). Under
the Equipment Credit Facility, the Company may borrow to purchase equipment
and related engineering and installation

F-18

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

services from the Supplier up to 75% of the purchase price of such equipment
and services, with the purchased equipment and related items serving as
collateral for the loans. The Company is committed to purchase from the
Supplier a minimum of $100.0 million of such equipment and services under a
separate procurement agreement which was executed in May 1997. Principal
amounts outstanding under the Equipment Credit Facility will be payable in
quarterly installments commencing on June 30, 2000, with repayment in full due
and payable on March 31, 2004. Borrowings will bear interest at the Company's
option at either: (i) a floating base rate offered by a designated reference
bank plus an applicable margin; or (ii) LIBOR plus an applicable margin.
Approximately $8.1 million was outstanding on this Equipment Credit Facility
as of September 30, 1997.

Under the terms of certain loan agreements described above, at September 30,
1997 and December 31, 1996 certain assets of the Company's subsidiaries are
restricted.

The Company leases certain network construction equipment under capital
lease agreements. The amortization charge applicable to capital leases is
included in depreciation expense. Future minimum payments under capital lease
obligations is included in contractual maturities of long-term debt summarized
below.

Contractual maturities of long-term debt as of September 30, 1997 and
December 31, 1996 are as follows (in thousands):

SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)

Year ended December 31:
1997............................................ $ 4,242 $ 25,193
1998............................................ 11,702 21,533
1999............................................ 4,169 34,458
2000............................................ 6,432 41,430
2001............................................ 3,084 11,847
Thereafter...................................... 255,099 --
-------- --------
$284,728 $134,461
======== ========

In October 1997, the Company issued $555,890,000 in principal amount at
maturity of Senior Discount Notes, due 2007 (the Discount Notes), generating
net proceeds of approximately $342.6 million, after deducting offering costs
which are included in intangible and other long-term assets. Such net proceeds
will be used to fund capital expenditures for continuing construction and
activation of the Network and to fund further growth in the business. The
Discount Notes will accrete at a rate of 9.47% per annum, compounded semi-
annually, to an aggregate principal amount of $555,890,000 by October 15,
2002. The principal amount of the Discount Notes is due and payable in full on
October 15, 2007. The Discount Notes are redeemable at the Company's option,
in whole or in part, at any time on or after October 15, 2002, at specified
redemption prices. In addition, prior to October 15, 2000, the Company may use
the net cash proceeds from certain equity transactions to redeem up to 35% of
the Discount Notes at specified redemption prices. Cash interest on the
Discount Notes will not accrue until October 15, 2002, and thereafter will
accrue at a rate of 9.47% per annum, and will be payable semi-annually in
arrears commencing on April 15, 2003 and thereafter on April 15 and October 15
(each an interest payment date) of each year. The Company has the option of
commencing the accrual

F-19

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

of cash interest on an interest payment date on or after October 15, 2000, in
which case the outstanding principal amount at maturity of the Discount Notes
will, on such interest payment date, be reduced to the then accreted value,
and cash interest will be payable on each interest payment date thereafter.

In connection with the sale of the Discount Notes, the Company agreed to
make an offer to exchange new notes, registered under the Act and with terms
identical in all material respects to the Discount Notes, for the Discount
Notes or, alternatively, to file a shelf registration statement under the Act
with respect to the Discount Notes. If the registration statement for the
exchange offer or the shelf registration statement, as applicable, are not
filed or declared effective within specified time periods or, after being
declared effective, cease to be effective or usable for resale of the Discount
Notes during specified time periods (each a Registration Default), additional
cash interest will accrue at a rate per annum equal to 0.50% of the principal
amount at maturity of the Discount Notes during the 90-day period immediately
following the occurrence of a Registration Default and increasing in
increments of 0.25% per annum of the principal amount at maturity of the
Discount Notes up to a maximum of 2.0% per annum, at the end of each
subsequent 90-day period until the Registration Default is cured.

(12) INCOME TAXES

Income tax benefit for years ended December 31, 1996, 1995 and 1994 is as
follows (in thousands):

1996 1995 1994
------ ------- ------

Current:
Federal............................................. $1,673 $10,497 $9,575
State............................................... 438 -- 1,132
------ ------- ------
Total current income tax benefit.................. 2,111 10,497 10,707
------ ------- ------
Deferred:
Federal............................................. 1,123 2,839 (6,720)
State............................................... -- -- (200)
------ ------- ------
Total deferred income tax benefit (expense)....... 1,123 2,839 (6,920)
------ ------- ------
Total income tax benefit.......................... $3,234 $13,336 $3,787
====== ======= ======

Total income tax benefit differed from the amounts computed by applying the
federal statutory income tax rate (35%) to loss before income tax benefit as a
result of the following items for the years ended December 31, 1996, 1995 and
1994 (amounts in thousands):

1996 1995 1994
------ ------- ------

Expected income tax benefit........................ $3,570 $13,463 $3,740
State income taxes, net of federal income tax
benefit........................................... 279 -- 281
Goodwill and other intangible asset amortization... (568) (56) (67)
Other, net......................................... (47) (71) (167)
------ ------- ------
Total income tax benefit......................... $3,234 $13,336 $3,787
====== ======= ======

F-20

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows (in thousands):

DECEMBER 31,
---------------
1996 1995
------- ------

Current deferred tax assets (liabilities):
Allowance for doubtful accounts.......................... $ 1,283 $ 917
Accrued liabilities...................................... 7,578 3,475
------- ------
8,861 4,392
Network construction contracts............................. (2,560) --
------- ------
$ 6,301 $4,392
======= ======
Long-term deferred tax assets (liabilities):
Deferred compensation.................................... $ 3,252 $ --
Depreciation............................................. 961 136
Accrued liabilities...................................... 26 234
------- ------
4,239 370
Intangible assets, principally due to differences in
basis and amortization.................................. (112) (919)
Property and equipment................................... (5,835) (373)
------- ------
(5,947) (1,292)
------- ------
$(1,708) $ (922)
======= ======

The Company has analyzed the sources and expected reversal periods of its
deferred tax assets. The Company believes that the tax benefits attributable
to deductible temporary differences will be realized by recognition of future
taxable amounts. Accordingly, the Company believes a valuation allowance for
its federal deferred tax assets is not necessary.

The Company is included in the consolidated federal income tax return of its
Parent, which has a July 31 year-end for income tax purposes. A tax allocation
agreement between the Company and its Parent was implemented effective
November 4, 1993 which encompasses U.S. federal tax consequences. The Company
is responsible to its Parent for its share of current consolidated income tax
liabilities. The Parent is responsible to the Company to the extent that the
Company's income tax attributes are utilized by the Parent to reduce its
consolidated income tax liabilities, subject to certain limitations on net
operating loss and credit carryforwards. At December 31, 1996, the income tax
benefit receivable from Parent of approximately $11.1 million was canceled
which resulted in a reduction of additional paid-in capital.

The tax allocation agreement has been amended effective as of January 1,
1997 (the Effective Date). Under the amended agreement, the Company is
responsible to the Parent to the extent of income taxes for which the Company
and its subsidiaries would have been liable if the Company had filed a
consolidated federal income tax return, giving effect to any loss or credit
carryover belonging to the Company and its subsidiaries from periods after the
Effective Date. The Parent would be responsible to the Company to the extent
an unused loss or credit can be carried back to an earlier taxable period
after the Effective Date.

F-21

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

In certain cases, differences may arise between amounts reported in the
financial statements under generally accepted accounting principles and the
amounts actually payable or receivable under the tax allocation agreement.
Those differences are generally reported as adjustments to capital, as in-
substance dividends. The Company recorded approximately $1.0 million in 1995
as a reduction to additional paid-in capital reflecting the difference between
the current income tax benefit calculable as if the Company filed a separate
income tax return and the current income tax benefit calculable under the tax
allocation agreement.

(13) RELATED PARTY TRANSACTIONS

(a) Transactions with Parent

Advances from Parent at December 31, 1996 and 1995, which were non-interest
bearing, included costs charged to the Company by the Parent and advances
received from the Parent to fund operations, net of repayments.

The Parent incurs certain costs on the Company's behalf, including primarily
insurance and corporate transportation services, and allocates such costs to
the Company based on actual usage. The cost to the Company for such services
was approximately $3.0 million, $1.4 million, $2.1 million and $2.5 million in
the nine months ended September 30, 1997 and 1996, and in the years ended
December 31, 1996 and 1995, respectively, and was not material in 1994.

Accounts receivable from (payable to) the Parent are recognized to reflect
income tax benefits receivable (income taxes payable) pursuant to the tax
allocation agreement between the Company and the Parent (as described in note
(12)--Income Taxes).

In May 1997, all outstanding advances from Parent, totaling approximately
$28.0 million, were repaid.

The Company has agreed to indemnify the Parent and its subsidiaries against
any costs or losses incurred by any of them as a result of their providing
credit support to the Company (in the form of collateral pledges, guarantees,
bonds or otherwise).

(b) Transactions with Other Related Parties

The Parent owned approximately 25% of Southern Pacific Rail Corporation and
its subsidiaries (SPRC) at December 31, 1995. In September 1996, SPRC was
acquired by Union Pacific Corporation. As a result of this transaction, the
Parent owns approximately 5% of Union Pacific Corporation, and SPRC ceased to
be a related party.

The Company provides telecommunication services to SPRC and charged SPRC
approximately $1.6 million, $3.6 million and $3.4 million in the years ended
December 31, 1996, 1995 and 1994, respectively, for these services. Amounts
due to the Company for telecommunication services totaled approximately $0.4
million at December 31, 1995. Services under these agreements can be
terminated with notice.

In certain instances the Company purchases and has made future commitments
(as described in note (14)--Commitments and Contingencies) relating to right-
of-way easements from SPRC and

F-22

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

utilizes specialized SPRC personnel and equipment for its construction
projects. SPRC charged the Company approximately $3.5 million, $2.2 million
and $0.9 million for these services in the years ended December 31, 1996, 1995
and 1994, respectively. Amounts due to SPRC for these activities totaled
approximately $3.4 million at December 31, 1995.

The Company leases its corporate office in Denver, Colorado from an
affiliate of the Parent at prevailing market rates. The cost to the Company
for such lease was approximately $0.9 million and $0.8 million in the nine
months ended September 30, 1997 and 1996, $1.2 million and $1.0 million in the
years ended December 31, 1996 and 1995, respectively, and was not material in
1994.

On November 11, 1996, the former president and chief executive of the
Company resigned his position. Upon his resignation, the Parent forgave a note
receivable from him in the amount of approximately $1.0 million. This charge
was allocated to the Company in 1996 and is included in selling, general and
administrative expenses and additional paid-in capital in the Company's
consolidated financial statements.

(14) COMMITMENTS AND CONTINGENCIES

(a) Network Construction Project

In 1996, the Company commenced construction of a coast-to-coast fiber optic
telecommunications network (the Network) that is scheduled for completion in
1998. The Company projects its total remaining cost at December 31, 1996 for
completing the construction of the Network will be approximately $765.0
million. This amount includes the Company's commitment to purchase a minimum
quantity of materials for approximately $257.0 million in the year ended
December 31, 1997, subject to quality and performance specifications. The
Company has the option to extend the materials purchase agreement through
December 31, 1999 and may assign some or all of its remaining purchase
commitment to a third-party or cancel the agreement by paying the seller an
amount equal to 7% of any remaining commitment. The Company has contracted to
provide a portion of the fibers in the Network to a third party and has
granted an option for additional fibers in the Network (as described in note
(6)--Network Construction Services Revenue and Expenses).

In April 1997, certain options were exercised, and in May 1997 an option to
double the number of fibers along the base route of the Network was
renegotiated and a third customer entered into a contract with the Company to
purchase such additional fibers (as described in note (6)--Network
Construction Services Revenue and Expenses). As a result of these events, the
Company projects its total remaining cost at September 30, 1997 for completing
the construction of the Network will be approximately $1.2 billion. This
includes the Company's remaining commitment to purchase a minimum quantity of
materials for approximately $200.5 million as of September 30, 1997.

(b) Leases and Telecommunications Service Commitments

The Company leases certain terminal locations and office space under
operating lease agreements and has committed to use certain telecommunications
capacity services. Future minimum payments under noncancelable operating lease
and service commitments as of December 31, 1996 and September 30, 1997 are as
follows (in thousands):

F-23

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

As of December 31, 1996

CAPACITY
SERVICE OPERATING
COMMITMENTS LEASES TOTAL
----------- --------- -------

Year ended December 31:
1997..................................... $3,250 $ 4,213 $ 7,463
1998..................................... 3,000 3,327 6,327
1999..................................... -- 2,404 2,404
2000..................................... -- 1,410 1,410
2001..................................... -- 556 556
Thereafter............................... -- 828 828
------ ------- -------
Total minimum payments................. $6,250 $12,738 $18,988
====== ======= =======

As of September 30, 1997 (unaudited)

CAPACITY
SERVICE OPERATING
COMMITMENTS LEASES TOTAL
----------- --------- -------

Year ended December 31:
1997..................................... $ 827 $ 1,251 $ 2,078
1998..................................... 3,077 3,392 6,469
1999..................................... 250 2,592 2,842
2000..................................... -- 1,410 1,410
2001..................................... -- 581 581
Thereafter............................... -- 3,069 3,069
------ ------- -------
Total minimum payments................. $4,154 $12,295 $16,449
====== ======= =======

Capacity service expenses are included in telecommunications service costs.
Amounts expensed in the nine months ended September 30, 1997 and 1996, and in
the years ended December 31, 1996, 1995 and 1994 were approximately $5.6
million, $18.6 million, $19.0 million, $19.6 million and $17.2 million,
respectively.

Amounts expensed in the nine months ended September 30, 1997 and 1996, and
in the years ended December 31, 1996, 1995 and 1994 related to operating
leases were approximately $4.3 million, $3.5 million, $5.0 million, $4.6
million, and $3.1 million, respectively.

The Company has Master Easement Agreements (the Original Agreements) with
SPRC and its affiliated railroads which provide for payment of specified
amounts based on miles of conduit used by the Company or sold to third
parties. The Company has the option under the Original Agreements to either
make annual payments for the term of the easement or to make lump sum payments
at a discount. The Company has made annual payments through 1996 and retains
the option to make the discounted lump sum payments in the future.

The Original Agreement was amended effective August 20, 1996 (the Agreement
Amendment). The Agreement Amendment grants the Company the right to install up
to approximately 3,300 miles of new conduit in specified SPRC rail corridor,
through August 9, 2001. The Company is required to

F-24

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

construct a minimum of two conduits on a minimum of 1,200 route miles, as
follows: (i) 400 miles on or before August 9, 1997; (ii) 400 additional miles
on or before August 9, 1998; and (iii) 400 additional miles on or before
August 9, 1999. In addition, the Company is required to provide SPRC with
limited communications capacity as defined, for its own internal use.

The Agreement Amendment requires the Company in some instances, as defined,
to make lump-sum payments on a per-mile basis upon completion of conduit
construction, or within two years of the creation of the related easement
area. In other instances, as defined, the Company is required to make lump-sum
payments on a per-mile basis when the related conduit is placed in service.

In February 1997, the Company entered into a right-of-way agreement with an
unrelated third party which provides for advance payment of $1.9 million for
the initial five-year period of the agreement and $1.9 million in advance of
each subsequent five-year period during the remainder of the 25-year term of
the agreement.

In July 1997, the Company entered into a 25-year right-of-way agreement with
an unrelated third party that allows the Company to construct and operate a
fiber optic network over up to approximately 1,000 route miles along such
right-of-way. The agreement provides for annual payments of approximately
$2,500 per route mile based upon the number of miles used by the Company.

In October 1997, the Company entered into a perpetual right-of-way agreement
with an unrelated third party that allows the Company to install conduit in up
to approximately 300 route miles along such right-of-way. The agreement
provides for a total payment in advance of approximately $4.9 million, which
was paid by the Company in October 1997.

In October 1997, the Company entered into a 25-year right-of-way agreement
with an unrelated third party that allows the Company to construct and operate
a fiber optic network over up to approximately 370 route miles along such
right-of-way. The agreement provides for advance annual payments of
approximately $4,500 per route mile.

In addition to the above, the Company has easement agreements with other
railroads and certain public transportation authorities. The Company's
estimate of amounts payable under all noncancelable easement agreements,
assuming the Company continues to make annual payments pursuant to the
Original Agreement, totals approximately $81.0 million and approximately $82.0
million at September 30, 1997 and December 31, 1996, respectively. The
Company's estimate of the amounts payable under all noncancelable easement
agreements, assuming the Company exercises its option to make discounted lump-
sum payments pursuant to the Original and Amended Agreement as of December 31,
1996 and September 30, 1997 are as follows (in thousands):

As of December 31, 1996

Year ended December 31:
1997............................................................ $15,048
1998............................................................ 140
1999............................................................ 101
2000............................................................ 610
2001............................................................ 1,194
Thereafter...................................................... 2,170
-------
$19,263
=======

F-25

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

As of September 30, 1997 (unaudited)

Year ended December 31:
1997............................................................ $21,818
1998............................................................ 171
1999............................................................ 133
2000............................................................ 643
2001............................................................ 1,227
Thereafter...................................................... 3,180
-------
$27,172
=======

In certain limited instances the Company may be obligated to pay costs of
relocating certain conduits owned by third-parties on approximately 500 miles
of railroad rights-of-way. The majority of such commitments expire in February
2001. The Company accrues for such costs as they are identified. In the first
quarter of 1997, the Company accrued approximately $2.5 million for such
costs, which amount is included in accounts payable and accrued expenses in
the consolidated financial statements.

The amounts charged to network construction costs for sub-easements sold and
other right-of-way costs associated with sales to third parties under the
Original and Amended Agreement for the nine months ended September 30, 1997
and 1996, and for years ended December 31, 1996, 1995 and 1994 were
approximately $15.4 million, $4.3 million, $2.6 million, $3.0 million and $2.7
million, respectively. Amounts charged to selling, general and administrative
expenses for easements retained by the Company were approximately $2.0 million
and $3.1 million in the nine months ended September 30, 1997 and 1996,
respectively, $3.5 million in year ended December 31, 1996 and was not
material in 1995 and 1994.

(d) Mexico Easement Agreement

In December 1995, the Company entered into an agreement (as amended January
1997) with Ferrocarriles Nacionales de Mexico, granting the Company easements
for the construction of multiple conduit systems along railroad rights-of-way
within Mexico, for consideration of approximately $7.7 million, including $1.1
million in value-added taxes. The Company has capitalized total costs,
including rights-of-way, equipment, construction and design costs, relating to
this investment of approximately $13.0 million as of December 31, 1996.

In July 1997, the Company entered into an agreement with an unrelated third
party whereby the Company will receive (i) four dark fibers along a 2,270
kilometer route to be constructed in Mexico (the Mexico Network) by the third
party, and (ii) certain construction inventory and value-added tax refunds,
totaling approximately $2.9 million. In exchange for these assets, the third
party will receive the stock of the Company's subsidiary, SP Servicios de
Mexico S.A. de C.V. (SPS), and approximately $6.7 million in cash. Upon
completion of the Mexico Network and the extension of the Qwest Network to the
Mexican border, the Qwest Network will be linked to Mexico City, Mexico.

(e) Executive Employment Agreement

In January 1997, the Company entered into an employment agreement (the
Agreement) with its new president and chief executive officer (the Executive),
effective through the close of business

F-26

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

December 31, 2001, unless terminated earlier by either party. The Agreement
provides for annual salary and bonuses of specific amounts, as well as an
approximately $10.7 million payment (the Equalization Payment) to the
Executive to compensate him for certain benefits from his former employer that
he may lose or forfeit as a result of his resignation and commencement of
employment with the Company. Such payment is subject to reduction in the event
the Executive retains or receives a substitute payment for any of the benefits
he expected to forfeit.

The Equalization Payment is payable in cash in three installments. The first
installment of approximately $7.2 million paid in January 1997. The remaining
two installments of approximately $1.5 million and $2.0 million are payable on
January 1, 1998 and 1999, respectively, with accrued interest thereon at the
rate of 5% per annum. The Company is amortizing the cost of the Equalization
Payment on a straight-line basis through December 31, 1999. At September 30,
1997, $3.6 million of such costs is included in other current assets, and $4.5
million is included in intangible and other long-term assets.

Under the Agreement, the Executive is required to repay to the Company a
portion of the Equalization Payment previously paid in the event the Executive
is terminated for cause on or before December 31, 1999.

(15) GROWTH SHARE PLAN

The Company has a Growth Share Plan (the Plan) for certain of its employees
and directors. A "Growth Share" is a unit of value based on the increase in
value of the Company over specified measuring period. All Growth Share grants
made through September 1997 have generally been made based on a beginning
Company value that was greater than or equal to the fair value of the Company
at the grant date. The total number of Growth Shares is set at 10 million and
the maximum number presently available for grant under the Plan is 850,000.
Growth Shares granted under the Plan vest at the rate of 20% for each full
year of service completed after the grant date subject to risk of forfeiture.
Participants receive their vested portion of the increase in value of the
Growth Shares upon a triggering event, as defined, which includes the end of a
Growth Share performance cycle. Settlement is made in common stock or cash at
the Company's option, except that settlement of Growth Shares granted under
the October 1996 Plan is to be made, after an initial public offering, only in
common stock. Certain participants vest fully upon completion of an initial
public offering by the Company.

Compensation under the Growth Share Plan is measured, pursuant to Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, by
the increase in the value of outstanding Growth Shares at each balance sheet
date. Such compensation is amortized to expense over the vesting period for
each Growth Share award. Certain triggering events, consisting of an initial
public offering for awards made prior to October 1996 and a change in control
of the Company, cause immediate vesting of related Growth Share awards and
result in accelerated expense recognition of all unamortized compensation for
such awards. Had the Company accounted for its stock-based compensation
pursuant to the fair value method in Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation, the amount of
compensation would not have been materially different from what has been
reflected in the accompanying consolidated financial statements.

The Company has estimated an increase in value of the Growth Shares at
December 31, 1996 due to the signing of an agreement to provide an
indefeasible right of use to a third-party (as described

F-27

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

in note (6)--Network Construction Services Revenue and Expenses) and has
recorded approximately $13.1 million of additional compensation expense in
1996, approximately $9.0 million of which is payable subsequent to December
31, 1997. Such expense is included in selling, general and administrative
expenses in the consolidated financial statements. No expense was recognized
in the accompanying consolidated financial statements for the years ended
December 31, 1995 and 1994, as there were no significant compensatory elements
in those periods.

The Company has recorded approximately $69.3 million of additional
compensation expense in the nine months ended September 30, 1997 relating to
the Growth Share Plan. Upon completion of the common stock offering in June
1997, certain Growth Shares vested in full, which resulted in substantial
compensation expense under the Growth Share Plan in the second quarter of
1997, and the issuance in July 1997 of 2,591,532 shares of Common Stock, which
were net of amounts related to tax withholdings, in settlement of the accrued
liability related to these Growth Shares. Effective with the initial public
offering, all holders of Growth Shares not vested by virtue of the initial
public offering have been granted nonqualified stock options under the
Company's Equity Incentive Plan (as described in note (19)--Equity Incentive
Plan), and the value of these Growth Shares has been capped based upon the
initial public offering price of $11.00 per share. Compensation expense
relating to these nonvested Growth Shares will be recognized over the
remaining approximately four-year vesting period and is estimated to be up to
approximately $27.7 million in total. The Company does not anticipate any
future grants under the Growth Share Plan. The following table summarizes
Growth Share grants and Growth Shares outstanding:

OUTSTANDING GROWTH SHARES
-------------------------

December 31, 1993..................................... 174,000
1994 grants.......................................... 502,000
--------
December 31, 1994..................................... 676,000
1995 grants.......................................... 11,000
1995 forfeitures..................................... (8,500)
--------
December 31, 1995..................................... 678,500
1996 grants.......................................... 67,500
1996 forfeitures and settlements..................... (470,600)
--------
December 31, 1996..................................... 275,400
1997 grants.......................................... 358,050
1997 settlements..................................... (253,950)
--------
September 30, 1997.................................... 379,500
========

(16) SAVINGS PLAN

The Company sponsors a 401(k) Savings Plan which permits employees to make
contributions to the Savings Plan on a pre-tax salary reduction basis in
accordance with the Internal Revenue Code. All full-time employees are
eligible to participate after one year of service. The Company contributes a
base percentage and matches a portion of the voluntary employee contributions.
The cost of this savings plan charged to expenses was approximately $.6
million, $0.5 million, $0.7 million, $0.4 million and $0.3 million in the nine
months ended September 30, 1997 and 1996, and in years ended December 31,
1996, 1995 and 1994, respectively.

F-28

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

(17) SIGNIFICANT CUSTOMERS

During the nine months ended September 30, 1997, and years ended December
31, 1996, 1995 and 1994, two or more customers, in aggregate, have accounted
for 10% or more of the Company's total revenues in one or more periods, as
follows:

CUSTOMER CUSTOMER CUSTOMER CUSTOMER
A B C D
-------- -------- -------- --------

1997.................................. 6.3% 33.4% 36.9% .9%
1996.................................. 27.8% 26.3% -- 4.0%
1995.................................. 6.8% -- -- 35.4%
1994.................................. 18.0% -- -- 5.9%

(18) SECURITIES OFFERING

In April 1997, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering (the
Offering) of 27 million shares of Common Stock. On May 23, 1997, the Board of
Directors approved a change in the Company's capital stock to authorize 400
million shares of $.01 par value Common Stocks, of which 20 million shares are
reserved for issuance under the Equity Incentive Plan (as described below), 4
million shares are reserved for issuance under the Growth Share Plan, and 8.6
million shares are reserved for issuance upon exercise of warrants (as
described below), and 25 million shares of $.01 par value Preferred Stock. On
May 23, 1997, the Board of Directors declared a stock dividend to the existing
stockholder of 172,980,000 shares of Common Stock, which is payable
immediately prior to the effectiveness of the registration statement. This
dividend is accounted for as a stock split. All shares and per share
information included in the accompanying consolidated financial statements has
been adjusted to give retroactive effect to the change in capitalization.

On May 23, 1997, the Board of Directors and the stockholder of the Company
approved an Equity Incentive Plan. Under this plan, stock options stock
appreciation rights, restricted stock awards, stock units and other stock
grants may be granted (with respect to up to 20 million shares of Common
Stock) to eligible participants who significantly contribute to the Company's
growth and profitability.

Effective May 23, 1997, the Company sold to an affiliate of the Parent for
$2.3 million in cash, a warrant to acquire 8.6 million shares of Common Stock
at an exercise price of $14 per share, exercisable on May 23, 2000. The
warrant is not transferable. Stock issued upon exercise of the warrant will be
subject to restriction on sale or transfer for two years after exercise.

The Company completed the initial public offering of 31,050,000 shares of
Common Stock (including the over allotment option of 4,050,000 Common Shares)
on June 27, 1997, raising net proceeds of approximately $319.5 million.

(19) EQUITY INCENTIVE PLAN

Effective June 23, 1997, the Company adopted the Qwest Communications
International Inc. Equity Incentive Plan (the Equity Incentive Plan). This
plan permits the grant of non-qualified stock options, incentive stock
options, stock appreciation rights, restricted stock, stock units and other
stock grants to key employees of the Company and affiliated companies and key
consultants to the Company and affiliated companies who are responsible for
the Company's growth and profitability. A

F-29

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

maximum of 20 million shares of Common Stock may be subject to awards under
the Equity Incentive Plan. The Company's Compensation Committee (the
Committee) determines the exercise price for each option; however, incentive
stock options must have an exercise price that is at least equal to the fair
market value of the Common Stock on the date the option is granted, subject to
certain restrictions. All awards granted under the Equity Incentive Plan will
immediately vest upon any change in control of the Company, as defined, unless
provided otherwise by the Committee at the time of grant. All outstanding
options will automatically terminate upon the occurrence of certain merger and
reorganization transactions and appropriate notice by the Company to all
option holders, as defined.

For the nine months ended September 30, 1997, the Company granted options to
purchase a total of 11,601,000 shares of Common Stock of the Company. The
options are exercisable over five years from the date of grant and have a
weighted average exercise price of approximately $14.00 per share.

(20) STOCK SPLIT

On January 20, 1998, the Board of Directors declared a stock dividend of one
share for every share outstanding to stockholders of record as of February 2,
1998, to be distributed on February 24, 1998. This dividend is accounted for
as a two for one stock split. All share and per share information included in
the consolidated financial statements and the notes hereto have been adjusted
to give retroactive effect to the change in capitalization.

F-30

SUPERNET, INC.

FINANCIAL STATEMENTS AS OF
JUNE 30, 1997
TOGETHER WITH INDEPENDENT AUDITOR'S REPORT

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of SuperNet, Inc.:

We have audited the accompanying balance sheet of SuperNet, Inc. as of June
30, 1997 and the related statements of operations, changes in stockholder's
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SuperNet, Inc. as of June
30, 1997, and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.

Dollinger Smith & Co.

Englewood, Colorado
September 26, 1997

F-31

SUPERNET, INC.

BALANCE SHEET

AS OF JUNE 30, 1997 AND SEPTEMBER 30, 1997

SEPTEMBER 30, JUNE 30,
1997 1997
------------- -----------
(UNAUDITED)

ASSETS
Current assets:
Cash.............................................. $ 38,058 $ 29,536
Accounts receivable, net of allowance for doubtful
accounts of $93,317 and $81,117 as of September
30, 1997 and June 30, 1997, respectively......... 625,854 734,392
Prepaid expenses.................................. 116,009 76,239
Current portion of deferred tax asset, less
valuation allowance of $1,294,285 and $1,257,965
as of September 30, 1997 and June 30, 1997,
respectively (note 3)............................ 324,662 324,662
----------- -----------
Total current assets............................ 1,104,583 1,164,829
----------- -----------
Property and equipment:
Equipment......................................... 3,304,007 3,254,534
Equipment under capital leases (note 5)........... 1,158,119 1,066,785
Computer software................................. 91,113 91,113
Office furniture.................................. 112,590 112,590
Leasehold improvements............................ 202,523 202,523
----------- -----------
Total property and equipment.................... 4,868,352 4,727,545
Less accumulated depreciation and amortization...... 1,940,520 1,733,029
----------- -----------
Net Property And Equipment.......................... 2,927,832 2,994,516
----------- -----------
Total assets.................................... $ 4,032,415 $ 4,159,345
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................. $ 816,965 $ 1,158,951
Accrued liabilities (note 11)..................... 497,379 454,379
Bank line of credit (note 6)...................... 600,000 600,000
Current portion of long-term obligations (note
4)............................................... 306,114 303,139
Deferred revenue.................................. 461,856 329,318
----------- -----------
Total current liabilities....................... 2,682,314 2,845,787
----------- -----------
Long-term liabilities:
Long-term obligations (note 4).................... 453,904 448,697
Deferred tax liability (note 3)................... 45,408 45,408
----------- -----------
Total long-term liabilities..................... 499,312 494,105
----------- -----------
Commitments (note 10)
Stockholder's equity:
Common stock, $.01 par, 10,000,000 shares
authorized, 100,000 shares issued and
outstanding...................................... 1,000 1,000
Additional paid-in capital........................ 4,513,600 4,418,020
Retained earnings (deficit)....................... (3,663,811) (3,599,567)
----------- -----------
Total stockholder's equity...................... 850,789 819,453
----------- -----------
Total liabilities and stockholder's equity...... $ 4,032,415 $ 4,159,345
=========== ===========

The accompanying notes are an integral part of the financial statements.

F-32

SUPERNET, INC.

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 1997 AND
THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
---------------------- JUNE 30,
1997 1996 1997
---------- ---------- -----------
(UNAUDITED)

Revenues:
Dialing fees for services................ $ 634,545 $ 590,381 $ 2,485,160
Dedicated service subscriptions.......... 733,054 468,173 2,299,732
Internet information services............ 354,870 526,681 1,735,390
Other income............................. -- -- 59,474
---------- ---------- -----------
Total revenues......................... 1,722,469 1,585,235 6,579,756
---------- ---------- -----------
Operating costs and expenses:
Cost of revenues......................... 327,928 278,978 1,270,442
Selling.................................. 198,761 253,993 769,143
Technical service........................ 490,275 483,700 2,150,575
General and administrative............... 414,156 309,833 1,681,533
Depreciation and amortization............ 207,491 146,216 690,236
Stock option plan (note 7)............... 95,580 -- 3,744,958
---------- ---------- -----------
Total operating costs and expenses..... 1,734,191 1,472,720 10,306,887
---------- ---------- -----------
Net (loss) income from operations...... (11,722) 112,515 (3,727,131)
Interest expense (notes 4 and 6)......... 33,315 29,647 119,411
---------- ---------- -----------
Net (loss) income before income taxes.. (45,037) 82,868 (3,846,542)
Income taxes (benefit)..................... 19,207 31,490 (203,808)
---------- ---------- -----------
Net (loss) income...................... $ (64,244) $ 51,378 $(3,642,734)
========== ========== ===========
(Loss) earnings per share.................. $ (.64) $ .44 $ (36.43)
========== ========== ===========
Weighted average common and common equiva-
lent shares............................... 100,000 116,260 100,000
========== ========== ===========

The accompanying notes are an integral part of the financial statements.

F-33

SUPERNET, INC.

STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY

FOR THE YEAR ENDED JUNE 30, 1997, AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997

COMMON STOCK ADDITIONAL RETAINED TOTAL
-------------- PAID-IN EARNINGS STOCKHOLDER'S
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------- ------ ---------- ----------- -------------

BALANCE, JUNE 30, 1996.... 100,000 $1,000 $ 573,062 $ 43,167 $ 617,229
Increase in additional
paid-in capital
attributable to issuance
of stock options (note
7)....................... 3,844,958 3,844,958
Net (loss)................ (3,642,734) (3,642,734)
------- ------ ---------- ----------- -----------
BALANCE, JUNE 30, 1997.... 100,000 $1,000 $4,418,020 $(3,599,567) $ 819,453
Increase in additional
paid-in capital
attributable to issuance
of stock options
(unaudited).............. 95,580 95,580
Net loss (unaudited)...... (64,244) (64,244)
------- ------ ---------- ----------- -----------
BALANCE, SEPTEMBER 30,
1997 (UNAUDITED)......... 100,000 $1,000 $4,513,600 $(3,663,811) $ 850,789
======= ====== ========== =========== ===========

The accompanying notes are an integral part of the financial statements.

F-34

SUPERNET, INC.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JUNE 30, 1997, AND
THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
-------------------- JUNE 30,
1997 1996 1997
--------- --------- -----------
(UNAUDITED)

Cash flows from operating activities:
Net income (loss)......................... $ (64,244) $ 51,378 $(3,642,734)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Stock option plan expense............... 95,580 -- 3,744,958
Depreciation and amortization........... 207,491 146,216 690,236
Changes in operating assets and
liabilities--
Decrease (increase) in accounts
receivable........................... 108,538 (116,075) (138,642)
(Increase) decrease in prepaid
expenses............................. (39,770) (24,863) (23,357)
(Increase) in deferred tax assets..... -- -- (239,167)
(Decrease) increase in accounts
payable and accrued liabilities...... (298,986) (334,318) 810,383
Increase (decrease) in bank overdrafts
liability............................ -- 219,441 (130,223)
Increase in deferred tax liability.... -- -- 2,144
Increase (decrease) in deferred
revenue.............................. 132,538 (86,716) 14,213
--------- --------- -----------
Net cash provided by (used in)
operating activities............... 141,147 (144,937) 1,087,811
--------- --------- -----------
Cash flows from investing activities:
Acquisitions of property and equipment.... (140,807) (254,740) (1,554,573)
--------- --------- -----------
Net cash used in investing
activities......................... (140,807) (254,740) (1,554,573)
--------- --------- -----------
Cash flows from financing activities:
Borrowings under bank line of credit...... -- 225,000 575,000
Payments on line of credit................ -- -- (275,000)
Equipment purchased under capital leases.. 91,334 238,934 475,821
Principal payments on capital lease
obligations.............................. (83,152) (64,648) (279,914)
--------- --------- -----------
Net cash provided by financing
activities......................... 8,182 399,286 495,907
--------- --------- -----------
Net increase in cash................ 8,522 (391) 29,145
Cash, beginning of year..................... 29,536 391 391
--------- --------- -----------
Cash, end of year........................... $ 38,058 $ -- $ 29,536
========= ========= ===========
Supplemental Cash Flow Information:
Interest paid............................. $ 33,315 $ 29,647 $ 119,411
========= ========= ===========
Income taxes paid......................... $ -- $ -- $ --
========= ========= ===========

In fiscal year ended June 30, 1997, the $100,000 liability for the Company's
Stock Appreciation Rights Plan was eliminated upon the adoption of the
Company's Stock Option Plan (Note 7).

The accompanying notes are an integral part of the financial statements.

F-35

SUPERNET, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

(1) NATURE OF ORGANIZATION

SuperNet, Inc. (the "Company") is engaged in providing a comprehensive range
of Internet access options, applications and consulting services to businesses
and individuals. The Company is a wholly owned subsidiary of NewSuperNet
("NSN"). NSN is a not-for-profit entity and the Company is a for-profit
corporation organized under the laws of the State of Colorado. The
accompanying financial statements pertain only to the operations of the
Company. The majority of the Company's revenues are derived from business and
individual Internet access service. The majority of the Company's clients are
located in Colorado.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis Of Accounting

The financial statements of the Company have been prepared on the accrual
basis.

Property And Equipment

Property and equipment is stated at cost and depreciated over the following
estimated useful lives using the straight-line method:

ESTIMATED
USEFUL LIVES
------------

Equipment.................................................... 5 years
Equipment under capital leases............................... 5 years
Computer software............................................ 3-5 years
Office furniture............................................. 7 years
Leasehold improvements....................................... 7 years

Expenditures for maintenance, repairs and minor replacements are charged to
operations, and expenditures for major replacements and betterments are
capitalized.

Revenue Recognition

Dedicated service subscriptions are recognized ratably over the term of the
membership period. Other revenue is recognized as earned. As of June 30, 1997,
the Company recorded deferred revenue which represents funds collected during
the fiscal year that will be earned in subsequent years. Deferred revenue
consisted of dedicated service subscriptions, Internet information services
and dialin fees for services as of June 30, 1997.

Use Of Estimates

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

F-36

SUPERNET, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

(3) DEFERRED TAXES

Under Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting For Income Taxes, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax assets
(liabilities) as of June 30, 1997 are as follows:

Deferred tax assets:
Bad debt allowance........................................ $ 30,338
Accrued vacation.......................................... 15,165
Accrued compensation...................................... 56,100
Other accrued costs....................................... 43,010
Accrued stock option plan costs........................... 1,438,014
-----------
Total deferred tax assets, current...................... 1,582,627
Less: valuation allowance............................... (1,257,965)
-----------
Net deferred tax assets................................. $ 324,662
===========
Deferred tax liability:
Accelerated depreciation.................................. (45,408)
-----------
Total deferred tax liability, non-current............... $ (45,408)
===========

Management currently believes that it is more likely than not that the
Company will be unable to generate sufficient taxable income to realize the
entire tax benefit associated with future deductible temporary tax differences
prior to their expiration. This belief is based upon, among other factors,
historical operations, average taxable income since inception and industry
conditions. If the Company is unable to generate taxable income in the future,
increases in the valuation allowance may be required through a charge to
expense. However, if the Company achieves sufficient profitability in the
future to utilize a greater portion of the deferred tax asset, the valuation
allowance may be reduced through a credit to income.

F-37

SUPERNET, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

(4) LONG-TERM OBLIGATIONS

SEPTEMBER 30, JUNE 30,
1997 1997
------------- --------
(UNAUDITED)

Due in monthly installments of principal and interest
of $5,257 through July 1997, interest rate of 8.82%,
secured by equipment.................................. $ -- $ 5,213
Due in monthly installments of principal and interest
of $2,594 through July 1999, interest rate of 9.37%,
secured by equipment.................................. 52,245 58,702
Due in monthly installments of principal and interest
of $1,610 through January 1998, interest rate of
12.00%, secured by software........................... 6,282 10,832
Due in monthly installments of principal and interest
of $5,384 through January 1999, with a balloon payment
of $62,538 in February 1999, interest rate of 8.36%,
secured by equipment.................................. 137,816 151,015
Due in monthly installments of principal and interest
of $2,284 through February 1999, interest rate of
8.54%, secured by equipment........................... 36,711 42,613
Due in monthly installments of principal and interest
of $6,121 through April 1999, interest rate of 9.28%,
secured by equipment.................................. 112,166 127,906
Due in monthly installments of principal and interest
of $1,707 through May 2000, interest rate of 9.89%,
secured by equipment.................................. 47,825 51,697
Due in monthly installments of principal and interest
of $2,266 through January 2000, interest rate of
9.49%, secured by equipment........................... 56,711 62,077
Due in monthly installments of principal and interest
of $5,003 through August 1999, interest rate of 9.62%,
secured by equipment.................................. 104,711 117,005
Due in monthly installments of principal and interest
of $3,463 through June 2001, with a balloon payment of
$6,568 in July 2001, interest rate of 10.55%, secured
by equipment.......................................... 117,123 124,776
Due in monthly installments of principal and interest
of $951 through July 2000, interest rate of 9.60%,
secured by equipment.................................. 28,437 --
Due in monthly installments of principal and interest
of $484 through August 2000, interest rate of 9.75%,
secured by equipment.................................. 14,815 --
Due in monthly installments of principal and interest
of $1,494 through August 2000, interest rate of
10.65%, secured by equipment.......................... 45,176 --
-------- --------
Total obligations.................................... 760,018 751,836
Less current portion................................... 306,114 303,139
-------- --------
Total long-term obligations.......................... $453,904 $448,697
======== ========

Future annual maturities of long-term obligations outstanding as of June 30,
1997, are as follows:

YEAR ENDED
SEPTEMBER 30, JUNE 30,
1997 1997
------------- ----------
(UNAUDITED)

1998................................................... $244,821 $303,139
1999................................................... 360,754 331,185
2000................................................... 111,747 80,337
2001................................................... 42,696 37,175
-------- --------
Total obligations.................................... 760,018 751,836
Less current portion................................... 306,114 303,139
-------- --------
Total long-term portion.............................. $453,904 $448,697
======== ========

F-38

SUPERNET, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

(5) EQUIPMENT UNDER CAPITAL LEASES

Amounts under capital leases, which are included in property and equipment,
are as follows:

SEPTEMBER 30, JUNE 30,
1997 1997
------------- ----------
(UNAUDITED)

Equipment under capital leases..................... $1,158,119 $1,066,785
Less accumulated amortization...................... (382,828) (283,431)
---------- ----------
Net equipment under capital leases................. $ 775,291 $ 783,354
========== ==========

Amortization expense related to the capital leases was $179,112, $99,397 and
$33,414 for the year ended June 30, 1997 and the three months ended September
30, 1997 and 1996, respectively, and is included in depreciation and
amortization expense.

(6) BANK LINE OF CREDIT

On December 31, 1995, the Company entered into a Line of Credit Agreement
(the "Agreement") with a bank whereby the Company may borrow up to a maximum
principal amount of the lesser of $600,000 or 50% of eligible dialin accounts
receivable plus 80% of eligible dedicated accounts receivable plus 30% of the
net depreciated value of wholly owned computer equipment capped at no more
than 50% of the committed, revolving line of $600,000. As of June 30, 1997 and
September 30, 1997, the Company was eligible to borrow $600,000 under the
Agreement. Interest is payable monthly at a rate of prime plus 1.5%. In
addition, the terms of the Agreement provide for maintenance of certain
financial covenants. As of June 30, 1997 and September 30, 1997, the Company
was not in compliance with the majority of these financial ratio covenants.
The bank has not taken any action or requested any modification to present
terms as a result of these noncompliance conditions. The Agreement expired on
August 31, 1997, but has been extended through October 31, 1997, and is
secured by substantially all of the Company's assets.

(7) STOCK OPTION PLAN

The 1995 Performance Stock Option Plan (the "Plan") was approved and
ratified during the 1997 fiscal year. The Plan allows up to 30,000 stock
options to be issued to certain employees, officers, directors, and
consultants of the Company. The individuals to receive options, exercise price
of the options, and the vesting periods are determined by the Company's Board
of Directors.

Options under the Plan are subject to adjustment in the event of change in
capital structure of the Company. In the event that an acquisition occurs with
respect to the Company, the Company has the right to cancel the options
outstanding as of the effective date of the acquisition, whether or not such
options are exercisable, in return for payment to the option holders of the
difference between the net amount per share payable in the acquisition, less
the exercise price of the option. In the event of a change in control of the
Company, all then outstanding options shall immediately become exercisable.

During fiscal year 1997, the Company granted 28,000 options to certain
employees of the Company as full settlement of these employees' previously
issued stock appreciation rights. The following is a summary of stock option
activity pertaining to the Plan:

F-39

SUPERNET, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

OPTION PRICE NUMBER
PER SHARE OF SHARES
------------- ---------

Balance as of July 1, 1996.......................... 0
Granted........................................... $.87 to $8.17 28,000
Exercised......................................... 0
Forfeited......................................... 0
------------- ------
Balance as of June 30, 1997 and September 30, 1997.. $.87 to $8.17 28,000
============= ======
Vested and exercisable as of June 30, 1997 and
September 30, 1997............................... $.87 to $8.17 24,665
============= ======

Weighted-average ranges for exercise prices and weighted-average remaining
contractual life for all outstanding options as of June 30, 1997, were as
follows:

WEIGHTED-AVERAGE OPTION PRICE REMAINING NUMBER OF WEIGHTED-AVERAGE
PER SHARE CONTRACTUAL LIFE SHARES EXERCISE PRICE
----------------------------- ---------------- --------- ----------------

$.87.......................... 9.5 years 14,666 $.87
$2.36 to $2.78................ 9.5 years 5,334 2.47
$3.42......................... 9.5 years 2,666 3.42
$6.08 to $8.17................ 9.5 years 5,334 7.91

Compensation under the Plan is measured pursuant to Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, based on the
estimated market price per share of common stock on the grant date in excess
of the exercise price of the option. Such compensation is amortized to expense
over the vesting period of the stock option. All of the options granted in
1997 were granted for an exercise price which was less than the indicated
value of the Company's stock. The Company's stock is not traded. The fair
value of options at the grant date was determined based upon the indicated
value of the Company's stock as of the date of grant. Total compensation cost
recognized for the stock option plan was $3,744,958, $95,580 and $0 for the
year ended June 30, 1997, and the three months ended September 30, 1997 and
1996, respectively.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. This new standard defines a fair
value based method of accounting for an employee stock option or similar
equity instrument. The Company intends to continue using the measurement
prescribed by APB No. 25, and accordingly, this pronouncement will not affect
the Company's financial position or results of operations. Had compensation
for the Company's Plan been determined based on SFAS No. 123, the Company's
net loss would have been substantially the same. Proforma determinations under
SFAS No. 123 are based upon a fair value of each option grant estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1997: dividend yield of 0%; expected volatility
of 0%; risk-free interest rate of 5.12% and expected lives of two years from
grant.

(8) PENSION PLAN

Effective January 1, 1997, the Company became sponsor of a defined
contribution plan (the "Plan"), covering substantially all employees. Employer
contributions to the Plan are determined annually by the Board of Directors.
Employees may also contribute up to 15% of their salary annually.

F-40

SUPERNET, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1997, AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED)

There were no contributions to the Plan as of June 30, 1997 or during the
three months ended September 30, 1997 and 1996.

(9) ADVERTISING COSTS

The Company expenses the costs of advertising the first time the advertising
takes place. Advertising expense amounted to $127,605, $15,614 and $90,325 for
the year ended June 30, 1997, and the three months ended September 30, 1997
and 1996, respectively.

(10) COMMITMENTS

The Company has obligations under noncancelable operating lease commitments
for office space. Future scheduled rental payments for the operating leases in
excess of one year are as follows:

SEPTEMBER 30, JUNE 30,
1997 1997
------------- ----------
(UNAUDITED)

Year ended June 30,
1998.............................................. $ 290,613 $ 387,484
1999.............................................. 418,276 418,276
2000.............................................. 281,461 281,461
2001.............................................. 261,422 261,422
2002.............................................. 270,576 270,576
Thereafter........................................ 588,558 588,558
---------- ----------
$2,110,906 $2,207,777
========== ==========

In addition to the minimum lease payments, the Company must pay its
proportionate share of the operating expenses incurred by the Landlord. Lease
expense amounted to $268,971, $97,200, and $51,018 for the year ended June 30,
1997 and the three months ended September 30, 1997, 1996, respectively.

(11) CONTINGENCIES

Claims of compensation discrimination have been alleged by two present
employees of the Company. Although the Company denies the allegations, the
Company made offers of settlement to those employees and has accrued a
liability on the financial statements in the amount of the proposed settlement
offers. The settlement offers expired, however, without response from either
employee. If formal administrative claims or litigation actions are filed, the
Company intends to vigorously defend the allegations. At this time, it is not
reasonably possible to determine if any additional liability should be accrued
by the Company.

(12) SUBSEQUENT EVENT

On August 25, 1997, NSN received a letter of intent to acquire 100% of the
Company's outstanding stock subject to certain terms and conditions. Under the
terms of the offer to purchase, the closing date for purchase of the stock
would be 45 days after execution of a definitive agreement. Under the
provisions of the Company's stock option plan, all currently granted options
will become exercisable if this change in ownership is concluded.

F-41

REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors
Phoenix Network, Inc.

We have audited the accompanying balance sheets of Phoenix and its
subsidiaries (together, Phoenix) as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of Phoenix's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Phoenix as of December 31,
1995 and 1996, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.

As discussed in note C, Phoenix changed its method of accounting for
deferred commissions in 1994.

GRANT THORNTON LLP

Denver, Colorado
March 12, 1997

F-42

PHOENIX NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents ($225,356
restricted in 1995)............... $ 8,298,003 $ 1,548,061 $ 1,068,102
Accounts receivable, net of
allowance for doubtful accounts of
$1,649,013 in 1995 and $3,600,830
in 1996........................... 13,731,400 14,419,829 12,164,638
Deferred commissions............... 1,648,780 969,940 475,038
Other current assets............... 415,163 686,271 476,122
------------ ------------ ------------
Total current assets............. 24,093,346 17,624,101 14,183,900
------------ ------------ ------------
Furniture, equipment and data
processing systems--at cost, less
accumulated depreciation of
$1,350,597 in 1995 and $2,495,701 in
1996................................ 886,665 5,522,771 6,228,258
Deferred commissions................. 1,454,483 414,873 144,827
Customer acquisition costs, less
accumulated amortization of
$1,005,262 in 1995 and $3,145,245 in
1996................................ 2,447,619 2,725,275 1,608,255
Goodwill, less accumulated
amortization of $82,961 in 1995 and
$1,059,613 in 1996.................. 3,903,109 18,553,332 17,935,757
Other assets......................... 243,048 953,831 864,456
------------ ------------ ------------
$ 33,028,270 $ 45,794,183 $ 40,965,453
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of note payable
to finance company................ $ -- $ 444,839 $ 470,483
Current maturities of stockholder's
note.............................. -- -- 231,414
Current maturities of capital
leases............................ -- -- 138,504
Note payable to vendor............. -- 1,161,148 --
Line of credit--finance company.... 41,468 4,698,645 4,677,920
Accounts payable................... 13,282,599 16,686,690 16,223,508
Accrued liabilities................ 516,554 2,418,627 984,481
------------ ------------ ------------
Total current liabilities........ 13,840,621 25,409,949 22,726,310
------------ ------------ ------------
Long-Term Debt:
Note payable to stockholder........ -- 1,388,206 1,156,792
Note payable to finance company,
less current maturities........... -- 824,306 481,092
Capital leases..................... -- -- 66,431
Stockholders' Equity:
Preferred stock--$.001 par value,
authorized 5,000,000 shares,
issued and outstanding 2,737,389
in 1995 and 546,458 in 1996,
liquidation preference aggregating
$15,332,780 and $3,368,020 at
December 31, 1995 and 1996,
respectively...................... 2,737 546 165
Common stock--$.001 par value,
authorized 50,000,000 shares,
issued 16,952,455 in 1995 and
25,851,894 in 1996................ 16,952 25,851 30,304
Additional paid-in capital......... 32,146,636 45,225,554 52,218,118
Accumulated deficit................ (12,976,154) (27,077,707) (35,711,237)
Treasury stock--1,300 shares at
cost.............................. (2,522) (2,522) (2,522)
------------ ------------ ------------
19,187,649 18,171,722 16,534,828
------------ ------------ ------------
$ 33,028,270 $ 45,794,183 $ 40,965,453
============ ============ ============

The accompanying notes are an integral part of these statements.

F-43

PHOENIX NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1995 1996 1997 1996
----------- ----------- ------------ ----------- -----------
(UNAUDITED)

Revenue................. $74,404,808 $75,854,969 $ 99,307,277 $59,932,214 $78,234,398
Cost of revenue......... 52,649,359 53,775,779 73,438,757 43,941,792 56,676,168
----------- ----------- ------------ ----------- -----------
Gross profit........... 21,755,449 22,079,190 25,868,520 15,990,422 21,558,230
Selling, general and
administrative
expenses............... 21,074,942 22,323,202 31,114,723 20,010,367 22,103,668
Depreciation and
amortization........... 678,038 1,125,563 4,357,720 2,960,668 3,240,167
Relocation expenses..... -- -- 1,133,158 -- 982,146
Acquisition expenses.... -- -- 1,308,634 -- --
Loss on abandonment of
fixed assets........... -- 1,019,648 15,238 -- --
Aborted bond offering
expenses............... -- -- 246,083 -- --
----------- ----------- ------------ ----------- -----------
21,752,980 24,468,413 38,175,556 22,971,035 26,325,981
Operating income
(loss)................ 2,469 (2,389,223) (12,307,036) (6,980,613) (4,767,751)
Other income (expense)
Interest income........ 36,121 103,125 84,627 -- --
Interest expense....... (425,222) (260,639) (625,817) (797,096) (398,948)
Miscellaneous income
(expense)............. 42,897 (6,767) 4,264 -- --
----------- ----------- ------------ ----------- -----------
(346,204) (164,281) (536,926) (797,096) (398,948)
----------- ----------- ------------ ----------- -----------
Loss before income
taxes and cumulative
effect of accounting
change................ (343,735) (2,553,504) (12,843,962) (7,777,709) (5,166,699)
Income tax benefit
(expense).............. (16,405) (500,000) -- -- --
----------- ----------- ------------ ----------- -----------
Loss before cumulative
effect of accounting
change................ (360,140) (3,053,504) (12,843,962) (7,777,709) (5,166,699)
Cumulative effect of
change in amortization
of deferred
commissions............ (123,224) -- -- -- --
----------- ----------- ------------ ----------- -----------
Net loss............... $ (483,364) $(3,053,504) $(12,843,962) $(7,777,709) $(5,166,699)
=========== =========== ============ =========== ===========
Net loss attributable to
common shares
Net loss............... $ (483,364) $(3,053,504) $(12,843,962) $(7,777,709) $(5,166,699)
Preferred dividends.... (231,255) (594,381) (1,206,042) (163,853) (940,775)
----------- ----------- ------------ ----------- -----------
$ (714,619) $(3,647,885) $(14,050,004) $(7,941,562) $(6,107,474)
=========== =========== ============ =========== ===========
Loss per common share
Loss before cumulative
effect of accounting
change................ $ (0.04) $ (0.24) $ (0.68) $ (0.29) $ (0.30)
Cumulative effect of
accounting change..... (0.01) -- -- -- --
----------- ----------- ------------ ----------- -----------
Net loss per common
share................. $ (0.05) $ (0.24) $ (0.68) $ (0.29) $ (0.30)
=========== =========== ============ =========== ===========
Weighted average common
shares................. 13,576,265 15,335,268 20,673,276 27,580,741 20,097,390
=========== =========== ============ =========== ===========

The accompanying notes are an integral part of these statements.

F-44

PHOENIX NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED TREASURY
STOCK STOCK CAPITAL DEFICIT STOCK
--------- ------- ----------- ------------ --------

BALANCE AT JANUARY 1,
1994..................... $ 1,610 $12,803 $12,857,297 $ (9,200,859) $(2,522)
Exercise of stock options
and warrants............. -- 738 763,141 -- --
Conversion of preferred
stock into common stock.. (44) 277 43,686 (43,919) --
Issuance of preferred
stock upon conversion of
debt..................... 56 -- 558,874 -- --
Issuance of common stock.. -- 7 4,071 -- --
Net loss.................. -- -- -- (483,364) --
------- ------- ----------- ------------ -------
BALANCE AT DECEMBER 31,
1994..................... 1,622 13,825 14,227,069 (9,728,142) (2,522)
Exercise of stock options
and warrants............. -- 418 525,914 -- --
Conversion of preferred
stock into common stock.. (4) 24 7,200 (7,220) --
Issuance of common stock,
net of expenses.......... -- 2,685 6,314,779 -- --
Issuance of preferred
stock, net of expenses,
and conversion of Series
E and Series F........... 1,119 -- 11,071,674 -- --
Preferred dividends....... -- -- -- (187,288) --
Net loss.................. -- -- -- (3,053,504) --
------- ------- ----------- ------------ -------
BALANCE AT DECEMBER 31,
1995..................... 2,737 16,952 32,146,636 (12,976,154) (2,522)
Exercise of stock options
and warrants............. -- 792 1,327,243 -- --
Conversion of preferred
stock into common stock.. (2,191) 5,307 1,254,475 (1,257,591) --
Issuance of common stock
in connection with a
business acquisition..... -- 2,800 10,497,200 -- --
Net loss.................. -- -- -- (12,843,962) --
------- ------- ----------- ------------ -------
BALANCE AT DECEMBER 31,
1996..................... 546 25,851 45,225,554 (27,077,707) (2,522)
Exercise of stock options
and warrants
(unaudited).............. -- 877 805,860 -- --
Conversion of preferred
stock into common stock
(unaudited).............. (656) 3,515 853,242 (855,821) --
Sale of stock to employees
(unaudited).............. -- 61 126,237 -- --
Issuance of preferred
stock, net of expenses
(unaudited).............. 275 -- 5,207,225 -- --
Net loss (unaudited)...... -- -- -- (7,777,709) --
------- ------- ----------- ------------ -------
BALANCE AT SEPTEMBER 30,
1997 (UNAUDITED)......... $ 165 $30,304 $52,218,118 $(35,711,237) $(2,522)
======= ======= =========== ============ =======

The accompanying notes are an integral part of this statement.

F-45

PHOENIX NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -----------------
1994 1995 1996 1997 1996
------------ ------------ ------------- ------------ ------------
(UNAUDITED)

Cash flows from
operating activities
Cash received from
customers............. $ 71,432,918 $ 72,103,864 $ 98,612,681 $ 60,293,545 $ 75,763,864
Interest received...... 8,121 83,227 84,627 2,522 39,777
Cash paid to suppliers
and employees......... (69,551,595) (73,638,371) (102,047,484) (62,980,530) (77,069,289)
Interest paid.......... (425,137) (259,919) (625,817) (799,618) (394,027)
Cash paid for income
taxes................. (20,105) (3,340) (2,245) -- --
------------ ------------ ------------- ------------ ------------
Net cash provided by
(used in) operating
activities........... 1,444,202 (1,714,539) (3,978,238) (3,484,081) (1,659,675)
Cash flows from
investing activities
Note receivable--
director/shareholder.. (11,500) (3,000) -- -- --
Purchases of furniture,
equipment and data
processing systems.... (990,934) (589,419) (3,620,989) (1,660,488) (680,355)
Notes receivable--
agents................ (206,995) (23,115) -- -- --
Payments on agents
notes receivable...... 5,838 70,900 -- -- --
Customer base
acquisitions.......... -- (1,553,238) (468,002) -- --
Business acquisitions.. -- (4,692,153) (4,085,093) -- (4,085,093)
Acquisitions of other
assets................ (123,528) -- -- 89,375 (389,069)
------------ ------------ ------------- ------------ ------------
Net cash used in
investing
activities........... (1,327,119) (6,790,025) (8,174,084) (1,571,113) (5,154,517)
Cash flows from
financing activities
Proceeds from issuance
of common stock, net
of offering costs..... -- 6,317,464 -- -- --
Proceeds from issuance
of preferred stock net
of offering costs..... -- 11,072,793 -- 5,225,000 --
Proceeds from sale of
stock to officer...... 297,000 -- -- -- --
Proceeds from
distribution of stock
to director........... 4,078 -- -- -- --
Proceeds from notes
payable to bank and
finance company....... 3,450,000 6,143,950 6,060,358 -- 1,180,604
Payments on notes
payable to bank and
finance company....... (4,317,828) (8,686,625) (134,036) (338,295) --
Payments on note
payable to vendor..... -- -- (1,851,977) (1,161,148) (1,494,033)
Payments on capital
lease obligation...... (16,584) -- -- (66,137) --
Preferred stock
dividends............. -- (187,288) -- -- --
Proceeds from exercise
of options and
warrants.............. 466,880 526,332 1,328,035 915,815 1,209,453
------------ ------------ ------------- ------------ ------------
Net cash provided by
(used in) financing
activities........... (116,454) 15,186,626 5,402,380 4,575,235 896,024
------------ ------------ ------------- ------------ ------------
NET INCREASE (DECREASE)
IN CASH............... 629 6,682,062 (6,749,942) (479,959) (5,918,168)
Cash and cash
equivalents, beginning
of year................ 1,615,312 1,615,941 8,298,003 1,548,061 8,298,003
------------ ------------ ------------- ------------ ------------
Cash and cash
equivalents, end of
year................... $ 1,615,941 $ 8,298,003 $ 1,548,061 $ 1,068,102 $ 2,379,835
============ ============ ============= ============ ============

The accompanying notes are an integral part of these statements.

F-46

PHOENIX NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -----------------
1994 1995 1996 1997 1996
----------- ----------- ------------ ----------- -----------
(UNAUDITED)

Reconciliation of net
loss to net cash
provided by (used in)
operating activities
Net loss............... $ (483,364) $(3,053,504) $(12,843,962) $(7,777,709) $(5,166,699)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities
Cumulative effect of
change in
amortization of
deferred
commissions.......... 123,224 -- -- -- --
Provision for
doubtful accounts.... 2,440,369 2,689,250 3,147,077 1,893,860 1,731,429
Abandonment of fixed
assets............... $ -- $ 1,019,648 $ 15,238 $ -- $ --
Depreciation and
amortization......... 678,038 1,125,563 4,357,720 2,960,668 3,240,167
Deferred taxes........ -- 500,000 -- -- --
Changes in assets and
liabilities
Accounts receivable.. (2,971,890) (3,751,105) (959,900) 361,331 (4,010,313)
Deferred
commissions......... 713,839 (1,467,519) 1,718,450 764,948 893,320
Other current
assets.............. 104,449 (163,740) (217,473) 210,149 (208,547)
Other assets......... (11,494) 511 (67,893) -- --
Accounts payable and
accrued
liabilities......... 851,031 1,386,357 872,505 (1,897,328) 1,860,968
----------- ----------- ------------ ----------- -----------
Net cash provided by
(used in) operating
activities......... $ 1,444,202 $(1,714,539) $ (3,978,238) $(3,484,081) $(1,659,675)
=========== =========== ============ =========== ===========
NONCASH FINANCING AND
INVESTING ACTIVITIES
Conversion of preferred
stock dividends into
common stock........... $ 43,963 $ 7,224 $ 1,259,782 $ 853,242 $ 32,330
Conversion of note
payable to stockholder,
including accrued
interest, into
preferred stock........ 558,930 -- -- -- --
Noncash components of
consideration issued in
connection with
business combination
Common stock........... -- -- 10,500,000 -- 10,500,000
Note payable to
stockholder........... -- -- 1,388,206 -- 1,314,056
Assumption of net
liabilities........... -- -- 1,603,576 -- 1,606,976
Equipment acquired with
capital lease.......... -- -- -- 271,072 --
Data processing system
acquired with note
payable................ -- -- -- -- 1,403,181

The accompanying notes are an integral part of these statements.

F-47

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

NOTE A--DESCRIPTION OF COMPANY AND SUMMARY OF ACCOUNTING POLICIES

Phoenix Network, Inc. (Phoenix) was a switchless reseller of long distance
telecommunication services designed primarily for small to medium sized
commercial accounts located throughout the United States. Effective January 1,
1996, as a result of the acquisition of Automated Communications, Inc.
("ACI"), Phoenix became a facilities based reseller. Phoenix provides its
customers with long distance services utilizing the networks of facilities-
based carriers, such as American Telephone & Telegraph Company, MCI
Telecommunications Corporation, Sprint Communications, L.P., ALC
Communications Corporation, LDDS/WorldCom, Inc. (formerly Wiltel, Inc.), U.S.
One Communications Corp. and others, who handle the actual transmission
services. The carriers bill Phoenix at contractual rates for the combined
usage of Phoenix's customers utilizing their network. Phoenix then bills its
customers individually at rates established by Phoenix.

The following is a summary of Phoenix's significant accounting policies
applied in the preparation of the accompanying consolidated financial
statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Phoenix. All
significant intercompany transactions are eliminated in consolidation.

Revenue Recognition

Revenue is recognized in the month in which the Phoenix's customers complete
the telephone call.

Cash and Cash Equivalents

Phoenix considers demand deposits, certificates of deposit and United States
Treasury bills purchased with a maturity of three months or less as cash and
cash equivalents. The carrying amount approximates fair value because of the
short maturity of these instruments.

Deferred Commissions

Deferred commissions consist of direct commissions paid on a one-time basis
to third parties upon the acquisition of new customers. Deferred commissions
are amortized on a four-year sum of the year's digits method.

Furniture, Equipment and Data Processing Systems

Depreciation of furniture, equipment and data processing systems is provided
utilizing the straight-line method over five years.

Customer Acquisition Costs

Customer acquisition costs represent the value of acquired billing bases of
customers and are amortized using the sum-of-the-years-digits method over a
four-year period.

F-48

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

Goodwill

Goodwill represents the excess of cost over the fair value of the net assets
acquired and is being amortized by the straight-line method over 20 years.

Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as revenue and expenses during the period. Significant
estimates made by management include the allowance for doubtful accounts,
estimated carrier credits, and the amortization periods related to acquired
customers and goodwill. Actual results could differ from those estimates.

Income Taxes

Deferred income taxes are recognized for tax consequences of temporary
differences by applying current enacted tax rates to differences between the
financial reporting and the tax basis of existing assets and liabilities.

Reclassification

Prior years' financial statements have been reclassified to conform to
current year presentation.

Unaudited Information

The accompanying interim financial statements as of September 30, 1997 and
for the nine months ended September 30, 1997 and 1996 are unaudited but, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results of such
periods. The results of operations for any interim period are not necessarily
indicative of results for the full year.

NOTE B--POOLING-OF-INTERESTS AND ACQUISITIONS

On October 8, 1996, Americonnect, Inc. was merged with and into Phoenix, and
2,663,810 shares of Phoenix's common stock were issued in exchange for all of
the outstanding common stock of Americonnect. The merger was accounted for as
a pooling-of-interests and, accordingly, the accompanying financial statements
have been restated to include the accounts and operations of Americonnect for
all periods prior to the merger.

F-49

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

Separate results of the combining entities for the two years in the period
ended December 31, 1995, are as follows (amounts in 000s):

DECEMBER 31
----------------
1994 1995
------- -------

Net sales
Phoenix.................................................. $57,420 $58,755
Americonnect............................................. 16,985 17,100
------- -------
$74,405 $75,855
======= =======
Net income (loss)
Phoenix.................................................. $ (905) $(1,334)
Americonnect............................................. 422 (1,719)
------- -------
$ (483) $(3,053)
======= =======

In connection with the merger, approximately $1.3 million of merger costs
and expenses were incurred and have been charged to expense in Phoenix's
fourth quarter of 1996.

In August of 1995, Phoenix acquired in purchase transactions the customer
bases and substantially all of the assets and liabilities of Tele-Trend
Communications, LLC ("Tele-Trend"), a Denver based switchless reseller, and
Bright Telecom L.P. ("Bright"), an international call-back provider, for
$4,369,317 and $356,388, respectively. The operations of Tele-Trend and Bright
are included from August 1, 1995.

Additionally, during 1995, Phoenix acquired three customer bases at a cost
of $2,078,238. At December 31, 1995, accounts payable includes $525,000 due
for the purchase of one of the customer bases.

In January 1996, Phoenix acquired, in a purchase transaction, Automated
Communications, Inc. (ACI), a Golden, Colorado, facilities-based long distance
phone service carrier operating state-of-the-art switching centers in Colorado
Springs, Minneapolis, and Phoenix. Consideration for the acquisition was in
the form of $4,085,093 in cash, 2,800,000 shares of the Phoenix's common stock
valued at approximately $10,500,000, a long-term note of $1,388,206 bearing
interest at 9%, and the assumption of net liabilities of $1,603,576. Phoenix's
consolidated results of operations include ACI from January 1, 1996, the
effective date of the purchase transaction. The excess of the purchase price
over the fair market value of the assets and liabilities acquired has been
allocated to customer acquisition costs ($1,950,000) and to goodwill
($15,626,875). Customer acquisition costs are amortized over four years using
the sum-of-the-years-digits method, and goodwill is amortized on a straight-
line basis over 20 years.

F-50

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

The following unaudited condensed pro forma information presents the results
of operations of Phoenix as if the acquisition of ACI and Tele-Trend had
occurred on January 1, 1995.

YEAR ENDED DECEMBER 31, 1995
----------------------------

Revenue................. $104,729,000
Net loss................ $ (4,428,000)
Net loss attributable to
common shares.......... $ (5,603,000)
Net loss per common
share.................. $ (0.31)
Weighted average number
of shares outstanding.. 18,135,000

NOTE C--ACCOUNTING CHANGES

Effective January 1, 1994, Phoenix changed its method of accounting for
deferred commissions from the straight-line basis to the sum-of-the-years
digits method. Additionally, Phoenix changed their estimate of the period
benefited from two years to four years. Management believes that these changes
more accurately match expense with the revenue generated by the customer base.
The cumulative effect of the change in accounting method was to increase
accumulated amortization at January 1, 1994 by approximately $123,000. The
effect of both changes was to reduce the 1994 amortization expense and loss
before cumulative effect of change in accounting by approximately $242,000
($0.02 per common share).

NOTE D--FURNITURE, EQUIPMENT AND DATA PROCESSING SYSTEMS

Furniture, equipment and data processing systems consist of the following:

DECEMBER 31,
------------------------
1995 1996
----------- -----------

Data processing systems............................ $ 1,404,833 $ 4,872,174
Switching equipment................................ -- 1,898,593
Furniture and fixtures............................. 331,094 710,234
Other equipment.................................... 501,335 537,471
----------- -----------
2,237,262 8,018,472
Less accumulated depreciation...................... (1,350,597) (2,495,701)
----------- -----------
$ 886,665 $ 5,522,771
=========== ===========

The loss on abandonment of assets in 1995 primarily relates to a write-off
of billing and customer service software development costs. Management decided
to minimize the risk of development and to have access to a new system on a
more timely basis and, accordingly, has decided to license an existing billing
and customer service system from a vendor at a cost of approximately
$3,000,000, of which approximately $1,500,000 has been incurred through
December 31, 1996.

NOTE E--LINE OF CREDIT--FINANCE COMPANY

In September 1995, Phoenix renewed its Loan and Security Agreement (the
"Agreement") with a finance company to make available to Phoenix a line of
credit of up to $10,000,000. Phoenix may

F-51

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)
borrow up to the lesser of $10,000,000 or its borrowing base, which is defined
as a percentage of its eligible receivables. The term of the Agreement is
three years, expiring October 1998, with automatic renewal options. There are
penalties for early termination by Phoenix. Borrowings bear interest at .75%
over the "reference rate," as defined. In connection with the renewal, fees
and transaction costs of $80,972 were incurred, which are being amortized on a
straight-line basis over three years. The loan is collateralized by the
Phoenix's accounts receivable, equipment, general intangibles and other
personal property assets. Among other provisions, Phoenix must maintain
certain minimum financial covenants, is prohibited from paying dividends
without the approval of the finance company, and is subject to limits on
capital expenditures. As of December 31, 1996, Phoenix was in violation of
certain financial covenants. The finance company has waived the covenant
violations in connection with a restructuring of the line of credit agreement.
At December 31, 1996, $4,698,645 was outstanding under the line and the
interest rate was 10%.

Average daily outstanding borrowings for the year ended December 31, 1996
was $859,044 at a weighted average interest rate of 10%. The highest month-end
balance outstanding for the year ended December 31, 1996 was $4,698,645.

NOTE F--LONG-TERM DEBT

During 1996, Phoenix entered into a note payable with a finance company to
fund the cost of new billing and customer service software. The note agreement
requires twelve quarterly payments of $138,854 plus accrued interest at 10.5%
commencing July, 1996 through July, 1999.

In addition, as part of the acquisition of Automated Communications, Inc.,
on January 1, 1996, Phoenix issued a 9% note payable for $1,388,206 to a
current stockholder, which is payable in annual installments through 2001.

Future minimum payments on long-term debt at December 31, 1996 are as
follows:

YEAR ENDED NOTE PAYABLE NOTE PAYABLE
DECEMBER 31, TO FINANCE COMPANY TO STOCKHOLDER TOTAL
------------ ------------------ -------------- ----------

1997............................ $ 444,839 $ -- $ 444,839
1998............................ 491,019 231,414 722,433
1999............................ 333,287 231,414 564,701
2000............................ -- 231,414 231,414
2001............................ -- 693,964 693,964
---------- ---------- ----------
$1,269,145 $1,388,206 $2,657,351
========== ========== ==========

NOTE G--LEASES

Phoenix has operating leases for office space and equipment which expire on
various dates through 2000, and which require that Phoenix pay certain
maintenance, insurance and other operating expenses. Rent expense for the
years ended December 31, 1994, 1995 and 1996 was $856,797, $1,028,462 and
$1,331,911, respectively.

F-52

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

Future minimum lease payments for years ending December 31, are as follows:

1997.............................................................. $2,506,223
1998.............................................................. 1,580,685
1999.............................................................. 1,392,208
2000.............................................................. 547,812
2001.............................................................. 191,302
----------
$6,218,230
==========

NOTE H--COMMITMENTS AND CONTINGENCIES

Phoenix has contracts with its major vendors to provide telecommunications
services to its customers. The agreements cover the pricing of the services
and are for various periods. Among other provisions, the agreements contain
minimum usage requirements which must be met to receive the contractual price
and to avoid shortfall penalties. Phoenix is currently in compliance with the
contractual requirements. Total future minimum usage commitments at December
31, 1996 are as follows:

YEAR ENDING
DECEMBER 31, COMMITMENT
------------ -----------

1997............................................................. $33,000,000
1998............................................................. 18,500,000
1999............................................................. 1,000,000
-----------
Total.......................................................... $52,500,000
===========

NOTE I--CAPITAL STOCK

Preferred Stock

Phoenix's certificate of incorporation authorizes it to issue up to
5,000,000 shares of $.001 par value preferred stock. At December 31, 1996,
Phoenix's authorized preferred stock is allocated as follows:

AUTHORIZED ISSUED AND
SHARES OUTSTANDING
---------- -----------

Reserved shares:
Series A............................................ 300,000 98,625
Series B............................................ 200,000 114,500
Series C............................................ 1,000,000 --
Series D............................................ 666,666 333,333
Series F............................................ 1,200,000 --
Undesignated shares................................... 1,633,334 --
--------- -------
Total............................................. 5,000,000 546,458
========= =======

F-53

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

Series A Preferred Stock ("Series A") outstanding consists of 98,625 shares.
The shares are entitled to 9% cumulative dividends, voting rights and are
convertible into common stock subject to certain anti-dilution provisions. In
connection with the initial offering, Phoenix also issued a warrant for 62,200
shares of common stock with an exercise price of $2.50 per share to an
investment banking firm, controlled by an individual, who was subsequently
elected to Phoenix's Board of Directors. The warrant expires in February 1997.
During 1994, 16,000 shares of Series A were converted into 70,996 shares of
common stock. During 1995, 3,000 shares of Series A were converted into 14,449
shares of common stock. During 1996, 3,125 shares of Series A were converted
into 16,664 shares of common stock. The conversions also include unpaid
dividends. At December 31, 1996, the outstanding Series A shares were
convertible into 405,864 shares of common stock.

Series B Preferred Stock ("Series B") outstanding consists of 114,500
shares. The shares are entitled to 9% cumulative dividends, voting rights and
are convertible into shares of common stock subject to certain anti-dilution
provisions. In connection with the initial offering, Phoenix issued a warrant
to an investment banking firm, controlled by one of Phoenix's directors, for
69,750 shares of common stock, with an exercise price of $2.00 per share. The
warrant expires in February 1997. During 1995, 1,250 shares of Series B were
converted into 9,749 shares of common stock. During 1996, 11,750 shares of
Series B were converted into 98,717 shares of common stock. The conversions
also include unpaid dividends. At December 31, 1996, the outstanding Series B
shares are convertible into 763,333 shares of common stock.

In November 1992, Phoenix issued 1,000,000 shares of its Series C Preferred
Stock ("Series C") to one of its major vendors as collateral for amounts due
the vendor for services provided. Phoenix was released from all collateral
requirements during 1996 and the preferred stock reverted back to Phoenix.

Series D Preferred Stock outstanding consists of 333,333 shares. The shares
are entitled to 6% non-cumulative dividends, when and if declared by the Board
of Directors and only after payment of dividends on previously issued series
of preferred stock. These shares are nonvoting and are convertible into common
stock subject to certain anti-dilution provisions. In connection with the
initial offering, Phoenix issued a warrant to an investment banking firm,
controlled by one of Phoenix's directors, for 22,000 shares of common stock,
with an exercise price of $1.50 per share. The warrant expires in December
1997. At December 31, 1996, the outstanding Series D Preferred shares are
convertible into 333,333 shares of common stock.

In September 1994, Phoenix issued 55,893 shares of Series E Preferred Stock
at $10 per share under an agreement to convert a note payable to stockholder,
with a principal balance of $500,000 and accrued interest of $58,930. In
connection with the issuance of the stock, Phoenix issued the stockholder a
five-year warrant for 100,000 shares of Phoenix's common stock which was
canceled when the Series E shares were converted to Series F Preferred Stock
(see below).

During the period July 1995 through October 1995, Phoenix raised
approximately $11,024,207, net of offering costs of $129,963, through a
private placement of 1,115,417 shares of its Series F Preferred Stock at $10
per share. Additionally, the holder of Phoenix's Series E Preferred Stock
exchanged their Series E shares, plus accumulated and unpaid dividends of
$47,467, for 60,639

F-54

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)
shares of Series F Preferred Stock. The Series F shares are entitled to 9%
cumulative dividends, voting rights, demand registration rights for the
underlying common shares after six months and are convertible initially into
4,704,224 shares of common stock, subject to anti-dilution provisions. The
holders of the Series F also received warrants for the purchase of 470,422
shares of common stock with an exercise price of $3.00 per share which expire
in October 2000. The Series F shareholders have the right to place two
directors on Phoenix's board (the "Series F Directors") and Phoenix is subject
to certain covenants requiring it to obtain the consent of the Series F
Directors for certain transactions including mergers, acquisitions and
incurring additional indebtedness in excess of $20,000,000. During December
1996, the outstanding Series F Preferred shares were converted into 5,191,064
shares of common stock. This conversion also included unpaid dividends.

The common shares reserved for issuance upon the conversion of Series A, B
and D Preferred Stock have been registered with the Securities and Exchange
Commission.

At December 31, 1996, Phoenix had cumulative, unpaid dividends on Series A
and B Preferred Stock of $340,945 ($3.45 per share) and $395,825 ($3.45 per
share), respectively.

Common Stock

In May 1995, Phoenix closed a private placement of its common stock which
raised $727,519, net of offering costs of $119,481. Phoenix sold 385,000
units, at $2.20 per unit, in an off-shore financing pursuant to Regulation S
under the Securities Act of 1933. A unit consists of one share of common stock
and a five-year warrant for one-half share of common stock. Two warrants can
be exercised to purchase 38,500 units at $2.42 per unit. Phoenix closed
another private placement of its common stock under Regulation S in September
1995. In this transaction, Phoenix sold 2,300,000 shares of common stock for
$2.75 per share. Proceeds to Phoenix, net of offering costs of $735,055, were
$5,589,945.

Stock Options and Warrants

Phoenix has various stock option plans accounted for under APB Opinion 25
and related interpretations. The options generally have a term of 10 years
when issued, and generally vest over two-four years. No compensation cost has
been recognized for the plans. Had compensation cost for the plan been
determined based on the fair value of the options at the grant dates
consistent with the method of Statement of Financial Accounting Standards 123,
Accounting for Stock-Based Compensation (SFAS 123), Phoenix's net loss and
loss per common share would have been increased to the pro forma amounts
indicated below. Pro forma results for 1995 and 1996 may not be indicative of
pro forma results in future periods because the pro forma amounts do not
include pro forma compensation cost for options granted prior to January 1,
1995.

1995 1996
----------- ------------

Net loss
As reported..................................... $(3,647,885) $(14,050,004)
Pro forma....................................... (3,787,774) (14,474,477)
Loss per common share
As reported..................................... $ (0.24) $ (0.68)
Pro forma....................................... (0.25) (0.70)

F-55

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: no expected
dividends; expected volatility of 55%; weighted average risk-free interest
rate of 6%; and expected lives of five years.

In 1987, Phoenix granted certain directors stock options to purchase up to
900,000 shares of common stock at a price of $0.10 per share, expiring no
earlier than ten (10) years from the grant date. At December 31, 1995, options
for 500,000 shares remain outstanding.

Phoenix's 1989 Stock Option Plan authorizes the grant of incentive stock
options or supplemental stock options for up to 3,500,000 shares of common
stock. The exercise price of each incentive stock option shall be not less
than 100% of the fair market value of the stock on the date the option is
granted. The exercise price of each supplemental stock option shall be not
less than eighty-five percent (85%) of the fair market value of the stock on
the date the option is granted.

In November 1992, the Board of Directors approved the 1992 Non-Employee
Directors' Stock Option Plan. Under the Plan, 480,000 shares of common stock
have been reserved for issuance to non-employee directors of Phoenix. Options
are granted annually based upon length of service at fair market value at date
of grant.

Phoenix's subsidiary, Americonnect, had two stock option plans. All options
have been converted into options for Phoenix common stock and are included in
the following summary. The options were granted at prices from $0.08 to $2.06
per share of Phoenix common stock.

A summary of the status of Phoenix's fixed stock option plans as of December
31, 1996, and changes during each of the three years in the period ended
December 31, 1996 is presented below.

WEIGHTED
NUMBER AVERAGE PRICE
OF SHARES PER SHARE
--------- -------------

Outstanding at January 1, 1994...................... 2,453,492 $1.21
Exercised......................................... (412,876) 1.13
Granted........................................... 1,125,433 3.30
Canceled.......................................... (505,984) 3.08
---------
Outstanding at December 31, 1994.................... 2,660,065 1.58
Exercised......................................... (382,851) 1.16
Granted........................................... 898,414 2.58
Canceled.......................................... (156,458) 2.43
---------
Outstanding at December 31, 1995.................... 3,019,170 1.91
Exercised......................................... (724,567) 1.64
Granted........................................... 1,017,500 3.27
Canceled.......................................... (177,951) 3.23
---------
Outstanding at December 31, 1996.................... 3,134,152 2.32
=========

RANGE OPTIONS
------------ ---------

Exercisable at December 31, 1994...................... $ 0.08-$6.88 1,244,797
Exercisable at December 31, 1995...................... $ 0.08-$6.38 1,797,977

F-56

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

WEIGHTED
AVERAGE
RANGE OPTIONS PROCEEDS EXERCISE PRICE
----------- --------- ---------- --------------

Exercisable at December 31,
1996...................... $0.10-$0.10 500,000 $ 50,000 $0.10
$0.72-$1.90 475,367 567,341 1.19
$2.08-$4.13 617,636 1,741,067 2.82
$4.88-$6.88 40,977 258,074 6.30
--------- ----------
1,633,980 $2,616,482 1.60

Weighted average fair value of options granted during 1995 and 1996 is $1.42
and $1.70 per share, respectively.

The following information applies to options outstanding at December 31,
1996:

Range of exercise prices .. $0.10 -$0.10 $0.72-$1.90 $2.08-$4.13 $4.88-$6.88
Options outstanding ....... 500,000 476,338 2,043,685 114,129
Weighted average exercise
price .................... $ 0.10 $ 1.19 $ 3.02 $ 4.39
Weighted average remaining
contractual life (years)
.......................... 1 7 9 6
Options exercisable ....... 500,000 475,367 617,636 40,977
Weighted average exercise
price .................... $ 0.10 $ 1.19 $ 2.82 $ 6.30

Common shares subject to warrants are summarized below:

NUMBER PRICE
OF SHARES PER SHARE
--------- -----------

Outstanding at January 1, 1994.......................... 386,533 $1.50-$7.00
Granted................................................. 125,000 $3.25
---------
Outstanding at December 31, 1994........................ 511,533 $1.50-$7.00
Exercised............................................... (34,675) $2.42
Granted................................................. 720,672 $2.42-$3.00
Canceled................................................ (100,000) $3.25
---------
Outstanding at December 31, 1995........................ 1,097,530 $1.50-$7.00
Exercised............................................... (58,825) $2.42
Granted................................................. -- --
Canceled................................................ -- --
---------
Outstanding at December 31, 1996........................ 1,038,705 $1.50-$7.00
=========

All warrants are exercisable at grant.

NOTE J--LOSS PER COMMON SHARE

Loss per common share is based upon the weighted average number of common
and dilutive common equivalent shares outstanding. The preferred dividend
requirements on the preferred stock are deducted in computing loss per common
share. The effect of outstanding options and warrants are antidilutive for all
periods presented.

F-57

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)
NOTE K--INCOME TAXES

Phoenix accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using current enacted tax rates. A valuation
allowance is established to reduce net deferred tax assets to their estimated
realizable value.

As of December 31, 1996, Phoenix has available to offset future federal
taxable income, net operating loss carryforwards (NOLs) of approximately
$20,400,000 which expire in varying amounts from 2002 through 2011. The NOLs
may be subject to limitations as a result of provisions of the Internal
Revenue Code relating to changes in ownership and utilization of losses by
successor entities.

Phoenix's effective income tax rate is different from the federal statutory
income tax rate because of the following factors:

YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------

Federal tax rate applied to loss before
taxes........................................ (34.0)% (34.0)% (34.0)%
State tax rate applied to allowable carry-
forward losses............................... (5.7) (5.9) (4.6)
Valuation allowance for deferred taxes........ 44.4 59.9 38.6
------- ------- -------
Effective tax rate............................ 4.7% 19.6% -- %
======= ======= =======

Deferred federal and state tax assets and valuation allowance are as
follows:

DECEMBER 31,
-----------------------
1995 1996
---------- -----------

Current
Allowance for bad debts........................... $ 704,000 $ 1,326,000
Noncurrent
Noncurrent assets................................. 291,000 1,187,000
Net operating loss carryforward................... 4,934,000 8,496,000
---------- -----------
5,225,000 9,683,000
---------- -----------
5,929,000 11,009,000
Valuation allowance............................... (5,929,000) (11,009,000)
---------- -----------
$ -- $ --
========== ===========

In 1993, Phoenix's subsidiary, Americonnect, Inc., reduced its valuation
allowance by $500,000 due to changes in circumstances subsequent to adoption
of SFAS No. 109. The changes in circumstances related to increased cash flows,
increased profitability, and anticipated continued increases. Due to operating
losses in 1995, Americonnect was no longer able to determine if it would more
likely than not realize the deferred asset. As a result of this change in
estimate, the valuation allowance was increased by $500,000.

F-58

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

The components of income tax benefit (expense) related to loss before
cumulative effect of accounting change are as follows:

YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
-------- --------- -----

Current........................................... $(16,405) $ -- $ --
Deferred.......................................... -- (500,000) --
-------- --------- -----
$(16,405) $(500,000) $ --
======== ========= =====

The increase in the valuation allowance was approximately $548,000,
$1,917,000 and $5,080,000 for the years ended December 31, 1994, 1995 and
1996, respectively.

NOTE L--EMPLOYEE BENEFIT PLANS

On June 1, 1993, Phoenix established a 401(k) tax savings plan for all
employees. Employer and participant contributions to the plan vest
immediately. The plan is a defined contribution plan covering all of its
employees. Under this plan, employees with a minimum of one year of qualified
service can elect to participate by contributing a minimum of one percent of
their gross earnings up to a maximum of 20 percent.

For those eligible plan participants, Phoenix will contribute an amount
equal to 100 percent of each participant's personal contribution up to an
annual maximum of $1,000. Phoenix's contributions to the 401(k) plan for the
year ending December 31, 1994, 1995 and 1996 were approximately $23,000,
$59,000 and $109,000, respectively.

NOTE M--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value:

Line of credit--Carrying amount approximates fair value because of the
short maturity of this instrument.

Long-term debt--Carrying amount approximates fair value because the
interest rate at December 31, 1996 approximates the
market rate.

NOTE N--RELATED PARTIES

Two members of Phoenix's Board of Directors also serve on the Board of
Directors of U.S. One Communications, with whom Phoenix has entered into an
agreement to lease capacity on switching equipment.

NOTE O--FOURTH QUARTER ADJUSTMENTS

During the fourth quarter of 1996, Phoenix recorded adjustments increasing
their net loss by approximately $1,200,000 related to receivables, $500,000
related to deferred commissions and $300,000 related to Local Exchange
Carriers' billing charges.

F-59

PHOENIX NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 AND 1996 IS UNAUDITED)

NOTE P--SUBSEQUENT EVENTS (UNAUDITED)

In March 1997, Phoenix raised $2,850,000, net of expenses, through the
issuance of a new Series G Preferred Stock with terms similar to previous
preferred stock issuances by Phoenix, including being convertible into common
stock. In July 1997, Phoenix raised $2,375,000, net of expenses, through the
issuance of a new Series I Preferred Stock also with terms similar to previous
preferred stock issuances by Phoenix, including being convertible into common
stock. Both the Series G and the Series I Preferred Stock agreements also
included the issuance of warrants for the purchase of a total of 172,500
shares of common stock.

On January 6, 1998, Phoenix announced that it had entered into a definitive
agreement to merge with Qwest Communications International Inc., a facilities-
based provider of communications services to interexchange carriers and
commercial businesses. Under the agreement, Phoenix stockholders will receive
Qwest common stock having an aggregate market value equal to $28.5 million,
subject to certain adjustments and limitations described in the agreement, and
up to $4 million in cash, contingent upon the outcome of certain litigation.
Completion of the transaction is expected by May 1998 and is conditioned upon
obtaining governmental and stockholder approval.

F-60

GLOSSARY

Access charges............. The fees paid by long distance carriers to LECs
for originating and terminating long distance
calls on the LEC's local networks.

ACI........................ Automated Communications, Inc., a wholly-owned
subsidiary of Phoenix.

ACI Legal Claims........... This term has the meaning stated on page 140 of
the Proxy Statement/Prospectus.

Acquisition Value.......... This term has the meaning stated on page 4 of the
Proxy Statement/Prospectus.

Aggregate Number........... This term has the meaning stated on page 5 of the
Proxy Statement/Prospectus.

AGIS....................... Apex Global Internet Services, Inc.

AmeriConnect Merger........ Phoenix's merger with AmeriConnect, Inc.

AMEX....................... The American Stock Exchange.

Anschutz Entities.......... This term has the meaning stated on page 121 of
the Proxy Statement/Prospectus.

Antitrust Division......... The Antitrust Division of the U.S. Department of
Justice.

ATM (Asynchronous Transfer
Mode)..................... An information transfer standard that is one of a
general class of packet technologies that relay
traffic by way of an address contained within the
first five bytes of a standard fifty-three-byte
long packet or cell. The ATM format can be used
by many different information systems, including
local area networks, to deliver traffic at
varying rates, permitting a mix of voice, data
and video (multimedia).

AT&T....................... AT&T Corporation.

Average Market Price....... This term has the meaning stated on page 5 of the
Proxy Statement/Prospectus.

Backbone................... The through-portions of a transmission network,
as opposed to spurs which branch off the through-
portions.

Band....................... A range of frequencies between two defined
limits.

Bandwidth.................. The relative range of analog frequencies or
digital signals that can be passed through a
transmission medium, such as glass fibers,
without distortion. The greater the bandwidth,
the greater the information carrying capacity.
Bandwidth is measured in Hertz (analog) or Bits
Per Second (digital).

Bit Error Rate.............
A measure of transmission quality stated as the
expected probability of error per bit
transmitted.

G-1

Bridge Loan Amount.........
This term has the meaning stated on page 33 of
the Proxy Statement/Prospectus.

Bright..................... Bright Telecom L.P.

CAC........................ Carrier Access Code.

Capacity................... Refers to transmission.

Carrier.................... A provider of communications transmission
services by fiber, wire or radio.

Carrier Services........... This term has the meaning stated on page 2 of the
Proxy Statement/Prospectus.

CLEC (Competitive Local
Exchange Carrier)......... A company that competes with LECs in the local
services market.

Closing Date............... This term has the meaning stated on page 4 of the
Proxy Statement/Prospectus.

Code....................... The Internal Revenue Code of 1986, as amended

Commission................. Securities and Exchange Commission.

Common Carrier............. A government-defined group of private companies
offering telecommunications services or
facilities to the general public on a non-
discriminatory basis.

Commercial Services........ This term has the meaning stated on page 2 of the
Proxy Statement/Prospectus.

Comparable Transaction This term has the meaning stated on page 46 of
Group..................... the Proxy Statement/Prospectus.

Contingent Cash This term has the meaning stated on the cover
Consideration............. page of the Proxy Statement/Prospectus.

Contingent Cash
Consideration Date........ This term has the meaning stated on page 5 of the
Proxy Statement/Prospectus.

Dark Fiber................. Fiber that lacks the requisite electronic and
optronic equipment necessary to use the fiber for
transmission.

DGCL....................... General Corporation Law of the State of Delaware.

Digital.................... Describes a method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital
transmission/ switching technologies employ a
sequence of discrete, distinct pulses to
represent information, as opposed to the
continuously variable analog signal.

Director Equity Plan.......
This term has the meaning stated on page 125 of
the Proxy Statement/Prospectus.

G-2

Dissenting Holder.......... This term has the meaning stated on page 66 of
the Proxy Statement/Prospectus.

DS-0, DS-1, DS-3........... Standard telecommunications industry digital
signal formats, which are distinguishable by bit
rate (the number of binary digits (0 and 1)
transmitted per second). DS-0 service has a bit
rate of 64 kilobits per second and typically
transmits only one voice conversation at a time.
DS-1 service has a bit rate of 1.544 megabits per
second and typically transmits 24 simultaneous
voice conversations. DS-3 service has a bit rate
of 45 megabits per second and typically transmits
672 simultaneous voice conversations.

DS-3 miles................. A measure of the total capacity and length of a
transmission path, calculated as the capacity of
the transmission path in DS-3s multiplied by the
length of the path in miles.

DWDM (Dense Wave Division
Multiplexing)............. A technique for transmitting 8 or more different
light wave frequencies on a single fiber to
increase the information carrying capacity.

ECO........................ This term has the meaning stated on page 92 of
the Proxy Statement/Prospectus.

Effective Time............. This term has the meaning stated on the cover
page of the Proxy Statement/Prospectus.

Effective Time Adjusted
Average Market Price...... This term has the meaning stated on page 5 of the
Proxy Statement/Prospectus.

Equal access............... The basis upon which customers of interexchange
carriers are able to obtain access to their
Primary Interexchange Carriers' (PIC) long
distance telephone network by dialing "1", thus
eliminating the need to dial additional digits
and an authorization code to obtain such access.

Equipment Credit Facility.. This term has the meaning stated on page 108 of
the Proxy Statement/Prospectus.

Equity Incentive Plan...... This term has the meaning stated on page 120 of
the Proxy Statement/Prospectus.

Exchange Act............... The Securities Exchange Act of 1934, as amended.

Facilities-based carrier... Companies, such as AT&T, that provide long
distance service over their own IMTs and utilize
owned or leased switches.

Facilities-based reseller.. Companies that utilize IMTs of third parties but
that operate owned or leased switches. Also known
as a switched reseller.

FBCs (Facilities Based Facilities based carriers that own and operate
Carriers)................. their own network and equipment.

FCC........................ Federal Communications Commission.

First Mile Connection...... The portion of a long distance telephone call
from origination at an originator's telephone
through the local access network of the LEC.

G-3

Frame Relay................
A high-speed, data packet switching service used
to transmit data between computers. Frame Relay
supports data units of variable lengths at access
speeds ranging from 56 kilobits per second to 1.5
megabits per second. This service is well-suited
for connecting local area networks, but is not
presently well-suited for voice and video
applications due to the variable delays which can
occur. Frame Relay was designed to operate at
high speeds on modern fiber optic networks.

Frontier................... Frontier Communications together with its
affiliates.

FTC........................ U.S. Federal Trade Commission.

GTE........................ GTE Corporation and its affiliates.

Gbps....................... Gigabits per second, which is a measurement of
speed for digital signal transmission expressed
in billions of bits per second.

Hertz...................... The unit for measuring the frequency with which
an electromagnetic signal cycles through the
zero-value state between lowest and highest
states. One Hz (Hertz) equals one cycle per
second. Khz (kilohertz) stands for thousands of
Hertz; Mhz (megahertz) stands for millions of
Hertz.

HSR Act.................... Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. 15 U.S.C. (S)18a.

IMT........................ Inter-machine trunk. A transmission facility
between switches.

Indemnified Liability...... This term has the meaning stated on page 60 of
the Proxy Statement/Prospectus.

Indemnified Person......... This term has the meaning stated on page 60 of
the Proxy Statement/Prospectus.

Initial Merger Agreement... This term has the meaning stated on page 41 of
the Proxy Statement/Prospectus.

Initial Public Offering.... The initial public offering of Qwest in June
1997.

Innova..................... Innova, Inc.

Interconnect............... Connection of a telecommunications device or
service to the public switched telephone network
("PSTN").

Interexchange carrier...... A company providing inter-LATA or long distance
services between LATAs on an intrastate or
interstate basis.

Inter-LATA................. Originates in one LATA and terminates within
another.

Intra-LATA................. Originates and terminates within the same LATA.

IRS........................
This term has the meaning stated on page 63 of
the Proxy Statement/Prospectus.

G-4

ISI........................
Interstate Savings, Inc.

ISP (Internet Service A company that provides businesses and consumers
Provider)................. with access to the Internet.

Issuance................... This term has the meaning stated on page i.

J.C. Bradford.............. J.C. Bradford & Co., L.L.C., Phoenix's investment
banker in connection with the Merger.

J.C. Bradford Engagement This term has the meaning stated on page 46 of
Letter.................... the Proxy Statement/Prospectus.

Kbps....................... Kilobits per second, which is a measurement of
speed for digital signal transmission expressed
in thousands of bits per second.

KN......................... KN Energy, Inc.

LATAs (Local Access and
Transport Areas).......... The approximately 200 geographic areas that
define the areas between which the RBOCs
currently are prohibited from providing long
distance services.

LCI........................ LCI International, Inc.

LDDS Liability............. This term has the meaning stated on page 5 of the
Proxy Statement/Prospectus.

LDDS Litigation............ This term has the meaning stated on page 4 of the
Proxy Statement/Prospectus.

Leased IMTs................ IMTs provided for a fixed monthly payment.

Leased switching Switching equipment provided under arrangements
equipment................. which give the lessee effective control over the
switching equipment.

LEC (Local Exchange A company historically providing local telephone
Carrier).................. services and access to end users through its
local access network.

Lit fiber.................. Fiber activated or equipped with the requisite
electronic and optronic equipment necessary to
use the fiber for transmission.

Local access charge........ See "Access charges."

Local access network....... The local networks of LECs which provide access
between persons' telephones and the switching
equipment of long distance providers.

Local loop................. A circuit that connects an end user to the LEC
central office within a LATA.

Long haul.................. The portion of a long distance telephone call
between the originating and terminating local
exchange carriers. Also referred to as transport.

G-5

Long-haul circuit..........
A dedicated telecommunications circuit generally
between locations in different LATAs.

Lucent..................... This term has the meaning stated on page 2 of the
Proxy Statement/Prospectus.

Mbps....................... Megabits per second, which is a measurement of
speed for digital signal transmission expressed
in millions of bits per second.

MCI........................ MCI Communications Corporation.

MCI Agreement.............. This term has the meaning stated on page 133 of
the Proxy Statement/Prospectus.

MCI Payable................ This term has the meaning stated on page 5 of the
Proxy Statement/Prospectus.

MCI Shortfall Amount....... This term has the meaning stated on page 134 of
the Proxy Statement/Prospectus.

McGettigan Wick............ This term has the meaning stated on page 12 of
the Proxy Statement/Prospectus.

Merger Agreement........... This term has the meaning stated on the cover
page of the Proxy Statement/Prospectus.

Merger Consideration....... This term has the meaning stated on the cover
page of the Proxy Statement/Prospectus.

Microwave System........... This term has the meaning stated on page 78 of
the Proxy Statement/Prospectus.

Midcom..................... Midcom Communications Inc.

MOU........................ Minutes of use of long distance service.

Multiplexing............... An electronic or optical process that combines a
large number of lower speed transmission lines
into one high speed line by splitting the total
available bandwidth into narrower bands
(frequency division), or by allotting a common
channel to several different transmitting
devices, one at a time in sequence (time
division).

National Accounts.......... This term has the meaning stated on page 133 of
the Proxy Statement/Prospectus.

Network Construction This term has the meaning stated on page 2 of the
Services.................. Proxy Statement/Prospectus.

New Billing and Customer
Care Platform.............
This term has the meaning stated on page 148 of
the Proxy Statement/Prospectus.

G-6

New Exchange Notes.........
This term has the meaning stated on page 75 of
the Proxy Statement/Prospectus.

New Senior Discount Notes.. This term has the meaning stated on page 74 of
the Proxy Statement/Prospectus.

New Senior Discount
Registration Default...... This term has the meaning stated on page 75 of
the Proxy Statement/Prospectus.

1993 Capacity Sale......... This term has the meaning stated on page 19 of
the Proxy Statement/Prospectus.

NOLs....................... This term has the meaning stated on page 150 of
the Proxy Statement/Prospectus.

Nortel..................... This term has the meaning stated on page 2 of the
Proxy Statement/Prospectus.

NSN........................ NEWSUPERNET.

OC-3, OC-12, OC-48 and
OC-192.................... OC is a measure of SONET transmission optical
carrier level, which is equal to the
corresponding number of DS-3s (e.g., OC-3 is
equal to 3 DS-3s and OC-48 is equal to 48 DS-3s).

"1 plus" service........... The service by which a person may place a long
distance telephone call by dialing "1," the area
code (if necessary), and the telephone number of
the person being called, without the necessity of
dialing special access codes or identification
numbers.

Opinion.................... This term has the meaning stated on page 62 of
the Proxy Statement/Prospectus.

Order...................... This term has the meaning stated on page 140 of
the Proxy Statement/Prospectus.

Origination................ The portion of a telephone call consisting of
First Mile Connection and switching by a long
distance provider onto transmission facilities
for transport.

PCS Services............... Personal communication services. Emerging
technologies providing wireless access to the
local and long distance telephone systems.

Phoenix.................... Phoenix Network, Inc.

Phoenix AmeriConnect This term has the meaning stated on page 55 of
Rights.................... the Proxy Statement/Prospectus.

Phoenix Annual Meeting..... This term has the meaning stated on the cover
page of the Proxy Statement/Prospectus.

Phoenix Board.............. The board of directors of Phoenix.

Phoenix Bylaws.............
The bylaws of Phoenix.

G-7

Phoenix Certificate of
Incorporation............. The certificate of incorporation of Phoenix.

Phoenix Credit Facility.... This term has the meaning stated on page 33 of
the Proxy Statement/Prospectus.

Phoenix Common Stock....... This term has the meaning stated on the cover
page of the Proxy Statement/Prospectus.

Phoenix's IMT's............ This term has the meaning stated on page 132 of
the Proxy Statement/Prospectus.

Phoenix Record Date........ This term has the meaning stated on page 2 of the
Proxy Statement/Prospectus.

Phoenix Series F Warrants.. This term has the meaning stated on page 55 of
the Proxy Statement/Prospectus.

Phoenix Stockholders....... This term has the meaning stated on the cover
page of the Proxy Statement/Prospectus.

Phoenix Sunrise Warrants... This term has the meaning stated on page 55 of
the Proxy Statement/Prospectus.

PNAC....................... Phoenix Network Acquisition Corp., a wholly-owned
subsidiary of Phoenix.

Prior Plan................. This term has the meaning stated on page 119 of
the Proxy Statement/Prospectus.

Provisions................. The process of setting up a new customer on the
company's billing system and successfully
completing the change of designated long distance
carrier through the LEC.

PUC........................ State public utilities commission.

Provisioning............... The process of setting up a new customer on the
company's billing system and successfully
completing the change of designated long distance
carrier through the LEC.

QC......................... Qwest Corporation, a wholly-owned subsidiary of
Qwest.

QCC........................ Qwest Communications Corporation, a wholly-owned
subsidiary of Qwest.

Qwest...................... Qwest Communications International Inc.

Qwest Board................ The board of directors of Qwest.

Qwest Bylaws............... The bylaws of Qwest.

Qwest Certificate of The certificate of incorporation of Qwest.
Incorporation.............

Qwest Certificates.........
This term has the meaning stated on page 54 of
the Proxy Statement/Prospectus.

G-8

Qwest Common Stock.........
Common Stock, par value $.01 per share, of Qwest.
All references to Qwest Common Stock, unless
otherwise indicated, shall be deemed to refer to
Qwest Common Stock after giving effect to the
Qwest Stock Split. In case of any capital
reorganization or any reclassification (other
than a change in par value) of the capital stock
of Qwest, or of any exchange or conversion of
Qwest Common Stock for or into securities of
another corporation, or in case of the
consolidation or merger of Qwest with or into any
other person (other than a merger which does not
result in any reclassification, conversion,
exchange or cancellation of outstanding shares of
Qwest Common Stock), each share of "Qwest Common
Stock" that shall then be included as a part of
any unpaid Merger Consideration shall refer to
the kind and amount of shares of stock, other
securities, cash and other property receivable
upon such capital reorganization,
reclassification of capital stock, consolidation
or merger, as the case may be, by a holder of a
share of Qwest Common Stock immediately prior to
the effective date of such capital
reorganization, reclassification of capital
stock, consolidation or merger, assuming (1) such
holder of Qwest Common Stock is not a person with
which Qwest consolidated or into which Qwest
merged or which merged into Qwest, as the case
may be (a "constituent entity"), or an affiliate
of a constituent entity, and (2) such person
failed to exercise his rights of election, if
any, as to the kind or amount of securities, cash
and other property receivable upon such capital
reorganization, reclassification of capital
stock, consolidation or merger.

Qwest Network.............. This term has the meaning stated on page 2 of the
Proxy Statement/Prospectus.

Qwest Preferred Stock...... Preferred Stock, par value $.01 per share, of
Qwest.

Qwest Stock Split.......... This term has the meaning stated on page 1 of the
Proxy Statement/Prospectus.

Qwest Subsidiary........... Qwest 1997-5 Acquisition Corp., a wholly-owned
subsidiary of Qwest.

RBOCs (Regional Bell
Operating Companies)...... The seven local telephone companies (formerly
part of AT&T) established as a result of the AT&T
Divestiture Decree.

Regeneration/amplifier..... Devices which automatically re-transmit or boost
signals on an out-bound circuit.

Registration Statement..... This term has the meaning stated on page i of the
Proxy Statement/Prospectus.

Reorganization.............
This term has the meaning stated on page 62 of
the Proxy Statement/Prospectus.

G-9

Reseller...................
A carrier that does not own transmission
facilities, but obtains communications services
from another carrier for resale to the public.

Resurgens.................. Resurgens Capital Group, Inc.

Rule 144................... This term has the meaning stated on page 32 of
the Proxy Statement/Prospectus.

Section 203................ Section 203 of the DGCL.

Section 262................ Section 262 of the DGCL.

Securities Act............. Securities Act of 1933, as amended.

Senior Discount Notes...... This term has the meaning stated on page 16 of
the Proxy Statement/Prospectus.

Series I Preferred Stock... Series I Convertible Preferred Stock, par value
$.001 par share, of Phoenix.

SG&A....................... Selling, general and administrative expenses.

Shortfall Amounts.......... This term has the meaning stated on page 135 of
the Proxy Statement/Prospectus.

SONET (Synchronous Optical
Network Technology)....... An electronics and network architecture for
variable-bandwidth products which enables
transmission of voice, data and video
(multimedia) at very high speeds.

SONET ring................. A network architecture which provides for
instantaneous restoration of service in the event
of a fiber cut by automatically rerouting traffic
the other direction around the ring. This occurs
so rapidly (in 50 milliseconds) it is virtually
undetectable to the user.

Southern Pacific........... Southern Pacific Rail Corporation.

Spectrum................... A term generally applied to radio frequencies.

Sprint..................... Sprint Communications, Inc.

Sprint Communications...... Sprint Communications, L.P.

Sprint Communications
Agreement................. This term has the meaning stated on page 134 of
the Proxy Statement/Prospectus.

Sprint Communications
Shortfall Amount.......... This term has the meaning stated on page 135 of
the Proxy Statement/Prospectus.

Sprint Payable............. This term has the meaning stated on page 5 of the
Proxy Statement/Prospectus.

Stock Consideration........
This term has the meaning stated on the cover
page of the Proxy Statement/Prospectus.

G-10

Superior Proposal..........
This term has the meaning stated on page 57 of
the Proxy Statement/Prospectus.

SuperNet................... SuperNet, Inc.

Surviving Corporation...... This term has the meaning stated on the cover
page of the Proxy Statement/Prospectus.

Switch..................... A device that selects the paths or circuits to be
used for transmission of information and
establishes a connection. Switching is the
process of interconnecting circuits to form a
transmission path between users and it also
captures information for billing purposes.

Switched service carriers.. A carrier that sells switched long distance
service and generally refers to a carrier that
owns its switch.

Switchless resellers....... A carrier that does not own facilities or
switches, but purchases minutes in high volumes
from other carriers and resells those minutes.

TAR........................ Total Accounting Rate.

Telecommunications Act..... The Telecommunications Act of 1996.

Tele-Trend................. Tele-Trend Communications, LLC

10XXX Service.............. The ability for a user to access any carrier's
long distance network by dialing the carrier's
Carrier Identification Code (CIC) which is a 1
plus 0 plus three specifically assigned digits,
thereby bypassing the user's primary
interexchange carrier.

Terabits................... A trillion bits of transmission capacity.

Termination................ The portion of a telephone call consisting of
Last Mile Connection and switching by a long
distance provider onto a local access network for
termination.

Trunk...................... A communications channel between two switches.
"Trunking" calls reduces the likelihood of
traffic blockage due to network congestion. A
trunked system combines multiple channels with
unrestricted access in such a manner that user
demands for channels are automatically "queued"
and then allocated to the first available
channel.

Unbundled Access........... Access to local access networks on an unbundled
basis, i.e., on a basis that allows a long
distance provider to interconnect with the local
access network at any point and pay charges only
for the portions of the local access network that
it uses.

Union Pacific.............. Union Pacific Corporation.

US One.....................
US One Communications Corp.

G-11

Van Essen..................
This term has the meaning stated on page 4 of the
Proxy Statement/Prospectus.

Van Essen Escrow This term has the meaning stated on page 141 of
Agreement................. the Proxy Statement/Prospectus.

Van Essen Indemnification
and Hold Harmless This term has the meaning stated on page 4 of the
Agreement................. Proxy Statement/Prospectus.

Van Essen Note............. This term has the meaning stated on page 173 of
the Proxy Statement/Prospectus.

Voting Agreement...........
This term has the meaning stated on page 11 of
the Proxy Statement/Prospectus.

WorldCom................... WorldCom, Inc., together with its subsidiaries,
including WilTel (formerly, LDDS Communications,
Inc.).

WTO........................
The World Trade Organization.

WTO Agreement.............. This term has the meaning stated on page 94 of
the Proxy Statement/Prospectus.

G-12

EXHIBIT A

AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

DATED AS OF

DECEMBER 31, 1997

AMONG

PHOENIX NETWORK, INC.,

QWEST COMMUNICATIONS INTERNATIONAL INC.

AND

QWEST 1997-5 ACQUISITION CORP.

A-1

TABLE OF CONTENTS

PAGE
----
ARTICLE I

The Transactions........................................... A-5
Section 1.1 The Merger................................................. A-5
Section 1.2 Qwest/Principal Stockholders Transactions.................. A-11

ARTICLE II

Closing.................................................... A-11
Section 2.1 Time of Closing............................................ A-11
Section 2.2 Location of Closing........................................ A-11

ARTICLE III

Conditions of Closing...................................... A-11
Section 3.1 Conditions Precedent to Closing............................ A-11

ARTICLE IV

Representations and Warranties of the Company.............. A-14
Section 4.1 Existence and Power........................................ A-14
Section 4.2 Authorization; Contravention............................... A-14
Section 4.3 Approvals.................................................. A-14
Section 4.4 Binding Effect............................................. A-15
Section 4.5 Financial Information...................................... A-15
Section 4.6 Absence of Certain Changes or Events....................... A-16
Section 4.7 Taxes...................................................... A-17
Section 4.8 Undisclosed Liabilities.................................... A-19
Section 4.9 Litigation................................................. A-19
Section 4.10 Compliance with Regulations................................ A-19
Section 4.11 Licenses................................................... A-19
Section 4.12 Employee Matters........................................... A-20
Section 4.13 Capitalization............................................. A-24
Section 4.14 Subsidiaries............................................... A-25
Section 4.15 Property................................................... A-26
Section 4.16 Securities................................................. A-26
Section 4.17 Proprietary Rights......................................... A-27
Section 4.18 Insurance.................................................. A-27
Section 4.19 Debt....................................................... A-28
Section 4.20 Environmental Matters...................................... A-28
Section 4.21 Books and Records.......................................... A-29
Section 4.22 Material Contracts......................................... A-29
Section 4.23 Restrictions on Business Activities........................ A-30
Section 4.24 Transactions with Affiliates............................... A-30
Section 4.25 Certain Financial Matters.................................. A-30
Section 4.26 Misstatements.............................................. A-31
Section 4.27 SEC Documents.............................................. A-31
Section 4.28 Proxy Statement/Prospectus; Registration Statement; Other
Information............................................... A-32
Section 4.29 Board Approval............................................. A-32
Section 4.30 Required Vote.............................................. A-32
Section 4.31 Business Combination Transactions.......................... A-32
Section 4.32 Aggregate Material Adverse Effect.......................... A-32
Section 4.33 Fees for Financial Advisors, Brokers and Finders........... A-33

A-2

PAGE
----

Section 4.34 Ownership of Qwest Common Stock............................ A-33
Section 4.35 Anti-Takeover Provisions................................... A-33
Section 4.36 Continuing Representations and Warranties.................. A-33

ARTICLE V

Representations and Warranties of Qwest and Qwest
Subsidiary................................................ A-34
Section 5.1 Corporate Existence and Power.............................. A-34
Section 5.2 Authorization; Contravention............................... A-34
Section 5.3 Approvals.................................................. A-34
Section 5.4 Binding Effect............................................. A-34
Section 5.5 Financial Information...................................... A-35
Section 5.6 Absence of Certain Changes or Events....................... A-35
Section 5.7 Litigation................................................. A-35
Section 5.8 Compliance with Regulations................................ A-35
Section 5.9 Capitalization............................................. A-36
Section 5.10 SEC Documents.............................................. A-36
Section 5.11 Proxy/Statement/Prospectus; Registration Statement; Other
Information............................................... A-37
Section 5.12 Ownership of Company Common Stock.......................... A-37
Section 5.13 Misstatements.............................................. A-37
Section 5.14 Continuing Representations and Warranties.................. A-37

ARTICLE VI

Covenants of the Parties................................... A-38
Section 6.1 Covenants of the Parties................................... A-38
Section 6.2 Proxy Statement/Prospectus; Registration Statement......... A-40
Section 6.3 Letters of Accountants..................................... A-40

ARTICLE VII

Additional Covenants of the Company........................ A-40
Section 7.1 Affirmative Covenants of the Company....................... A-40
Section 7.2 Negative Covenants of the Company.......................... A-43

ARTICLE VIII

Additional Covenants of Qwest.............................. A-48
Section 8.1 Affirmative Covenants of Qwest............................. A-48
Section 8.2 Directors' and Officers' Insurance; Indemnification........ A-48
Section 8.3 Employee Benefits Matters.................................. A-49
Section 8.4 SEC Documents.............................................. A-50
Section 8.5 Transfer of Surviving Corporation.......................... A-50

ARTICLE IX

Termination................................................ A-50
Section 9.1 Termination................................................ A-50
Section 9.2 Fees; Expenses; Other Amounts.............................. A-52

A-3

PAGE
----
ARTICLE X

Miscellaneous.............................................. A-53
Section 10.1 Notices.................................................... A-53
Section 10.2 No Waivers; Remedies; Specific Performance................. A-53
Section 10.3 Amendments, Etc. .......................................... A-53
Section 10.4 Successors and Assigns; Third Party Beneficiaries.......... A-53
Section 10.5 Accounting Terms and Determinations........................ A-54
Section 10.6 Governing Law.............................................. A-54
Section 10.7 Counterparts; Effectiveness................................ A-54
Section 10.8 Severability of Provisions................................. A-54
Section 10.9 Headings and References.................................... A-54
Section 10.10 Entire Agreement........................................... A-54
Section 10.11 Survival................................................... A-54
Section 10.12 Exclusive Jurisdiction..................................... A-55
Section 10.13 Waiver of Jury Trial....................................... A-55
Section 10.14 Affiliate.................................................. A-55
Section 10.15 Non-Recourse............................................... A-55

ANNEX

Annex 1............................................................. Definitions

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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

Amended and Restated Agreement and Plan of Merger dated as of December 31,
1997 among Phoenix Network, Inc., a Delaware corporation (together with its
successors and assigns, the "Company"), Qwest Communications International
Inc., a Delaware corporation (together with its successors and assigns,
"Qwest"), and Qwest 1997-5 Acquisition Corp., a Delaware corporation and a
direct, Wholly-Owned Subsidiary of Qwest (together with its successors and
assigns, "Qwest Subsidiary").

Terms not otherwise defined in this Agreement have the meanings stated in
Annex 1 attached hereto.

RECITALS

A. The Company, Qwest and Qwest Subsidiary have entered into the Agreement
and Plan of Merger dated as of December 31, 1997, pursuant to which Qwest
Subsidiary shall merge (the "MERGER") with and into the Company.

B. The Company has informed Qwest and Qwest Subsidiary that as of January
16, 1998 there are no shares of Company Series I Preferred Stock outstanding.

C. On January 29, 1998, the parties amended and restated such Agreement and
Plan of Merger in order (i) to delete certain references to the Company Series
I Preferred Stock and certain requirements relating thereto, (ii) to reflect
the Qwest Stock Split, (iii) to clarify the terms of the Merger Consideration
and (iv) to make certain other amendments to such Agreement and Plan of
Merger.

D. As of February 10, 1998, the parties desire to further amend and restate
such Agreement and Plan of Merger (i) to further clarify the terms of the
Merger Consideration and (ii) to make certain other amendments to such
Agreement and Plan of Merger.

AGREEMENT

In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties agree that such Agreement and Plan of
Merger shall be, and hereby is, amended and restated in its entirety as
follows:

ARTICLE I

The Transactions

SECTION 1.1 THE MERGER.

(a) Merger. Subject to the terms and conditions set forth in this Agreement,
on the Closing Date the Company and Qwest Subsidiary shall file a certificate
of merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the
State of Delaware, and make all other filings or recordings required by the
DGCL to effect the Merger. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Secretary of State of the
State of Delaware or at such later time as is specified in the Certificate of
Merger (the "EFFECTIVE TIME"). At the Effective Time:

(1) Qwest Subsidiary shall be merged with and into the Company in
accordance with the DGCL, whereupon (A) the separate existence of Qwest
Subsidiary shall cease, (B) the Company shall be the surviving corporation
(together with its successors and assigns, the "SURVIVING CORPORATION"),
having all the rights, privileges and powers and being subject to all of
the restrictions, disabilities and duties of the Company and Qwest
Subsidiary, all as provided in the DGCL, (C) the certificate of
incorporation and bylaws of Qwest Subsidiary as in effect immediately prior
to the Merger shall be the certificate of incorporation and bylaws of the
Surviving Corporation and (D) the directors and officers of Qwest
Subsidiary at the Effective Time shall, from and after the Effective Time,
be the initial directors and initial officers, respectively, of the
Surviving Corporation until their successors shall have been duly elected
or appointed and qualified or until their earlier death, resignation or
removal in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation;

A-5

(2) each outstanding share of common stock, par value $.001 per share, of
the Company (the "COMPANY COMMON STOCK"), shall cease to be outstanding
and, subject to the exceptions in Section 1.1(a)(5), shall be converted
into the right to receive (A) the Conversion Number of shares of common
stock, par value $.01 per share, of Qwest (the "QWEST COMMON STOCK") and
(B) the Contingent Cash Consideration (clause (A) and clause (B) together,
the "MERGER CONSIDERATION"). "CONVERSION NUMBER" means the number equal to
the quotient obtained by dividing (i) the quotient obtained by dividing the
Acquisition Value by the Effective Time Adjusted Average Market Price by
(ii) the sum (the "AGGREGATE NUMBER") of (a) the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time
and (b) the number of shares of Company Common Stock that would be issued
if all Company Series F Warrants, Company Sunrise Warrants and Company
AmeriConnect Rights that are not exercised, exchanged, cancelled or
otherwise terminated in accordance with Section 7.1(j) were exercised or
exchanged in accordance with their terms immediately prior to the Effective
Time. "ACQUISITION VALUE" means the amount by which (1) $28,500,000 exceeds
(2) the sum of the aggregate amount paid and payable by the Company as of
the Effective Time pursuant to (A) paragraph A.14.1 of Attachment A to the
Resale Solutions Switched Services Agreement dated December 1996 between
the Company and Sprint Communications Company L.P. with respect to the
difference between the Company's Actual Net Usage (as defined therein) and
$12,000,000 during months 1-12 of the term of such agreement (the "SPRINT
PAYABLES OBLIGATION") and (B) Section 3 of the Carrier Agreement between
the Company and MCI Telecommunications Corporation with respect to the
difference between the Company's Usage Charges (as defined therein) and its
Annual Commitment (as defined therein) during the term of such agreement
(the "MCI PAYABLES OBLIGATION"). "EFFECTIVE TIME ADJUSTED AVERAGE MARKET
PRICE" means (i) the Average Market Price per share of Qwest Common Stock
at the Effective Time if such Average Market Price is equal to or greater
than $26.25 and equal to or less than $33.75, (ii) $26.25 if the Average
Market Price per share of Qwest Common Stock at the Effective Time is equal
to or greater than $23.75 and less than $26.25, (iii) $33.75 if the Average
Market Price per share of Qwest Common Stock at the Effective Time is equal
to or less than $36.25 and greater than $33.75, (iv) $26.25 less fifty
percent (50%) of the amount by which the Average Market Price per share of
Qwest Common Stock at the Effective Time is less than $23.75 if such
Average Market Price is less than $23.75, or (v) the sum of (x) $33.75 and
(y) fifty percent (50%) of the amount by which the Average Market Price per
share of Qwest Common Stock at the Effective Time is greater than $36.25 if
such Average Market Price is greater than $36.25. "CONTINGENT CASH
CONSIDERATION" means an amount equal to the quotient obtained by dividing
(i) the sum of (1)(A) $4,000,000 minus (B) the LDDS Liability (as defined
below) plus (C) any amounts recovered by any of Qwest and its subsidiaries
on or before the Contingent Cash Consideration Date under the Van Essen
Indemnification and Hold Harmless Agreement (net of all out-of-pocket
costs, fees and expenses, including, without limitation, the fees and
disbursements of counsel and the expenses of litigation, incurred in
collecting such amounts, in each case to the extent not reimbursed pursuant
to the Van Essen Indemnification and Hold Harmless Agreement) plus (2)
interest on the amount determined in accordance with the preceding clause
(1) at a rate of 7% per annum, compounded annually, from the Closing Date
to, but excluding, the Contingent Cash Consideration Date by (ii) the
Aggregate Number; provided that, if there has not occurred a settlement or
other final, nonappealable resolution of the litigation styled
LDDS/WorldCom, Inc. and Dial-Net, Inc. v. Automated Communication, Inc. and
Judy Van Essen Kenyon, C.A. No. 3:93-CV-463 (WS) (U.S.D.C. S.D. Miss) (the
"LDDS LITIGATION"), on or prior to the Contingent Cash Consideration Date,
the Contingent Cash Consideration shall be an amount equal to zero dollars
($0). "LDDS LIABILITY" means the aggregate amount of any Loss of any of
Qwest and its Subsidiaries (including, without limitation, any of the
Company, the Surviving Corporation, Automated Communication, Inc. and their
Subsidiaries) in connection with, arising from or related to (1) the LDDS
Litigation or (2) any other Action based, in whole or in part, upon facts
involved in the LDDS Litigation, in each case, including, without
limitation, any damages or any fees, expenses or other

A-6

disbursements of counsel. "CONTINGENT CASH CONSIDERATION DATE" means the
date that is the earlier of (1) the third anniversary of the Closing Date
and (2) the date as of which Qwest shall have determined, in the exercise
of its reasonable judgment and after having exercised commercially
reasonable efforts to obtain recovery under the Van Essen Indemnification
and Hold Harmless Agreement, that it is not reasonably likely in the
circumstances that Qwest and its Subsidiaries shall recover substantial
additional amounts under such agreement on or before the third anniversary
of the Closing Date (net of all out-of-pocket costs, fees and expenses,
including, without limitation, the fees and disbursements of counsel and
the expenses of litigation, incurred in connection with collecting such
amounts, in each case to the extent not reimbursed or likely to be
reimbursed pursuant to the Van Essen Indemnification and Hold Harmless
Agreement on or before the third anniversary of the Closing Date); provided
that in no event shall any of Qwest and its Subsidiaries be required to
exercise more than commercially reasonable efforts with respect to such
recovery;

(3) each Warrant that is not exercised, exchanged, cancelled or otherwise
terminated in accordance with Section 7(j) shall be exercisable into or
exchangeable for such Merger Consideration as would be paid pursuant to
Section 1.1(a)(2) in respect of the shares of Company Common Stock that
would be issued if such Warrant had been exercised or exchanged in
accordance with its terms immediately prior to the Effective Time;

(4) the stock transfer books of the Company shall be closed and there
shall be no further registration of transfers of shares of Company Common
Stock on the records of the Company;

(5) any shares of Company Common Stock held by the Company, Qwest, Qwest
Subsidiary or their respective Wholly-Owned Subsidiaries (other than shares
held in trust) shall be cancelled and no consideration shall be delivered
in exchange therefor; and

(6) each outstanding share of common stock of Qwest Subsidiary shall be
converted into and exchangeable for one share of common stock of the
Surviving Corporation.

(b) No Further Ownership Rights in Company Common Stock. From and after the
Effective Time, holders of a certificate or certificates that immediately
before the Effective Time represented shares of Company Common Stock (the
"CERTIFICATES") shall have no right to vote or to receive any dividends or
other distributions with respect to any shares of Company Common Stock that
were theretofore represented by such Certificates, other than any dividends or
other distributions payable to holders of record as of a date prior to the
Effective Time, and shall have no other rights in respect thereof other than
as provided herein or by law. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, other than Certificates in respect of
Dissenting Shares, the rights to which have been perfected or not withdrawn or
lost under the DGCL, they shall be cancelled and exchanged for Merger
Consideration as provided in Section 1.1(d). Until surrendered in accordance
with the provisions of Section 1.1(d), each Certificate (other than
Certificates representing Dissenting Shares or shares of Company Common Stock
held by any of the Company, Qwest, Qwest Subsidiary and their respective
Wholly-Owned Subsidiaries) shall represent for all purposes the right to
receive only (1) certificates representing the number of whole shares of Qwest
Common Stock into which such shares shall have been converted pursuant to
Section 1.1(a) (the "QWEST CERTIFICATES"), without interest, (2) the
Contingent Cash Consideration per share of Company Common Stock, without any
additional interest, (3) certain dividends and other distributions in
accordance with Section 1.1(e), without interest, and (4) cash in lieu of
fractional shares of Qwest Common Stock in accordance with Section 1.1(g),
without interest. Holders of unsurrendered Certificates shall have no right to
vote with respect to shares of Qwest Common Stock into which shares of Company
Common Stock represented by such Certificates shall have been converted
pursuant to Section 1.1(a).

(c) Exchange Agent. Prior to the Effective Time, Qwest Subsidiary shall or,
in the event Qwest Subsidiary shall fail to do so, Qwest shall (1) designate a
bank or trust company to act as exchange agent in the Merger (the "EXCHANGE
AGENT") and shall enter into a mutually acceptable agreement with the Exchange
Agent pursuant to which, after the Effective Time, the Exchange Agent shall
distribute the Merger Consideration on a timely basis and (2) according to the
terms of the agreement

A-7

with the Exchange Agent, deposit or cause to be deposited with the Exchange
Agent as of the Effective Time, for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance with this Section 1.1,
through the Exchange Agent, Qwest Certificates representing the number of
whole shares of Qwest Common Stock issuable pursuant to Section 1.1(a) in
exchange for outstanding shares of Company Common Stock. Such shares of Qwest
Common Stock, together with any dividends or distributions with respect
thereto with a record date after the Effective Time, any Excess Shares and any
cash (including cash proceeds from the sale of the Excess Shares) payable in
respect of any share of Company Common Stock or in lieu of any fractional
shares of Qwest Common Stock are referred to as the "EXCHANGE FUND".

(d) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall be instructed to mail to each record holder (other
than any holder of Dissenting Shares or any of the Company, Qwest, Qwest
Subsidiary and their respective Wholly-Owned Subsidiaries) of a Certificate or
Certificates a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender to the Exchange Agent of a Certificate, together
with such letter of transmittal duly executed and completed in accordance with
the instructions thereon, the holder of such Certificate shall be entitled to
receive in exchange therefor a Qwest Certificate representing that number of
whole shares of Qwest Common Stock which such holder has the right to receive
pursuant to the provisions of Section 1.1(a), certain dividends or other
distributions in accordance with Section 1.1(e) and cash in lieu of any
fractional share in accordance with Section 1.1(g), and such Certificate shall
forthwith be cancelled. No interest shall be paid or accrued on the Merger
Consideration, on any such dividend or other distribution or on cash payable
in lieu of any fractional share of Qwest Common Stock. All distributions to
holders of Certificates shall be subject to any applicable federal, state,
local and foreign tax withholding, and such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of
Certificates in respect of which such deduction and withholding was made. If
the Merger Consideration is to be distributed to a person other than the
person in whose name the Certificate surrendered is registered, it shall be a
condition of such distribution that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer (including
signature guarantees, if required by the Surviving Corporation in its sole
discretion) and that the person requesting such distribution shall pay any
transfer or other taxes required by reason of such distribution to a person
other than the registered holder of the Certificate surrendered or, in the
alternative, establish to the satisfaction of Qwest Subsidiary that such tax
has been paid or is not applicable. After the Effective Time, the Surviving
Corporation shall pay all charges and expenses, including those of the
Exchange Agent, in connection with the distribution of the Merger
Consideration.

(e) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Qwest Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Qwest Common Stock represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 1.1(g), and all such dividends, other distributions and
cash in lieu of fractional shares of Qwest Common Stock shall be paid by Qwest
to the Exchange Agent and shall be included in the Exchange Fund, in each case
until the surrender of such Certificate in accordance with Section 1(d).
Subject to the effect of applicable escheat or similar laws following
surrender of any such Certificate, there shall be paid to the holder thereof
(1) at the time of such surrender, a Qwest Certificate representing whole
shares of Qwest Common Stock issued in exchange therefor, without interest,
(2) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Qwest Common Stock and the amount of any
cash payable in lieu of a fractional share of Qwest Common Stock to which such
holder is entitled pursuant to Section 1.1(g), in each case without interest,
and (3) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such

A-8

surrender and with a payment date subsequent to such surrender payable with
respect to such whole shares of Qwest Common Stock, without interest. Qwest
shall make available to the Exchange Agent cash for these purposes to the
extent sufficient amounts are not then available in the Exchange Fund.

(f) Payment of Contingent Cash Consideration. Notwithstanding anything in
this Agreement to the contrary, Qwest shall, promptly following the Contingent
Cash Consideration Date, pay to each holder of Company Common Stock whose
shares shall be converted into the right to receive, at the Effective Time,
the Merger Consideration pursuant to this Agreement, the Contingent Cash
Consideration for each such share of Company Common Stock, without any
additional interest. The right to receive the Contingent Cash Consideration is
a personal right of each such holder and may not be assigned, sold,
transferred or traded to any other person (other than pursuant to the laws of
inheritance), and Qwest is not obligated to record or otherwise recognize any
assignment or sale of such right (other than pursuant to the laws of
inheritance).

(g) No Fractional Shares.

(1) No Qwest Certificates or scrip representing fractional shares of
Qwest Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Qwest shall relate to such
fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Qwest.

(2) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess (the "EXCESS SHARES") of (A) the number of
whole shares of Qwest Common Stock delivered to the Exchange Agent by Qwest
pursuant to Section 1.1(a) over (B) the aggregate number of whole shares of
Qwest Common Stock to be distributed to holders of Company Common Stock
pursuant to Section 1.1(d). Following the Effective Time, the Exchange
Agent shall, on behalf of former stockholders of the Company, sell the
Excess Shares at then-prevailing prices on NASDAQ/NM, all in the manner
provided in Section 1.1(g)(3).

(3) The sale of the Excess Shares by the Exchange Agent shall be executed
on NASDAQ/NM through one or more member firms of the NASD and shall be
executed in round lots to the extent practicable. The Exchange Agent shall
use reasonable efforts to complete the sale of the Excess Shares as
promptly following the Effective Time as, in the Exchange Agent's sole
judgment, is practicable consistent with obtaining the best execution of
such sales in light of prevailing market conditions. Until the net proceeds
of such sale or sales have been distributed to the holders of Company
Common Stock, the Exchange Agent shall hold such proceeds in trust for the
holders of the Company Common Stock. The Surviving Corporation shall pay
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of the Excess Shares. The Exchange Agent shall
determine the portion of such trust to which such holder of Company Common
Stock is entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising such trust by a fraction, the numerator of which is the
amount of the fractional share interest to which such holder of Company
Common Stock is entitled (after taking into account all shares of Company
Common Stock held at the Effective Time by such holder) and the denominator
of which is the aggregate amount of fractional share interests to which all
holders of Company Common Stock are entitled.

(4) Notwithstanding the provisions of Section 1.1(g)(2) and (3), the
Surviving Corporation may by written notice delivered to the Company before
the Effective Time, in lieu of the issuance and sale of Excess Shares and
the making of the payments contemplated by Sections 1.1(g)(2) and (3),
elect to pay each holder of Company Common Stock an amount in cash equal to
the product obtained by multiplying (A) the fractional share interest to
which such holder (after taking into account all shares of Company Common
Stock held at the Effective Time by such holder) would otherwise be
entitled by (B) the Closing Price of Qwest Common Stock on the Closing
Date, and, in such case, all references herein to the cash proceeds of the
sale of the Excess Shares and

A-9

similar references will be deemed to mean and refer to the payments
calculated as set forth in this Section 1.1(g)(4).

(5) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Common Stock with respect to any
fractional share interests, the Exchange Agent shall make available such
amounts to such holders of Company Common Stock subject to and in
accordance with the terms of Section 1.1(e).

(h) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by a stockholder who
has the right (to the extent such right is available by law) to demand and
receive payment of the fair value of such holder's stock pursuant to Section
262 of the DGCL (the "DISSENTING SHARES") shall not be converted into the
right to receive the Merger Consideration provided for in Section 1.1(a)(2)
(unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost such right under the DGCL, as the case may be),
but the holder thereof shall only be entitled to such rights as are granted by
Delaware law. If such holder shall have so failed to perfect or shall have
effectively withdrawn or lost such right, such holder's shares of Company
Common Stock shall thereupon be deemed to have been converted at the Effective
Time into the right to receive the Merger Consideration (without any interest
thereon). If the holder of any shares of Company Common Stock shall become
entitled to receive payment for such shares pursuant to Section 262 of the
DGCL, then such payment shall be made by the Surviving Corporation.

(i) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to Qwest, upon demand, and any holders
of the Certificates who have not theretofore complied with this Section 1.1
shall thereafter look only to Qwest as general creditors thereof for payment
of their claim for Merger Consideration or shares, any cash in lieu of
fractional shares of Qwest Common Stock and any dividends or distributions
with respect to Qwest Common Stock.

(j) No Liability. None of the Company, Qwest, Qwest Subsidiary and the
Exchange Agent shall be liable to any person in respect of any shares of Qwest
Common Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund in each case delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificate
shall not have been surrendered prior to seven years after the Effective Time
(or immediately prior to such earlier date of which any Merger Consideration,
any cash payable to the holder of such Certificate pursuant to this Section
1.1 or any dividends or distributions payable to the holder of such
Certificate would otherwise escheat to or become the property of any
governmental body or authority) any such Merger Consideration or cash,
dividends or distributions in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of the claims or interest of any person previously entitled
thereto.

(k) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Qwest, on any daily basis. Any
interest and other income arising from such investments shall be paid to
Qwest.

(l) Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall deliver in
exchange for such lost, stolen or destroyed Certificates, upon the making of
an affidavit of that fact by the holder thereof, the Merger Consideration with
respect to such Certificates as may be required pursuant to Section 1.1(a);
provided that the Surviving Corporation may, in its sole discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against any
of Qwest, the Surviving Corporation and the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.

A-10

(m) Tax Matters. The parties intend that the Merger qualify as a
reorganization under Section 368(a) of the Code. The parties hereby accept
this Agreement as a "plan of reorganization" within the meanings of sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.

SECTION 1.2 QWEST/PRINCIPAL STOCKHOLDERS TRANSACTIONS. Concurrently with the
execution and delivery of this Agreement, Qwest and each of the Principal
Stockholders are executing and delivering an Amended and Restated Voting
Agreement and Proxy substantially in the form of Exhibit A attached hereto
(the "VOTING AGREEMENT"), pursuant to which, among other things, each of the
Principal Stockholders is (1) agreeing to vote all the shares of Company
Common Stock beneficially owned by such Principal Stockholder (collectively,
the "RESTRICTED COMPANY SHARES") to approve this Agreement and the Merger and
against any Business Combination Transaction (other than the Transactions),
(2) granting to each of Qwest and Qwest Subsidiary an irrevocable proxy in
connection therewith and (3) agreeing to restrict the transfer of such
Restricted Company Shares.

ARTICLE II

Closing

SECTION 2.1 TIME OF CLOSING. The closing of the Merger shall take place (the
"CLOSING") on the later of (1) the first Business Day following the day on
which the last to be satisfied or waived of the conditions precedent to the
obligations of the parties under this Agreement shall have been satisfied or
waived, as the case may be, and (2) such other time as the parties may agree
(the "CLOSING DATE").

SECTION 2.2 LOCATION OF CLOSING. The Closing shall take place at the offices
of Holme Roberts & Owen LLP at 1700 Lincoln Street, 41st Floor, Denver,
Colorado 80203, or at such other location as approved by the parties.

ARTICLE III

Conditions of Closing

SECTION 3.1 CONDITIONS PRECEDENT TO CLOSING. The respective obligations of
each party under this Agreement with respect to the Merger are subject to the
satisfaction of each of the following conditions, unless waived by each of the
parties that is the beneficiary of the satisfaction of such condition, at or
before the Closing:

(a) holders of a majority of the outstanding shares of Company Common
Stock shall have approved this Agreement and the Merger in accordance with
the DGCL and the certificate of incorporation and bylaws of the Company;

(c) the shares of Qwest Common Stock issuable in the Merger shall have
been approved for inclusion in NASDAQ/NM, if necessary, subject only to
official notice of issuance;

(d) each of the Company, its Subsidiaries, Qwest and Qwest Subsidiary
shall have obtained from each Governmental Body or other person each
Approval or taken all actions required to be taken in connection with each
Approval, and all waiting, review or appeal periods under the Hart-Scott-
Rodino Act or otherwise prescribed with respect to each Approval shall have
terminated or expired, as the case may be, in each case with respect to an
Approval that is required or advisable on the part of such person for (1)
the due execution and delivery by such person of each

A-11

Transaction Document to which it is or may become a party, (2) the
conclusion of the Transactions, (3) the performance by such person of its
obligations with respect to the Transactions under each Transaction
Document to which it is or may become a party and (4) the exercise by such
person of its rights and remedies with respect to the Transactions under
each Transaction Document to which it is or may become a party or with
respect to which it is or may become an express beneficiary, except in each
case referred to in the preceding clauses (1), (2), (3) and (4) where the
failure to obtain such Approval, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect on such
person;

(e) except as disclosed in Section 4.9 of the Company's Disclosure
Schedule or Section 5.7 of Qwest and Qwest Subsidiary's Disclosure
Schedule, no Action shall be pending against the Company, its Subsidiaries,
Qwest and Qwest Subsidiary or, to their knowledge, threatened against any
of them or any other person that, individually or in the aggregate, if
determined adversely to any of them, could reasonably be expected to have a
Material Adverse Effect on any of the Company, its Subsidiaries, Qwest and
Qwest Subsidiary;

(f) except as disclosed in Section 4.3 of the Company's Disclosure
Schedule or Section 5.3 of Qwest and Qwest Subsidiary's Disclosure
Schedule, none of the Company, its Subsidiaries, Qwest and Qwest Subsidiary
(1) is in violation or breach of or default with respect to (A) any
Regulation of any Governmental Body or any decision, ruling, order or award
of any arbitrator applicable to it or its business, properties or
operations or (B) any agreement, indenture or other instrument to which it
is a party or by which it or its properties may be bound or affected, (2)
would be in violation or breach of or default with respect to any
Regulation of any Governmental Body or any decision, ruling, order or award
of any arbitrator applicable to it or its business, properties or
operations in connection with or as a result of the conclusion of any of
the Transactions or (3) has received notice that, in connection with or as
a result of the conclusion of any of the Transactions, it is or would be in
violation or breach of or default with respect to any Regulation of any
Governmental Body or any decision, ruling, order or award of any arbitrator
applicable to it or its business, properties or operations, except in each
case referred to in the preceding clauses (1), (2) (3), and (4) for
violations, breaches or defaults that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on such
person;

(g) except as disclosed in Section 4.6 of the Company's Disclosure
Schedule, since December 31, 1996, no circumstance has existed and no event
has occurred that has had, will have or could reasonably be expected to
have a Material Adverse Effect on the Company and its Subsidiaries;

(h) each Transaction Document required to be executed and delivered prior
to the Effective Time shall have been so executed and delivered by the
respective parties thereto;

(k) the Company shall have received an opinion from Grant Thornton LLP,
in form and substance reasonably satisfactory to it, and dated the date of
the Proxy Statement/Prospectus, to the effect that the Merger will qualify
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that none of the Company, its Subsidiaries,
Qwest and Qwest Subsidiary shall recognize gain or loss for federal income
tax purposes as a result of the Merger, other than with respect to any cash
paid as a part of the Merger Consideration or paid in lieu of fractional
shares of Qwest Common Stock;

A-12

(l) each party shall have received from each other party the following,
each dated the Closing Date, in form and substance reasonably satisfactory
to the receiving party:

(1) a certificate of the Secretary or an Assistant Secretary of such
other party with respect to (A) the certificate of incorporation or
articles of incorporation, as the case may be, of such other party, (B)
the bylaws of such other party, (C) the resolutions of the Board of
Directors of such other party, approving each Transaction Document to
which such other party is a party and the other documents to be
delivered by it under the Transaction Documents, and (D) the names and
true signatures of the officers of such other party who signed each
Transaction Document to which such other party is a party and the other
documents to be delivered by such other party under the Transaction
Documents;

(2) a certificate of the President or a Vice President of such other
party to the effect that (A) the representations and warranties of such
other party contained in the Transaction Documents to which it is a
party are true and correct in all material respects as of the Closing
Date and (B) such other party has performed, in all material respects,
all covenants and other obligations required by the Transaction
Documents to which it is a party to be performed by it on or before the
Closing Date;

(3) with respect to the Company, certified copies, or other evidence
satisfactory to Qwest and Qwest Subsidiary, of all Approvals of all
Governmental Bodies and other persons with respect to the Company
referred to in Section 4.3;

(4) with respect to Qwest, certified copies, or other evidence
satisfactory to the Company, of all Approvals of all Governmental
Bodies and other persons with respect to Qwest referred to in Section
5.3;

(5) with respect to Qwest Subsidiary, certified copies, or other
evidence satisfactory to the Company, of all Approvals of all
Governmental Bodies and other persons with respect to Qwest Subsidiary
referred to in Section 5.3;

(6) a certificate of the Secretary of State of the jurisdiction in
which such other party is incorporated, dated as of a recent date, as
to the good standing of and payment of taxes by such other party and as
to the charter documents of such other party on file in the office of
such Secretary of State; and

(7) with respect to the Company, a certificate of the President or a
Vice President of the Company, substantially in the form of Exhibit
3.1(l)(7) attached hereto; and

(m) Qwest and Qwest Subsidiary shall have received from the Company
evidence of the following, in each case in form and substance reasonably
satisfactory to Qwest and Qwest Subsidiary and, except as expressly
contemplated by this Agreement, without cost or other liability to any of
the Company, its Subsidiaries, Qwest and Qwest Subsidiary and any other
person:

(1) the resignation and general release by, each director and officer
of any of the Company and its Subsidiaries and the termination of any
related employment agreements in connection therewith, in each case
effective at or immediately following the Effective Time;

(2) a written agreement of each person who is identified as an
"affiliate" on the list furnished by the company pursuant to Section
7.1(i), which is substantially in the form of Exhibit 3.1(m)(2)
attached hereto;

(3) the exercise, exchange, cancellation or other termination of all
outstanding Stock Options and Warrants and all rights of participants
in any stock option, stock purchase, stock appreciation rights, phantom
stock, restricted stock or similar Company Employee Plan, in each case
on terms approved by Qwest and Qwest Subsidiary, other than such number
of Company Series F Warrants, Company Sunrise Warrants and Company
AmeriConnect Rights as shall not be required by Section 7.1(j) to be
cancelled or otherwise terminated; and
(4) the receipt by the Company at or before the Company Stockholders
Meeting of demands for appraisal pursuant to Section 262 of the DGCL by
holders of Company Common Stock with respect to less than the number of
shares of Company Common Stock referred to in Section 7.1(n).

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ARTICLE IV

Representations and Warranties
of the Company

The Company represents and warrants to Qwest and Qwest Subsidiary as
follows:

SECTION 4.1 EXISTENCE AND POWER. Each of the Company and its Subsidiaries
(1) is a corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or is a limited
liability company or limited partnership formed and validly existing under the
laws of the jurisdiction of its formation, (2) has all necessary power and
authority (as a corporation, limited liability company or limited partnership,
as the case may be) and all material licenses, authorizations, consents and
approvals required to own, lease, license or use its properties now owned,
leased, licensed or used and proposed to be owned, leased, licensed or used
and to carry on its business as now conducted and proposed to be conducted,
(3) is duly qualified as a foreign corporation, limited liability company or
limited partnership, as the case may be, under the laws of each jurisdiction
in which qualification is required either to own, lease, license or use its
properties now owned, leased, licensed and used or to carry on its business as
now conducted, except where the failure to effect or obtain such
qualification, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, and (4) has all necessary power
and authority (as a corporation, limited liability company or limited
partnership, as the case may be) to execute and deliver each Transaction
Document to which it is or may become a party and to perform its obligations
thereunder.

SECTION 4.2 AUTHORIZATION; CONTRAVENTION. Subject to obtaining the Approvals
referred to in Section 4.3, the execution and delivery by each of the Company
and its Subsidiaries of each Transaction Document to which it is or may become
a party and the performance by it of its obligations under each of those
Transaction Documents have been duly authorized by all necessary corporate
action and do not and will not (1) contravene, violate, result in a breach of
or constitute a default under (A) its articles of incorporation, certificate
of incorporation, bylaws, operating agreement or limited partnership
agreement, as applicable, (B) any Regulation of any Governmental Body or any
decision, ruling, order or award of any arbitrator by which any of the Company
and its Subsidiaries or any of their properties may be bound or affected,
including, without limitation, the Exchange Act, the Hart-Scott-Rodino Act and
the DGCL, or (C) any agreement, indenture or other instrument to which any of
the Company and its Subsidiaries is a party or by which any of the Company and
its Subsidiaries or their properties may be bound or affected, including,
without limitation, the Credit Agreement, or (2) result in or require the
creation or imposition of any Lien on any of the properties now owned or
hereafter acquired by any of the Company and its Subsidiaries, except in each
case referred to in the preceding clauses (1) and (2) for contraventions,
violations, breaches, defaults or Liens that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.

SECTION 4.3 APPROVALS. Except as expressly referred to in this Agreement or
otherwise disclosed in Section 4.3 of the Company's Disclosure Schedule, no
Approval of any Governmental Body or other person that has not been obtained
as of the date of this Agreement is required or advisable on the part of any
of the Company and its Subsidiaries for (1) the due execution and delivery by
the Company or such Subsidiary, as the case may be, of any Transaction
Document to which it is or may become a party, (2) the conclusion of the
Transactions, (3) the performance by the Company or such Subsidiary, as the
case may be, of its obligations under each Transaction Document to which it is
or may become a party and (4) the exercise by Qwest or Qwest Subsidiary, as
the case may be, of its rights under each Transaction Document to which Qwest
or Qwest Subsidiary, as the case may be, is or may become a party, except in
each case referred to in the preceding clauses (1), (2), (3) and (4) where the
failure to obtain such Approval, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

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SECTION 4.4 BINDING EFFECT. Each Transaction Document to which any of the
Company and its Subsidiaries is or may become a party is, or when executed and
delivered in accordance with this Agreement will be, the legally valid and
binding obligation of the Company or such Subsidiary, as the case may be,
enforceable against it in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally and general principles of
equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance or injunctive relief, regardless of whether considered in
a proceeding in equity or at law.

SECTION 4.5 FINANCIAL INFORMATION.

(a) The consolidated balance sheet of the Company and its consolidated
Subsidiaries as of December 31, 1996 and the related consolidated statements
of income (loss) and stockholders' equity and cash flows for the fiscal year
then ended, reported on by Grant Thornton LLP, true and complete copies of
which have been delivered to Qwest and Qwest Subsidiary, fairly present the
consolidated financial position of the Company and its consolidated
Subsidiaries as of that date and their consolidated results of operations and
cash flows for the year then ended, in accordance with GAAP applied on a
consistent basis except as described in the footnotes to the financial
statements or as disclosed in Section 4.5 of the Company's Disclosure
Schedule.

(b) The unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as of September 30, 1997 and the related
consolidated statements of income (loss) and stockholders' equity and cash
flows for the nine months then ended, true and complete copies of which have
been delivered to Qwest and Qwest Subsidiary, fairly present, subject to
normal year-end adjustments, the consolidated financial position of the
Company and its consolidated Subsidiaries as of that date and their
consolidated results of operations and cash flows for the nine months then
ended.

(c) The unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as of October 31, 1997 and the related consolidated
statements of income (loss) and stockholders' equity and cash flows for the
ten months then ended, true and complete copies of which have been delivered
to Qwest and Qwest Subsidiary, fairly present, subject to normal year-end
adjustments, the consolidated financial position of the Company and its
consolidated Subsidiaries as of that date and their consolidated results of
operations and cash flows for the ten months then ended.

(d) At the respective dates of the balance sheets referred to in this
Section 4.5, none of the Company and its Subsidiaries had any material
Liability that, in accordance with GAAP applied on a consistent basis, should
have been shown or reflected in the balance sheets but was not, except for the
omission of notes in unaudited balance sheets with respect to contingent
liabilities that in the aggregate did not materially exceed those so reported
in the latest audited balance sheets previously delivered and that were of
substantially the same type as so reported.

(e) All receivables of the Company and its Subsidiaries (including accounts
receivable, loans receivable and advances) which are reflected in the balance
sheets referred to in this Section 4.5, and all such receivables which have
arisen thereafter and prior to the Effective Time, have arisen or will have
arisen only from bona fide transactions in the Ordinary Course, the carrying
value of such receivables approximate their fair market values, subject to
adequate reserves for the Company's receivables that have been established on
the balance sheets in accordance with prior practice and GAAP.

(f) The Company has made available to Qwest and Qwest Subsidiary copies of
each management letter delivered to any of the Company and its Subsidiaries by
Grant Thornton LLP in connection with the financial statements referred to in
this Section 4.5 or relating to any review by them of the internal controls of
the Company and its Subsidiaries during the three years ended

A-15

December 31, 1996, or thereafter, and has made available for inspection and,
subject to the approval of Grant Thornton LLP, after the date of this
Agreement will make available for inspection all reports and working papers
produced or developed by them or management in connection with their
examination of those financial statements, as well as all such reports and
working papers for prior periods for which any liability of any of the Company
and its Subsidiaries for Taxes has not been finally determined or barred by
applicable statutes of limitation.

(g) Since December 31, 1993, there has been no material disagreement (within
the meaning of Item 304(a)(1)(iv) of Regulation S-K under the Securities Act)
between any of the Company and its Subsidiaries, on the one part, and any of
its independent accountants, on the other part, with respect to any aspect of
the manner in which the Company or such Subsidiary, as the case may be,
maintained or maintains its books and records or the manner in which the
Company or the Subsidiary, as the case may be, has reported upon the financial
condition and results of operations of any of the Company and its Subsidiaries
since such date, that has not been resolved to the satisfaction of the
relevant independent accountants.

SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.

(a) Except as disclosed in Section 4.6 of the Company's Disclosure Schedule,
since December 31, 1996, no circumstance has existed and no event has occurred
that has had, will have or could reasonably be expected to have a Material
Adverse Effect on the Company and its Subsidiaries.

(b) Except as disclosed in Section 4.6 of the Company's Disclosure Schedule,
since December 31, 1996, or as otherwise contemplated by this Agreement, none
of the Company and its Subsidiaries has done the following or entered into any
agreement or other arrangement with respect to the following, except in each
case with respect or pursuant to each Transaction Document to which it is or
may become a party:

(1) acquired or transferred any material asset, except in each case for
fair value and in the Ordinary Course; or

(2) incurred, assumed or guaranteed any Liability or paid, discharged or
satisfied any Liability, except in each case in the Ordinary Course; or

(3) created, assumed or suffered the existence of any Lien (other than
Permitted Liens), except in each case in the Ordinary Course; or

(4) waived, released, cancelled, settled or compromised any debt, claim
or right of any material value, except in each case in the Ordinary Course;
or

(5) declared, made or set aside any amount for the payment of any
Restricted Payment to any person other than any of the Company and its
Wholly-Owned Subsidiaries; or

(6) transferred or waived any right under any lease, license or agreement
or any Proprietary Right or other intangible asset, except in each case in
the Ordinary Course; or

(7) paid or agreed to pay any bonus, extra compensation, pension,
continuation, severance or termination pay, or otherwise increased the
wage, salary, pension, continuation, severance or termination pay or other
compensation (of any nature) to its stockholders, directors, officers or
employees, except for increases made in the Ordinary Course; or

(8) to the knowledge of the representing party, suffered (A) any damage,
destruction or casualty loss (whether or not covered by insurance) of
property the greater of cost or fair market value of which exceeds $50,000
individually or $100,000 in the aggregate for the Company and its
Subsidiaries or (B) any taking by condemnation or eminent domain of any of
its property or assets the greater of cost or fair market value of which
exceeds $50,000 individually or $100,000 in the aggregate for the Company
and its Subsidiaries; or

A-16

(9) made any loan to or entered into any transaction with any of its
stockholders having beneficial ownership of 5.0% or more of the shares of
Company Common Stock or the shares of Company Preferred Stock, as the case
may be, then issued and outstanding, directors, officers or employees
giving rise to any claim or right of, by, or against any person in an
amount or having a value in excess of $10,000 individually or $50,000 in
the aggregate for the Company and its Subsidiaries, except for employment
agreements entered into in the Ordinary Course with employees each
receiving an annual base salary of less than $50,000; or

(10) entered into any material agreement, arrangement, commitment,
contract or transaction, amended or terminated any of the same (including,
without limitation, any letter of intent or other agreement with respect to
a Business Combination Transaction) or otherwise conducted any of its
affairs, in any case not in the Ordinary Course; or

(11) made any contribution to any Company Employee Plan, other than
regularly scheduled contributions and contributions required to maintain
the funding levels of any Company Employee Plan, or made or incurred any
commitment to establish or increase the obligation of the Company or a
Subsidiary to any Company Employee Plan; or

(12) except as disclosed in the footnotes to the financial statements
referred to in Section 4.5 or in Section 4.6 of the Company's Disclosure
Schedule, changed any accounting methods or principles used in recording
transactions on the books of the Company or a Subsidiary or in preparing
the financial statements of the Company or a Subsidiary.

(c) Except as disclosed in Section 4.6 of the Company's Disclosure Schedule,
the occurrence of any fire, explosion, accident, strike, lockout, or other
labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the
public enemy, or other casualty (whether or not covered by insurance),
individually or in the aggregate, has not had and could not reasonably be
expected to have a Material Adverse Effect on the Company and its
Subsidiaries.

SECTION 4.7 TAXES.

(a) Each of the Company and its Subsidiaries has (1) filed (or has caused to
be filed) all Tax Returns that are required to be filed with any Governmental
Body with respect to each of the Company and its Subsidiaries, except for the
filing of Tax Returns as to which the failure to file, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect,
and (2) paid (or has caused to be paid) all Taxes of or with respect to each
of the Company and its Subsidiaries required to be paid when due whether or
not shown on such Tax Returns and all assessments received by it, except Taxes
being contested in good faith by appropriate proceedings, for which adequate
reserves or other provisions are maintained and which are specified in Section
4.7 of the Company's Disclosure Schedule.

(b) None of the Company and its Subsidiaries is or has ever been a member of
a "CONSOLIDATED GROUP" (as defined by Section 1504 of the Code) other than the
consolidated group comprising the Company and its Subsidiaries. Federal income
tax returns of the Company and its Subsidiaries are closed through the year
ended December 31, 1993, either by the expiration of the applicable statute of
limitations or closing agreement. The representing party knows of no basis for
the assessment of any material amount of Taxes for any period covered by the
Tax Returns that are referred to in Section 4.7(a) that is not reflected on
those Tax Returns. None of the Company and its Subsidiaries is a party to any
Action by any Governmental Body with respect to the payment of Taxes of or
with respect to any of the Company and its Subsidiaries, and no claim has been
asserted or threatened against it for assessment or collection of any Taxes.
None of the Company and its Subsidiaries has executed or filed with the
Internal Revenue Service or any other taxing authority any agreement extending
the period of assessment or collection of any Taxes or any consent to have the
provisions of Section 341(f) of the Code (or any similar provision of state,
local or foreign law) applied to it.

A-17

(c) All Taxes that the Company or a Subsidiary is required to withhold or
collect have been withheld or collected and, to the extent required, have been
paid over to the proper Governmental Body on a timely basis, and each of the
Company and its Subsidiaries has withheld proper amounts from its employees,
independent contractors, creditors, stockholders or other third parties for
all periods in full compliance with tax withholding provisions of applicable
Regulations, except for withholdings or collections as to which the failure to
withhold or collect, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

(d) No portion of the real property or plant, structures, fixtures or
improvements of the Company or a Subsidiary is subject to any special
assessment, the liability with respect to which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect. The
representing party has no knowledge or reason to know of any proposal for any
such assessment.

(e) Except as disclosed in Section 4.7 of the Company's Disclosure Schedule,
none of the Company or its Subsidiaries has made, is obligated to make, or is
a party to an agreement or arrangement that under any circumstances may
obligate it to make any payment that will not be deductible for federal income
tax purposes by virtue of Section 280G of the Code.

(f) None of the Company or its Subsidiaries has any liability for the Taxes
of any person other than the Company and its Subsidiaries (1) under Treasury
Regulations (S)1.1502-6 (or any similar provision of state, local or foreign
law), (2) as a transferee or successor, (3) by contract or (4) otherwise.

(g) None of the Company and its Subsidiaries has adopted a plan of complete
liquidation and none is a member of an entity required to file a U.S.
partnership return that is expected to have taxable income for any taxable
period beginning before the Closing Date and ending after the Closing Date
that is materially in excess of cash distributions of such income to be made
after the Closing Date.

(h) Except as disclosed in Section 4.7(h) of the Company's Disclosure
Schedule, (1) none of the Company and its Subsidiaries is obligated under any
agreement with respect to industrial development bonds or other obligations
with respect to which the excludability from gross income of the holder for
federal or state income tax purposes could be affected by the execution and
delivery of the Transaction Documents or the conclusion of any of the
Transactions, (2) none of the Company and its Subsidiaries is, or has been, a
United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, (3) none of the Company and its Subsidiaries has
filed or been included in a combined, consolidated or unitary return (or
substantial equivalent thereof) of any person other than the Company and its
Subsidiaries, (4) none of the Company and its Subsidiaries is liable for Taxes
of any Person other than the Company and its Subsidiaries, or currently under
any contractual obligation to indemnify any person with respect to Taxes, or a
party to any tax sharing agreement or any other agreement providing for
payments by the Company or any of its Subsidiaries with respect to the Company
and Taxes, (5) with respect to Wholly-Owned Subsidiaries, none of the Company
and its Subsidiaries is a party to any joint venture, partnership or other
arrangement or contract which could be treated as a partnership for United
States federal income tax purposes, (6) the prices for any property or
services (or for the use of property) provided by any of the Company and its
Subsidiaries to any other Subsidiary or to the Company have been arm's length
prices determined using a method permitted by the Treasury Regulations under
Section 482 of the Code, (7) none of the Company and its Subsidiaries has made
an election or is required to treat any of its assets as owned by another
person for federal income tax purposes or as tax-exempt bond financed property
or tax-exempt use property within the meaning of Section 168 of the Code (or
any similar provision of state, local or foreign law) and (8) the Company is
not an investment company within the meaning of Section 368(a)(2) of the Code.

A-18

SECTION 4.8 UNDISCLOSED LIABILITIES. Except as disclosed in Section 4.8 of
the Company's Disclosure Schedule, none of the Company and its Subsidiaries
has any material Liabilities, except Liabilities (1) shown or reflected in the
unaudited consolidated balance sheet of the Company and its consolidated
Subsidiaries dated as of September 30, 1997 referred to in Section 4.5, or the
notes thereto, (2) incurred in the Ordinary Course, (3) expressly contemplated
by the Transaction Documents or (4) in an aggregate amount not greater than
$100,000.

SECTION 4.9 LITIGATION.

(a) Except as disclosed in Section 4.9 of the Company's Disclosure Schedule,
there is no Action pending or, to the knowledge of the representing party,
threatened against the Company or a Subsidiary, nor, to the knowledge of the
representing party, is there any reasonable basis for any Action, that (1)
involves any of the Transactions or (2) individually or in the aggregate, if
determined adversely to any of them, could reasonably be expected to result in
a liability to any of them in an amount that exceeds $50,000 individually or
$100,000 in the aggregate.

(b) There is no Action pending against any of the Company and its
Subsidiaries or, to the knowledge of the representing party, threatened
against any of the Company and its Subsidiaries or any other person that
involves any of the Transactions or any property owned, leased, licensed or
used by the Company or the Subsidiary, as the case may be, that, individually
or in the aggregate, if determined adversely to any of them, could reasonably
be expected to have a Material Adverse Effect on any of the Company and its
Subsidiaries.

SECTION 4.10 COMPLIANCE WITH REGULATIONS.

(a) None of the Company and its Subsidiaries is in, and none of them has
received written notice of, a violation of or default with respect to, any
Regulation of any Governmental Body or any decision, ruling, order or award of
any arbitrator applicable to it or its business, properties or operations,
including individual products or services sold or provided by it, except for
violations or defaults that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

(b) Each of the Company and its Subsidiaries has filed or caused to be filed
with each applicable Governmental Body all reports, applications, documents,
instruments and information required to be filed by it pursuant to all
applicable Regulations, other than those as to which the failure to file,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

SECTION 4.11 LICENSES.

(a) To the knowledge of the representing party, one or more of the Company
and its Subsidiaries are the registered holders of each License that is
required to be held by the Company or such Subsidiary, as the case may be, so
that it may carry on its business as now conducted and proposed to be
conducted, the failure to hold which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect (each such License, a
"MATERIAL LICENSE").

(b) To the knowledge of the representing party, each Material License is
validly issued, in good standing and in full force and effect, unimpaired by
any act or omission by the Company or such Subsidiary, as the case may be. The
Company or such Subsidiary, as the case may be, is in material compliance with
each Material License. None of the Company and its Subsidiaries has suffered a
revocation, termination, suspension or material and adverse modification of a
License that was, at the time of such event, a Material License. There is no
Action pending or, to the knowledge of the representing party, threatened
against the Company or a Subsidiary, and no other circumstance exists or event
has occurred (whether or not with the giving of notice or the passage of time
or both), that could reasonably be expected to result in the revocation,
termination, suspension or material and adverse modification of any Material
License; and, to the knowledge of the representing party, there is no
reasonable basis for any such Action or for the disqualification of any of the
Company and its

A-19

Subsidiaries from obtaining, or obtaining the renewal of, any Material License
and none of the Company and its Subsidiaries has received written notice or,
to the knowledge of the representing party, oral notice from any Governmental
Body asserting that any Material License should be revoked, terminated,
suspended or materially and adversely modified. If a Material License is
subject to termination upon the expiration of a term, the existence of another
circumstance or the occurrence of another event, the representing party does
not have any reason to believe that any Material License will not be renewed
in the ordinary course. No Material License is subject to renegotiation by any
Governmental Body. The execution and delivery of the Transaction Documents and
the conclusion of any of the Transactions will not (and will not give any
Governmental Body a right to) terminate or modify any rights of, or accelerate
or increase any obligation of, the Company or any Subsidiary under any
Material License.

SECTION 4.12 EMPLOYEE MATTERS.

(a) Employment and Labor Relations.

(1) Except as disclosed in Section 4.12 of the Company's Disclosure
Schedule:

(A) there is no unfair labor practice charge or complaint against any
of the Company and its Subsidiaries pending or, to the knowledge of the
representing party, threatened before the National Labor Relations
Board or any similar Governmental Body;

(B) there has not occurred nor has there been threatened since
December 31, 1993, a labor strike, labor dispute, request for
representation, work stoppage, work slowdown or lockout of or by
employees of any of the Company and its Subsidiaries;

(C) there is no representation claim or petition pending before the
National Labor Relations Board respecting the employees of any of the
Company and its Subsidiaries;

(D) no grievance nor any arbitration proceeding arising out of any
collective bargaining agreement to which any of the Company and its
Subsidiaries is a party is pending;

(E) no charge with respect to or relating to any of the Company and
its Subsidiaries is pending before the Equal Employment Opportunity
Commission or any state, local or foreign agency responsible for the
prevention of unlawful employment practices;

(F) no claim relating to employment or loss of employment with any of
the Company and its Subsidiaries is pending in any federal, state or
local court or in any other adjudicatory body and, to the knowledge of
the representing party, no such claim against any of the Company and
its Subsidiaries has been threatened;

(G) none of the Company and its Subsidiaries has received notice of
the intent of any federal, state, local or foreign agency responsible
for the enforcement of labor or employment Regulations to conduct an
investigation of or relating to any of the Company and its
Subsidiaries, and no such investigation is in progress;

(H) since the enactment of the Worker Adjustment and Retraining
Notification Act of 1988 (the "WARN ACT"), none of the Company and its
Subsidiaries has effectuated (1) a "plant closing" (as defined in the
WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the
Company or any of its Subsidiaries or (2) a "mass layoff" (as defined
in the WARN Act) affecting any site of employment or facility of the
Company or any of its Subsidiaries; and none of the Company and its
Subsidiaries has been affected by any transaction or engaged in layoffs
or employment terminations sufficient in any number to trigger
application of any similar Regulation;

(I) none of the Company and its Subsidiaries is delinquent in any
material respect in payments to any of its current or former officers,
directors, employees, consultants or agents for any wages, salaries,
commissions or other direct compensation for any services

A-20

performed by them or amounts required to be reimbursed to such
officers, directors, employees, consultants, or agents; and

(J) in the event of termination of the employment or service of any
of its current or former officers, directors, employees, consultants or
agents, none of the Company, its Subsidiaries, Qwest and Qwest
Subsidiary will be liable to any such persons for severance,
continuation or termination pay pursuant to any agreement or by reason
of any action taken or not taken by any of the Company and its
Subsidiaries prior to the Effective Time.

(K) since December 31, 1996, there has not been any termination of
employment of any officer, director or employee of any of the Company
and its Subsidiaries receiving annual base salary in excess of $50,000.

(2) Section 4.12 of the Company's Disclosure Schedule sets forth a
correct and complete list of (A) all employment, consulting, severance pay,
continuation pay, termination pay or indemnification agreements or other
agreements of any nature whatsoever between any of the Company and its
Subsidiaries, on the one part, and any current or former officer, director,
employee, consultant or agent thereof, on the other part, in each case
whether written or oral, to which any of the Company and its Subsidiaries
is a party or by which any of them is bound and (B) all collective
bargaining, labor and similar agreements (other than any Employee Plans),
in each case whether written or oral, to which any of the Company and its
Subsidiaries is a party or by which any of them is bound. The Company has
provided to Qwest and Qwest Subsidiary true and complete copies of all such
agreements. Each of the Company and its Subsidiaries has complied with its
obligations related to, and is not in default under, any of such
agreements, except where the failure to comply with or a default under such
agreements, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

(3) Except as disclosed in Section 4.12 of the Company's Disclosure
Schedule, the execution and delivery of the Transaction Documents and the
conclusion of the Transactions (A) will not require any of the Company and
its Subsidiaries to make a payment to, or obtain any consent or waiver
from, any current or former officer, director, employee, consultant or
agent of any of the Company and its Subsidiaries and (B) will not result in
any change in the nature of any rights of any current or former officer,
director, employee, consultant or agent of any of the Company and its
Subsidiaries under any agreement referred to in Section 4.12(a)(2),
including any acceleration or change in the award, grant, vesting or
determination of stock options, stock purchase, stock appreciation rights,
phantom stock, restricted stock or other stock-based rights, severance pay,
continuation pay, termination pay or other contingent obligations of any
nature whatsoever of any of the Company and its Subsidiaries, or a change
in the term of any such agreement.

(4) Except as disclosed in Section 4.12 of the Company's Disclosure
Schedule, each of the Company and its Subsidiaries is, and at all times
since December 31, 1996 has been, in compliance with all applicable
Regulations respecting employment and employment practices, terms and
conditions of employment, wages and hours, and occupational safety and
health, and is not, and since December 31, 1993 has not, engaged in any
unfair labor practices, except where the failure to so comply or such
engagement, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

(b) Company Employee Plans.

(1) Section 4.12 of the Company's Disclosure Schedule sets forth a
correct and complete list of all Company Employee Plans. The Company has
made available to Qwest Subsidiary true and complete copies of the Company
Employee Plans and all related summary descriptions, including, without
limitation, copies of any employee handbooks listing or describing any
Company Employee Plans and summary descriptions of any Company Employee
Plan not otherwise in writing.

A-21

(2) Except for any failure or default that could not reasonably be
expected to have a Material Adverse Effect, each of the Company and its
Subsidiaries has fulfilled or has taken all actions necessary to enable it
to fulfill when due all of its obligations under each Company Employee
Plan, and there is no existing default or event of default or any event
which, with or without the giving of notice or the passage of time, would
constitute a default by it under any Company Employee Plan. No Regulation
currently in effect or, to the knowledge of the representing party,
proposed to be in effect materially or adversely affects, or if adopted
would materially or adversely affect, the rights or obligations of any of
the Company and its Subsidiaries under any Company Employee Plan. There are
no negotiations, demands or proposals which are pending or which have been
made to any of the Company and its Subsidiaries which concern matters now
covered, or that would be covered, by any Company Employee Plan.

(3) Each of the Company and its Subsidiaries is in full compliance with
all Regulations applicable to each Company Employee Plan, except where
noncompliance could not reasonably be expected to have a Material Adverse
Effect. There has been no Employee Plan Event which is continuing or in
respect of which there is any outstanding liability of any of the Company
or its Subsidiaries that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, and no such
Employee Plan Event is reasonably expected to occur, with respect to any
Company Employee Plan.

(4) Except as disclosed in Section 4.12 of the Company's Disclosure
Schedule, the execution and delivery of the Transaction Documents and the
conclusion of the Transactions will not cause the acceleration of vesting
in, or payment of, any benefits under any Company Employee Plan.

(5) None of the Company and its Subsidiaries has any formal plan or
commitment, whether legally binding or not, to create any additional
Employee Plan or to modify or change any existing Employee Plan that would
affect any current or former employee of any of the Company and its
Subsidiaries.

(6) All employment, consulting, deferred compensation, bonus, stock
option, stock appreciation rights, phantom stock, severance, termination or
indemnification agreements, arrangements or understandings, or other
Employee Plans, between any of the Company and its Subsidiaries, on the one
part, and any current or former officer or director of any of the Company
and its Subsidiaries, on the other part, which are required to be disclosed
under the Securities Act or the Exchange Act have been disclosed.

(c) Health Plans. Each Company Employee Plan that is a group health plan
within the meaning of Section 5000(b) of the Code has been operated in
substantial compliance with the group health plan continuation coverage
requirements of Sections 601 through 608 of ERISA and Section 4980B of the
Code, and except to the extent required under those provisions or as disclosed
in Section 4.12 of the Company's Disclosure Schedule, no Company Employee Plan
provides health or welfare benefits (through the purchase of insurance or
otherwise) for any retired or former employee of the Company or any of its
Subsidiaries. Each Company Health Plan that is a group health plan within the
meaning of Section 5000(b) of the Code has been operated in substantial
compliance with the creditable coverage and portability requirements of
Sections 701 through 707 of ERISA and Sections 9801 through 9806 of the Code.

(d) Employee Plans of the Company's ERISA Affiliates. Section 4.12 of the
Company's Disclosure Schedule sets forth a correct and complete list of all
ERISA Plans and Multiemployer Plans of any person that is an ERISA Affiliate
of the Company or its Subsidiaries, other than any such ERISA Plans or
Multiemployer Plans disclosed pursuant to Section 4.12(b). There has been no
Employee Plan Event with respect to any ERISA Plan or Multiemployer Plan of
any person that is an ERISA Affiliate of the Company or its Subsidiaries or
who was an ERISA Affiliate of the Company or its Subsidiaries at any time
since January 31, 1992, other than any ERISA Plan or Multiemployer Plan
disclosed in Section 4.12 of the Company's Disclosure Schedule, in respect of
which there is any

A-22

outstanding liability, or, to the knowledge of the Company, in respect of
which any liability could be expected to be incurred by any of the Company and
its Subsidiaries.

(e) Company Qualified Plans.

(1) Each Company Qualified Plan satisfies the requirements of Section
401(a) of the Code, and each trust under each such plan is exempt from Tax
under Section 501(a) of the Code. To the knowledge of the Company, no event
has occurred that will or could give rise to disqualification or loss of
tax-exempt status of any such plan or trust under such sections.

(2) The Company has made available to Qwest and Qwest Subsidiary for each
Company Qualified Plan copies of the following documents: (A) the Form 5500
filed for each of the three most recent plan years, including all schedules
thereto and financial statements with attached opinions of independent
accountants; (B) the most recent determination letter from the IRS; (C) the
consolidated statement of assets and liabilities of such plan as of its
most recent valuation date; and (D) the statement of changes in fund
balance and in financial position or the statement of changes in net assets
available for benefits under such plan for the most recently ended plan
year. Such financial statements fairly present the financial condition and
the results of operations of each Company Qualified Plan as of such dates,
in accordance with GAAP.

(f) Company ERISA Plans.

(1) Section 4.12 of the Company's Disclosure Schedule sets forth, for
each Company ERISA Plan, as of the effective date of its most recently
prepared actuarial report, the amount by which the fair market value of the
assets of the plan exceeded (or was less than) the actuarial present value
(determined on the basis of the actuarial assumptions set forth in such
report) of the "BENEFIT LIABILITIES" (within the meaning of Section
4001(a)(16) of ERISA), whether or not vested, of the plan. Since the
effective date of the most recently prepared actuarial report for each
Company ERISA Plan, there has been no amendment or change to the plan that
would increase the amount of benefits accrued thereunder and, to the
knowledge of the Company, there has been no event or occurrence (other than
the normal fluctuation in the value of such plan's assets) that would cause
the excess of assets over benefit liabilities referred to in this Section
4.12(f) to be reduced or the amount by which benefit liabilities exceed
assets referred to in this Section 4.12(f) to be increased.

(2) The Company has made available to Qwest Subsidiary for each Company
ERISA Plan true and complete copies of the following documents: (A) the
Form PBGC Form 1 filed for each of the most recent three plan years; and
(B) the most recently prepared actuarial report, which fairly presents the
financial condition and the results of operations of each such plan as of
the effective date of such report, and which sets forth the minimum
required contributions under Section 412 of the Code (and their due dates)
and maximum deductible contributions under Section 404 of the Code for the
plan year following the effective date of such report.

(g) Multiemployer Plans. Section 4.12 of the Company's Disclosure Schedule
sets forth, for each Company Multiemployer Plan, as of the effective date of
its most recently prepared actuarial report, the amount of potential
withdrawal liability of the Company, its Subsidiaries and its ERISA
Affiliates, calculated according to the information made available pursuant to
Section 4221(e) of ERISA, and identifies the specific potential obligors. To
the knowledge of the representing party, nothing has occurred or is expected
to occur that would materially increase the amount of the potential withdrawal
liability of a specified obligor for any such plan over the amount disclosed
pursuant to this Section 4.12(g). None of the Company, its Subsidiaries and
its ERISA Affiliates (1) has failed to make any required contributions when
due to a Multiemployer Plan or (2) has (and will not have as a result of the
transactions contemplated by the Transaction Documents) any contingent
liability for withdrawal liability by reason of a sale of assets pursuant to
Section 4204 of ERISA. None of the Company, its Subsidiaries and its ERISA
Affiliates has any unpaid claims for withdrawal liability.

A-23

SECTION 4.13 CAPITALIZATION.

(a) As of the date of this Agreement, the authorized capital stock of the
Company consists of 50,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock, par value $.001 per share, of the Company (the
"COMPANY PREFERRED STOCK").

(b) As of February 9, 1998, there are (i) 35,898,958 shares of Company
Common Stock issued and outstanding, of which (x) 7,377,139 shares are
registered in the names of the Principal Stockholders (y) 20,390 shares are
reserved for delivery upon the exchange of the Company AmeriConnect Rights,
(ii) 1,300 shares of Company Common Stock held in the treasury of the Company,
(iii) no shares of Series I Convertible Preferred Stock, par value $.001 per
share, of the Company (the "COMPANY SERIES I PREFERRED STOCK"), issued and
outstanding, (iv) 2,230,033 shares of Company Common Stock reserved for
issuance upon exercise of outstanding Stock Options issued by the Company to
current or former employees and directors of the Company and its Subsidiaries,
(v) 1,164,995 shares of Company Common Stock reserved for issuance upon
exercise of authorized but unissued Stock Options and (vi) 1,244,557 shares of
Company Common Stock reserved for issuance upon exercise of outstanding
Warrants issued by the Company.

(c) Except as disclosed in Section 4.13 of the Company's Disclosure
Schedule, the execution and delivery of the Transaction Documents and the
conclusion of any of the Transactions will not (and will not give any person a
right to) terminate or modify any rights of, or accelerate or increase any
obligation of, the Company with respect to any Equity Securities of the
Company.

(d) All outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid and nonassessable, free from any Liens created by
the Company with respect to the issuance and delivery thereof and not subject
to preemptive rights.

(e) Except with respect to the outstanding shares of Company Common Stock,
there are no outstanding bonds, debentures, notes or other indebtedness or
other securities of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which stockholders of the Company may vote.

(f) Except with respect to the Stock Options, the Warrants and as disclosed
in Section 4.13 of the Company's Disclosure Schedule, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company is a party or by
which the Company is bound obligating the Company to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock
or other Equity Securities of the Company or obligating the Company to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Without limiting the
generality of the foregoing, no shares of Company Common Stock or other Equity
Securities of the Company, the Surviving Corporation or any other person are
issuable in connection with any acquisitions made by the Company. Section 4.13
of the Company's Disclosure Schedule sets forth a correct and complete list of
the outstanding Stock Options and Warrants.

(g) Except with respect to the Transaction Documents, to the knowledge of
the representing party, there is no agreement or arrangement restricting the
voting or transfer of the Equity Securities of the Company.

(h) Except with respect to the Stock Options and the Warrants, there are no
outstanding contractual obligations, commitments, understandings or
arrangements of any of the Company and its Subsidiaries to repurchase, redeem
or otherwise acquire, or make any payment in respect of, any shares of Equity
Securities of the Company.

(i) Except with respect to the Credit Agreement and statutory restrictions
of general application, there are no legal, contractual or other restrictions
on the payment of dividends or other distributions or amounts on or in respect
of any of the Equity Securities of the Company.

A-24

(j) Section 4.13 of the Company's Disclosure Schedule sets forth a correct
and complete list of all agreements or arrangements to which the Company or
any of its Subsidiaries is a party pursuant to which the Company is or could
be required to register shares of Company Common Stock or other securities
under the Securities Act.

(k) All outstanding Equity Securities of the Company were issued in
compliance with all applicable Regulations, including, without limitation, the
registration provisions of applicable federal and state securities laws.
Equity Securities of the Company that were issued and reacquired by the
Company were so reacquired (and, if reissued, so reissued) in compliance with
all applicable Regulations, and the Company has no liability with respect to
the reacquisition or reissuance of such Equity Securities.

SECTION 4.14 SUBSIDIARIES.

(a) Section 4.14 of the Company's Disclosure Schedule sets forth a correct
and complete list of each of its Subsidiaries and the directors and officers
of the Subsidiary as of the date of this Agreement. All outstanding shares of
capital stock or other equity interests of each Subsidiary are duly
authorized, validly issued, fully paid and nonassessable or, with respect to
partnership interests, limited liability company membership interests or their
equivalent, are validly issued, the consideration therefor has been paid and
no unmet calls for capital contributions or similar payments are outstanding.

(b) All shares of capital stock or other equity interests of each
Subsidiary, are owned beneficially and of record by the Company, free and
clear of all Liens other than Permitted Liens. No other Equity Securities of
any Subsidiary are outstanding.

(c) Except with respect to the outstanding shares of capital stock or other
equity interests of each Subsidiary, there are no outstanding bonds,
debentures, notes or other indebtedness or other securities of such Subsidiary
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of such
Subsidiary may vote.

(d) There are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which any
of the Company and its Subsidiaries is a party or by which any of them is
bound obligating any of the Company and its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other Equity Securities of any of the Subsidiaries or obligating the
Company or any of its Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking.

(e) There is no agreement or arrangement restricting the voting or transfer
of any of the Equity Securities of any of the Subsidiaries.

(f) There are no outstanding contractual obligations, commitments,
understandings or arrangements of any of the Company and its Subsidiaries to
repurchase, redeem or otherwise acquire, require or make any payment in
respect of any shares of Equity Securities of any of the Subsidiaries.

(g) Except with respect to statutory restrictions of general application,
there are no legal, contractual or other restrictions on the payment of
dividends or other distributions or amounts on or in respect of any of the
Equity Securities of any of the Subsidiaries.

(h) All outstanding Equity Securities of each of the Subsidiaries were
issued in compliance with all applicable Regulations, including, without
limitation, the registration provisions of applicable federal and state
securities laws. Equity Securities of any of the Subsidiaries that were issued
and reacquired by such Subsidiary were so reacquired (and, if reissued, so
reissued) in compliance with all applicable Regulations, and none of the
Company and its Subsidiaries has any liability with respect to the
reacquisition or reissuance of such Equity Securities.

A-25

SECTION 4.15 PROPERTY.

(a) Each of the Company and its Subsidiaries owns, leases or licenses all
real property and personal property, tangible or intangible, that are used or
useful in its business and operations as now conducted and proposed to be
conducted, the failure to own, lease or license which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect
(collectively, the "MATERIAL PROPERTIES").

(b) All Material Properties are reflected in the financial statements
referred to in Section 4.5 in the manner and to the extent required to be
reflected therein by GAAP (other than any Material Properties disposed of in
the Ordinary Course).

(c) All Material Properties are in such condition and repair, and are
suitable, sufficient in amount, size and type and so situated, as is
appropriate and adequate for the uses for which they are used and intended and
to carry on the business of the Company or such Subsidiary, as the case may
be, as now conducted and as proposed to be conducted.

(d) To the knowledge of the representing party, all Material Properties
comply in all material respects with the terms and conditions of all
agreements relating to such real property and personal property and are in
conformity in all material respects with all Regulations of any Governmental
Body currently in effect, scheduled to come into effect or proposed to be
adopted, entered or issued, as the case may be, and all decisions, rulings,
orders and awards of any arbitrator applicable to it or its business,
properties or operations. Except as disclosed in Section 4.15 of the Company's
Disclosure Schedule, there exists no default by any of the Company and its
Subsidiaries or, to the knowledge of the representing party, any other party
under any lease agreement with respect to any Material Property, which
default, individually or together with other defaults under the same lease
agreement or other lease agreements, could reasonably be expected to have a
Material Adverse Effect.

(e) The interest of any of the Company and its Subsidiaries in each Material
Property is free and clear of all Liens other than Permitted Liens, except
where the absence of such title, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

SECTION 4.16 SECURITIES.

(a) Section 4.16 of the Company's Disclosure Schedule sets forth a correct
and complete description and list of the Equity Securities and Debt Securities
issued by any person other than the Company or a Subsidiary, other than the
shares of capital stock of the Subsidiaries referred to in Section 4.14 in
which the Company or a Subsidiary has an interest as of the date of this
Agreement. Except as contemplated by the Transaction Documents, the right,
title and interest of the Company or a Subsidiary in, to and under each of
such Equity Securities and Debt Securities is free and clear of all Liens
other than Permitted Liens.

(b) To the knowledge of the representing party, each of such Equity
Securities is duly authorized, validly issued, fully paid and non-assessable.

(c) To the knowledge of the representing party, each of such Debt Securities
is duly authorized and validly issued and constitutes the legally valid and
binding obligation of the issuer thereof and each guarantor thereof except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally and general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance or injunctive relief, regardless of whether considered in
a proceeding in equity or at law.

A-26

(d) All of such Equity Securities and Debt Securities are owned,
beneficially and of record, by the Company or a Subsidiary. Except as
disclosed in Section 4.16 of the Company's Disclosure Schedule or as
contemplated by the Transaction Documents:

(1) there are no legal, contractual or other restrictions on (A) the
voting or transfer of any of the Equity Securities or Debt Securities or
(B) the payment of principal, interest, dividends or other distributions or
amounts on or in respect of any of the Equity Securities or Debt
Securities; and

(2) the Company or the Subsidiary, as the case may be, is not subject to
any obligation, whether legal, contractual or otherwise, to sell or
otherwise transfer any of the Equity Securities or Debt Securities.

SECTION 4.17 PROPRIETARY RIGHTS.

(a) Section 4.17 of the Company's Disclosure Schedule sets forth a correct
and complete description and list of all Proprietary Rights in which any of
the Company and its Subsidiaries has an interest, the failure to hold which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect (collectively, the "MATERIAL PROPRIETARY RIGHTS"). No
Proprietary Rights other than the Material Proprietary Rights are necessary
for the unimpaired conduct of the business and operations of any of the
Company and its Subsidiaries substantially in the manner that such business
and operations are now conducted and are proposed to be conducted.

(b) One or more of the Company and its Subsidiaries has good title to each
of the interests created by, or an implied license to use, the Material
Proprietary Rights. None of the Company and its Subsidiaries has received
notice that the validity of any such Material Proprietary Right or its title
to or use of any Material Proprietary Right is being questioned in any Action.
The right, title and interest of the Company or such Subsidiary in and to each
such Material Proprietary Right and the authority to use the same are free and
clear of all Liens other than Permitted Liens. The representing party does not
believe, and has no reason to believe, that any use has been or is being made
of any Material Proprietary Right by any person other than the Company, the
Subsidiary or a person duly authorized to make that use. All Material
Proprietary Rights used by any of the Company and its Subsidiaries but
previously owned or held by any of its directors, officers, employees or
agents have been duly transferred to the Company or the Subsidiary, as the
case may be. There is no liability or obligation of the Company or a
Subsidiary with respect to any Material Proprietary Right that is required to
have been paid or otherwise performed, as of the date of this Agreement, that
has not been paid or otherwise performed in full.

(c) The representing party has no knowledge of any valid grounds for any
bona fide claims (1) to the effect that the sale, licensing or use of any
product or service as now sold, licensed or used, or proposed for sale,
license or use, by any of the Company and its Subsidiaries infringes on any
Material Proprietary Right, which claims, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect, or (2) against
the use by any of the Company and its Subsidiaries of any Material Proprietary
Rights used in the business and operations of any of the Company and its
Subsidiaries as now conducted or as proposed to be conducted.

(d) The execution and delivery of the Transaction Documents and the
conclusion of any of the Transactions will not (and will not give any person a
right to) terminate or modify any rights of, or accelerate or increase any
obligation of, any of the Company and its Subsidiaries under any Material
Proprietary Right.

SECTION 4.18 INSURANCE. One or more of the Company and its Subsidiaries
maintain insurance with reputable insurance companies in such amounts and
covering such risks as are usually carried by companies engaged in the same or
similar business and similarly situated. There are no currently outstanding
material losses for which the Company or a Subsidiary, as the case may be, has
failed to give or present notice or claim under any policy. There are no
requirements by any insurance company

A-27

or by any board of fire underwriters or other body exercising similar
functions or by any Governmental Body of which the representing party has
knowledge requiring any repairs or other work to be done to any of the
properties owned, leased, licensed or used by any of the Company and its
Subsidiaries or requiring any equipment or facilities to be installed on or in
connection with any of the properties, the failure to complete which could
result in the cancellation of the policy of insurance. Policies for all the
insurance are in full force and effect and none of the Company and its
Subsidiaries is in default in any material respect under any of the policies.
The representing party has no knowledge of the cancellation or proposed
cancellation of any of the insurance or of any proposed increase in the
contributions for workers' compensation or unemployment insurance or of any
conditions or circumstances applicable to the business of the Company or the
Subsidiary, as the case may be, which might result in a material increase in
those contributions. The Company has made available to Qwest and Qwest
Subsidiary true and complete copies of policies for all material fire and
casualty, general liability, business interruption, product liability and
other insurance maintained by any of the Company and its Subsidiaries.

SECTION 4.19 DEBT.

(a) Section 4.19 of the Company's Disclosure Schedule sets forth a correct
and complete list of the following:

(1) the Credit Agreement and all other agreements, indentures, purchase
agreements, Guarantees, conditional sale contracts, capitalized leases and
other Investments, agreements and other arrangements presently in effect
providing for or relating to Debt in any amount greater than $50,000 in
respect of which the Company or a Subsidiary is in any manner directly or
contingently obligated (collectively, the "MATERIAL DEBT");

(2) the principal or face amount of each Material Debt outstanding under
each of those agreements and other arrangements;

(3) the maximum principal or face amounts of each Material Debt
outstanding or which may be outstanding under each of those agreements and
other arrangements;

(4) the maturity date or dates of each Material Debt; and

(5) restrictions or other conditions (including, without limitation, any
prepayment fee or yield maintenance provision) with respect to the
voluntary prepayment by the Company of any amount of any Material Debt.

(b) Except as disclosed in Section 4.19 of the Company's Disclosure
Schedule, none of the Company and its Subsidiaries is in default in respect of
any Material Debt and, based upon the business, properties, operations,
prospects and condition, financial or otherwise of the Company and its
Subsidiaries and assuming that the Merger shall be completed on or before May
31, 1998, none of the Company and its Subsidiaries could reasonably be
expected to be in default in respect of any Material Debt on or before May 31,
1998, which default either alone or together with any other default, entitles
another party thereto, with the giving of notice or the passage of time or
both, to terminate the rights and obligations of the parties thereunder or
with respect thereto or to accelerate or increase any obligation of the
Company or any of its Subsidiaries thereunder.

(c) Except as disclosed in Section 4.19 of the Company's Disclosure
Schedule, the execution and delivery of the Transaction Documents and the
conclusion of any of the Transactions will not (and will not give any person a
right to) terminate or modify any rights of, or accelerate or increase any
obligation of, any of the Company and its Subsidiaries with respect to any
Material Debt.

SECTION 4.20 ENVIRONMENTAL MATTERS. None of the Company and its Subsidiaries
has generated, used, transported, treated, stored, released or disposed of, or
has permitted anyone else to generate, use, transport, treat, store, release
or dispose of, any Hazardous Substance in a manner which has created or might
reasonably be expected to create any liability or which would require

A-28

reporting or giving notice to any Governmental Body, except for such events or
occurrences for which the Company or its Subsidiaries would not reasonably be
expected to incur liability, individually or in the aggregate, in excess of
$50,000 (exclusive of any amount with respect to which a reserve has been
taken by the Company or a Subsidiary on or before December 31, 1996).

SECTION 4.21 BOOKS AND RECORDS.

(a) The records and books of account of each of the Company and its
Subsidiaries are correct and complete in all material respects, have been
maintained in accordance with good business practices and are reflected
accurately in the financial statements referred to in Section 4.5. Each of the
Company and its Subsidiaries has accounting controls sufficient to insure that
its transactions are (1) executed in accordance with management's general or
specific authorization and (2) recorded in conformity with GAAP so as to
maintain accountability for assets.

(b) The minute books of each of the Company and its Subsidiaries contain
accurate records of all meetings and accurately reflect all corporate action
of the stockholders and the board of directors (including committees) of the
Company or the Subsidiary, as the case may be.

(c) The stock books and ledgers of each of the Company and its Subsidiaries
correctly record all transfer and issuances of all capital stock of the
Company or the Subsidiary, as the case may be, and contain all cancelled and
unused stock certificates of the Company or the Subsidiary, as the case may
be.

SECTION 4.22 MATERIAL CONTRACTS.

(a) Section 4.22 of the Company's Disclosure Schedule sets forth a correct
and complete description and list of the following agreements to which any of
the Company and its Subsidiaries is a party (collectively, the "MATERIAL
CONTRACTS"), true and correct copies of which have been made available to
Qwest and Qwest Subsidiary:

(1) agreements with investment bankers, brokers, finders, consultants and
advisers engaged by the Company or a Subsidiary with respect to the
Transactions, other Business Combination Transactions, the purchase or sale
by the Company or a Subsidiary of assets not in the ordinary course of
business or the issuance and sale by the Company or a Subsidiary of any
Equity Securities;

(2) Affiliate Agreements;

(3) agreements made by any of the Company and its Subsidiaries not in the
Ordinary Course that may require the payment or provision by or to any of
the Company and its Subsidiaries of money in an aggregate amount, or goods
or services having an aggregate value, in each case in excess of $50,000;

(4) agreements made by any of the Company and its Subsidiaries, whether
or not in the Ordinary Course, contemplating the acquisition by the Company
or the Subsidiary, as the case may be, of any Equity Securities of any
person or all or substantially all of the assets of any person;

(5) agreements that may be cancelled, terminated, amended or modified, or
pursuant to which payments might be required or acceleration of benefits
may be required, in connection with or as the result of the execution and
delivery of the Transaction Documents or the conclusion of any of the
Transactions;

(6) agreements that provide for the acceleration or payment of benefits
upon the occurrence of a change of control (however defined), whether or
not resulting from the execution and delivery of the Transaction Documents
or the conclusion of any of the Transactions;

(7) agreements that provide for the indemnification by any of the Company
and its Subsidiaries of any director, officer, employee or agent of any of
the Company and its Subsidiaries, other than agreements referred to in the
preceding clause (1);

A-29

(8) agreements that grant a power of attorney, agency or similar
authority to another person;

(9) joint venture and partnership agreements;

(10) agreements giving any person the right to renegotiate or require an
increase or reduction in the price of goods or services provided by or to
any of the Company and its Subsidiaries, an increase in amounts previously
paid by any of the Company and its Subsidiaries with respect to any goods
or services or the repayment by any of the Company and the Subsidiaries of
amounts previously paid to any of them with respect to any goods or
services;

(11) agreements with any Governmental Body; and

(12) agreements that may require the payment or provision by or to any of
the Company and its Subsidiaries of money in an aggregate amount, or goods
or services having an aggregate value, in each case in excess of $100,000.

(b) Each agreement referred to in Section 4.22(a)(12) has, to the knowledge
of the representing party with respect to parties other than the Company or
the Subsidiary, as the case may be, been duly authorized, executed and
delivered by the parties to such agreement, is in full force and effect and
constitutes the legally valid and binding obligation of the parties to such
agreement or their respective successors or assigns, enforceable against them
in accordance with the terms of such agreement. There is no liability or
obligation of the Company or a Subsidiary with respect to any such agreement
that, under the terms of such agreement, is required to be paid or otherwise
performed or is required to have been paid or otherwise performed, in each
case as of the date of this Agreement, but that has not been paid or otherwise
performed in full. The right, title and interest of the Company or a
Subsidiary in, to and under each such agreement is free and clear of all Liens
other than Permitted Liens. Except as disclosed in Section 4.22 of the
Company's Disclosure Schedule, there exists no default under any such
agreement by any party, which default, individually or together with other
defaults under the same agreement or other agreements, could reasonably be
expected to have a Material Adverse Effect. The execution and delivery of the
Transaction Documents and the conclusion of any of the Transactions will not
(and will not give any person a right to) terminate or modify any rights of,
or accelerate or increase any obligation of, any of the Company and its
Subsidiaries under any such agreement.

SECTION 4.23 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as disclosed in
Section 4.23 of the Company's Disclosure Schedule, there is no agreement,
judgment, order or decree binding upon any of the Company and its Subsidiaries
which has or could reasonably be expected to have the effect of prohibiting or
impairing any material business practice of any of the Company and its
Subsidiaries, any acquisition of any property by any of the Company and its
Subsidiaries, the conduct of business by any of the Company and its
Subsidiaries as currently conducted or as proposed to be conducted by the
Company or the Subsidiary, as the case may be, except for any prohibition or
impairment that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

SECTION 4.24 TRANSACTIONS WITH AFFILIATES. Except as disclosed in Section
4.24 of the Company's Disclosure Schedule, at no time since December 31, 1996
has any of the Company and its Subsidiaries entered into any transaction
(including, but not limited to, the purchase, sale or exchange of property or
the rendering of any service) with any Affiliate except as contemplated by the
Transaction Documents.

SECTION 4.25 CERTAIN FINANCIAL MATTERS.

(a) Except as disclosed in Section 4.25(a) of the Company's Disclosure
Schedule, since December 31, 1996, none of the Company and its Subsidiaries
has provided any material special promotions, discounts or other incentives to
its employees, agents, distributors or customers in connection with the
solicitation of new orders for service provided by the Company or any
Subsidiary,

A-30

nor has any customer pre-paid any material amount for services to be provided
by the Company or any Subsidiary in the future.

(b) The Company and its Subsidiaries have paid or fully provided for all
access charges properly payable to local exchange carriers for access
facilities and have properly reported their respective percentages of
interstate use ("PIU") to such carriers, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect. As of the date of this Agreement, to the
knowledge of the representing party, the Company and its Subsidiaries do not
have, and on the Closing Date the Company and its Subsidiaries will not have,
any material liability on account of PIU.

(c) Section 4.25(c) of the Company's Disclosure Schedule sets forth a
correct and complete list of product and service warranties and guaranties
extended by any of the Company and the Subsidiaries that are currently in
effect. Except as disclosed in Section 4.25(c) of the Company's Disclosure
Schedule, (1) there have not been any material deviations from such warranties
and guaranties, and salesmen, employees and agents of any of the Company and
the Subsidiaries are not authorized to undertake obligations to any customer
or other persons in excess of such written warranties or guaranties and (2) no
claims have been asserted or threatened in writing or, to the knowledge of the
representing party, asserted or threatened orally against any of the Company
and the Subsidiaries with respect to product and service warranties and
guaranties currently or formerly extended by any of the Company and the
Subsidiaries, except in each case referred to in the preceding clauses (1) and
(2) for such deviations or claims which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect or for
which the Company has established appropriate reserves on the balance sheets
referred to in Section 4.5 as of their respective dates in accordance with
past practice and GAAP.

SECTION 4.26 MISSTATEMENTS. Except to the extent revised or superseded by a
subsequent schedule furnished to Qwest and Qwest Subsidiary pursuant to any
Transaction Document, no schedule furnished to Qwest or Qwest Subsidiary by or
with respect to any of the Company or its Subsidiaries pursuant to any
Transaction Document contained as of the date thereof any untrue statement of
a material fact or omitted to state a material fact necessary to make the
statement contained therein, in the light of the circumstances under which it
was made, not misleading.

SECTION 4.27 SEC DOCUMENTS. The Company has filed with the Securities and
Exchange Commission all reports, schedules, forms, statements and other
documents required by the Securities Act or the Exchange Act to be filed by
the Company since December 31, 1993 (collectively, and in each case including
all exhibits and schedules thereto and documents incorporated by reference
therein, the "COMPANY SEC DOCUMENTS"). Section 4.27 of the Company's
Disclosure Schedule sets forth a list of the Company SEC Documents. As of
their respective dates, except to the extent revised or superseded by a
subsequent filing with the Securities and Exchange Commission on or before the
date of this Agreement, the Company SEC Documents filed by the Company
complied in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and none of the Company SEC Documents
(including any and all financial statements included therein) filed by the
Company as of such dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
the Company and its consolidated Subsidiaries included in the Company SEC
Documents, including any amendments thereto, comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Securities and Exchange Commission with respect thereto.
The Company has filed with the Securities and Exchange Commission as exhibits
to the Company SEC Documents all agreements, contracts and other documents or
instruments required to be so filed, and such exhibits are true and complete
copies of

A-31

such agreements, contracts and other documents or instruments, as the case may
be. None of the Subsidiaries of the Company is required to file any reports,
schedules, statements or other documents with the Securities and Exchange
Commission.

SECTION 4.28 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information with respect to any of the Company and
its Subsidiaries to be included in the Proxy Statement/Prospectus or the
Registration Statement will, in the case of the Proxy Statement/Prospectus or
any amendments thereof or supplements thereto, at the time of the mailing of
the Proxy Statement/Prospectus or any amendments thereof or supplements
thereto, and at the same time of the Company Stockholders Meeting, or, in the
case of the Registration Statement, at the time it becomes effective, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the representing party
with respect to information supplied in writing by Qwest, Qwest Subsidiary or
any Affiliate thereof specifically for inclusion in the Proxy
Statement/Prospectus. The Proxy Statement/Prospectus will comply in all
material respects with the provisions of the Exchange Act and the DGCL. The
letters to stockholders, notices of meeting, proxy statement and forms of
proxies to be distributed to stockholders in connection with this Agreement
and the Merger and any schedules required to be filed with the Securities and
Exchange Commission in connection therewith are collectively referred to as
the "PROXY STATEMENT/PROSPECTUS".

SECTION 4.29 BOARD APPROVAL.

(a) The Board of Directors of the Company, by resolutions duly adopted at a
meeting duly called and held and not subsequently rescinded or modified in any
way (the "BOARD APPROVAL"), but subject to clause (2) of the proviso to
Section 7.2(z), has duly (1) determined that the Transactions, taken as a
whole, are in the best interests of the Company and its stockholders, (2)
approved this Agreement and the Merger, (3) approved the other Transaction
Documents and the other Transactions and (4) recommended that the stockholders
of the Company approve this Agreement and the Merger.

(b) The Board Approval constitutes approval of (1) this Agreement and the
Merger for purposes of Section 251 of the DGCL and (2) each of the Transaction
Documents and each of the Transactions (including, without limitation, the
Voting Documents) for purposes of Section 203 of the DGCL if the provisions
thereof were to apply to any of the Transaction Documents or any of the
Transactions.

(c) J.C. Bradford & Co., L.L.C. has delivered to the Board of Directors of
the Company its written opinion to the effect that, as of January 6, 1998, the
Merger Consideration to be received by the holders of Company Common Stock in
the Merger is fair to such stockholders from a financial point of view.

SECTION 4.30 REQUIRED VOTE. The affirmative vote at a duly convened meeting
of the holders of the Company Common Stock of a majority of the outstanding
shares of the Company Common Stock is the only vote or consent of the holders
of any class or series of the Equity Securities of the Company necessary to
approve this Agreement and the Merger. The other Transaction Documents and the
other Transactions are not required to be approved by the holders of shares of
any class or series of Equity Securities of the Company.

SECTION 4.31 BUSINESS COMBINATION TRANSACTIONS. None of the Company and its
Subsidiaries has entered into any agreement with any person which has not been
terminated as of the date of this Agreement and under which there remains any
liability or obligation of any of the Company and its Subsidiaries with
respect to a Business Combination Transaction (other than the Transactions).

SECTION 4.32 AGGREGATE MATERIAL ADVERSE EFFECT. There is no circumstance or
event that satisfies all of the following conditions: (1) such circumstance or
event, whether considered individually

A-32

or in the aggregate with all other such circumstances and events, constitutes
a breach of one or more representations, warranties, covenants or other
agreements of the Company or any of its Subsidiaries in any Transaction
Document or that would constitute such a breach if such representation,
warranty, covenant or agreement did not include a reference therein to the
possible occurrence of a Material Adverse Effect, (2) such circumstance or
event, considered in the aggregate with all other such circumstances and
events, negatively affects, or could reasonably be expected to negatively
affect, the value of the Company and the Subsidiaries, taken as a whole, in
the amount of $350,000 or more and (3) such circumstance or event, considered
in the aggregate with all other such circumstances and events, could
reasonably be expected to constitute a Material Adverse Effect on the Company
and its Subsidiaries.

SECTION 4.33 FEES FOR FINANCIAL ADVISORS, BROKERS AND FINDERS. None of the
Company and its Subsidiaries has authorized any person other than the
Financial Advisors to act as financial advisor, broker, finder or other
intermediary that might be entitled to any fee, commission, expense
reimbursement or other payment of any kind from any of the Company and its
Subsidiaries upon the conclusion of or in connection with any of the
Transactions.

SECTION 4.34 OWNERSHIP OF QWEST COMMON STOCK. None of the Company and its
Subsidiaries owns any shares of Qwest Common Stock or other Equity Securities
of Qwest (exclusive of any shares of Qwest Common Stock owned by any Company
Employee Plan).

SECTION 4.35 ANTI-TAKEOVER PROVISIONS. The Company has taken all steps
necessary to irrevocably exempt the Transactions from each applicable state
takeover law and from any applicable charter or contractual provision
containing anti-takeover provisions. No provision of the certificate of
incorporation or bylaws of the Company would, directly or indirectly, restrict
or impair the right or ability of Qwest, Qwest Subsidiary or any Affiliate of
Qwest to vote, or otherwise to exercise the rights and receive the benefits of
a stockholder with respect to, Equity Securities of the Company the beneficial
ownership of which may be acquired or controlled by Qwest, Qwest Subsidiary or
such Affiliate or permit any other stockholder to acquire securities of the
Company on a basis not available to Qwest, Qwest Subsidiary or such Affiliate
if Qwest, Qwest Subsidiary or such Affiliate were to acquire the beneficial
ownership of Equity Securities of the Company.

SECTION 4.36 CONTINUING REPRESENTATIONS AND WARRANTIES.

(a) Each of the representations and warranties made with respect to the
Company or a Subsidiary in this Agreement or in any other Transaction Document
as of any date other than the Closing Date shall be true and correct in all
material respects on and as of the Closing Date, except as otherwise
contemplated by such Transaction Document.

(b) Not less than three Business Days prior to the Closing Date, the Company
shall prepare and deliver to Qwest and Qwest Subsidiary such updates or other
revisions of the written disclosures referred to in this Article IV as have
been delivered by the Company to Qwest and Qwest Subsidiary as shall be
necessary in order to make each of such written disclosures correct and
complete in all material respects on and as of the Closing Date. The
requirement to prepare and deliver updates or other revisions of the written
disclosures, and the receipt by Qwest and Qwest Subsidiary of information
pursuant to Sections 6.1(d) and 7.1 or otherwise on or before the Closing
Date, shall not limit the right of Qwest and Qwest Subsidiary under Article
III to require as a condition precedent to the performance of its obligations
under this Agreement on such Closing Date the accuracy in all material
respects of the representations and warranties made by the representing party
in any Transaction Document and the performance in all material respects of
the covenants of the Company made in any Transaction Document (without regard
to such updates or other revisions) and to receive an unqualified certificate
with respect to the same.

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ARTICLE V

Representations and Warranties
of Qwest and Qwest Subsidiary

Each of Qwest and Qwest Subsidiary, jointly and severally, represents and
warrants to the Company as follows:

SECTION 5.1 CORPORATE EXISTENCE AND POWER. Each of Qwest and Qwest
Subsidiary (1) is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, (2) has
all necessary corporate power and authority and all material licenses,
authorizations, consents and approvals required to own, lease, license or use
its properties now owned, leased, licensed or used and proposed to be owned,
leased, licensed or used and to carry on its business as now conducted and
proposed to be conducted, (3) is duly qualified as a foreign corporation under
the laws of each jurisdiction in which qualification is required either to
own, lease, license or use its properties now owned, leased, licensed or used
or to carry on its business as now conducted, except where the failure to
effect or obtain such qualification, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect, and (4) has all
necessary corporate power and authority to execute and deliver each
Transaction Document to which it is or may become a party and to perform its
obligations thereunder.

SECTION 5.2 AUTHORIZATION; CONTRAVENTION. Subject to obtaining the Approvals
referred to in Section 5.3, the execution and delivery by each of Qwest and
Qwest Subsidiary of each Transaction Document to which it is or may become a
party and the performance by it of its obligations under each of those
Transaction Documents have been duly authorized by all necessary corporate
action and do not and will not (1) contravene, violate, result in a breach of
or constitute a default under, (A) its certificate of incorporation or bylaws,
(B) any Regulation of any Governmental Body or any decision, ruling, order or
award of any arbitrator by which it or any of its properties may be bound or
affected, including, but not limited to, the Hart-Scott-Rodino Act or (C) any
agreement, indenture or other instrument to which it is a party or by which it
or its properties may be bound or affected or (2) result in or require the
creation or imposition of any Lien on any property now owned or hereafter
acquired by it, except in each case referred to in the preceding clauses (1)
and (2) for contraventions, violations, breaches, defaults or Liens that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

SECTION 5.3 APPROVALS. Except as disclosed in Section 5.3 of Qwest and Qwest
Subsidiary's Disclosure Schedule, no Approval of any Governmental Body or
other person is required or advisable on the part of Qwest or Qwest Subsidiary
for (1) the due execution and delivery by Qwest or Qwest Subsidiary, as the
case may be, of any Transaction Document, (2) the conclusion of the
Transactions, (3) the performance by Qwest or Qwest Subsidiary, as the case
may be, of its obligations under each Transaction Document to which it is or
may become a party and (4) the exercise by the Company of its rights under
each Transaction Document to which the Company is or may become a party,
except in each case referred to in the preceding clauses (1), (2), (3) and (4)
where the failure to obtain such Approval, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.

SECTION 5.4 BINDING EFFECT. Each Transaction Document to which Qwest or
Qwest Subsidiary is or may become a party is, or when executed and delivered
in accordance with this Agreement will be, the legally valid and binding
obligation of Qwest or Qwest Subsidiary, as the case may be, enforceable
against it in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally and general principles of
equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance or injunctive relief, regardless of whether considered in
a proceeding in equity or at law.

A-34

SECTION 5.5 FINANCIAL INFORMATION.

(a) The consolidated balance sheet of Qwest and its consolidated
Subsidiaries as of December 31, 1996 and the related consolidated statements
of income (loss) and stockholders' equity and cash flows for the fiscal year
then ended, reported on by KPMG Peat Marwick LLP, true and complete copies of
which have been delivered to the Company, fairly present the consolidated
financial position of Qwest and its consolidated Subsidiaries as of that date
and their consolidated results of operations and cash flows for the year then
ended, in accordance with GAAP applied on a consistent basis except as
described in the footnotes to the financial statements or as disclosed in
Section 5.5 of Qwest and Qwest Subsidiary's Disclosure Schedule.

(b) The unaudited consolidated balance sheet of Qwest and its consolidated
Subsidiaries as of September 30, 1997 and the related consolidated statements
of income (loss) and stockholders' equity and cash flows for the nine months
then ended, true and complete copies of which have been delivered to Qwest and
Qwest Subsidiary, fairly present, subject to normal year-end adjustments, the
consolidated financial position of the Company and its consolidated
Subsidiaries as of that date and their consolidated results of operations and
cash flows for the nine months then ended.

(c) At the respective dates of the balance sheets referred to in this
Section 5.5, none of Qwest and its Subsidiaries had any material Liability
that, in accordance with GAAP applied on a consistent basis, should have been
shown or reflected in the balance sheets but was not, except for the omission
of notes in unaudited balance sheets with respect to contingent liabilities
that in the aggregate did not materially exceed those so reported in the
latest audited balance sheets previously delivered and that were of
substantially the same type as so reported.

(d) Since January 1, 1997, there has been no material disagreement (within
the meaning of Item 304(a)(1)(iv) of Regulation S-K under the Securities Act)
between any of Qwest and its Subsidiaries, on the one part, and any of its
independent accountants, on the other part, with respect to any aspect of the
manner in which the Company or such Subsidiary, as the case may be, maintained
or maintains its books and records or the manner in which the Company or the
Subsidiary, as the case may be, has reported upon the financial condition and
results of operations of any of the Company and its Subsidiaries since such
date, that has not been resolved to the satisfaction of the relevant
independent accountants.

SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Section 5.6 of Qwest and Qwest Subsidiary's Disclosure Schedule, since
December 31, 1996, no circumstance has existed and no event has occurred that
has had, will have or could reasonably be expected to have a Material Adverse
Effect on Qwest and its Subsidiaries.

SECTION 5.7 LITIGATION.

(a) There is no Action pending against Qwest or Qwest Subsidiary or, to the
knowledge of the representing party, threatened against Qwest, Qwest
Subsidiary or any other person that restricts in any material respect or
prohibits (or, if successful, would restrict or prohibit) the conclusion of
any of the Transactions.

(b) There is no Action pending against any of Qwest and its Subsidiaries or,
to the knowledge of the representing party, threatened against any of Qwest
and its Subsidiaries or any other person that involves any of the Transactions
or any property owned, leased, licensed or used by any of Qwest and its
Subsidiaries, as the case may be, that, individually or in the aggregate, if
determined adversely to any of them, could reasonably be expected to have a
Material Adverse Effect on Qwest.

SECTION 5.8 COMPLIANCE WITH REGULATIONS.

(a) None of Qwest and its Subsidiaries is in, and none of them has received
written notice of, a violation of or default with respect to, any Regulation
of any Governmental Body or any decision, ruling,

A-35

order or award of any arbitrator applicable to it or its business, properties
or operations, including individual products or services sold or provided by
it, except for violations or defaults that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.

(b) Each of Qwest and its Subsidiaries has filed or caused to be filed with
each applicable Governmental Body all reports, applications, documents,
instruments and information required to be filed by it pursuant to all
applicable Regulations, other than those as to which the failure to file,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

SECTION 5.9 CAPITALIZATION.

(a) As of the date of this Agreement, the authorized capital stock of Qwest
consists of 400,000,000 shares of Qwest Common Stock and 25,000,000 shares of
preferred stock, par value $.01 per share, of Qwest (the "QWEST PREFERRED
STOCK").

(b) As of December 31, 1997 (after giving effect to the Qwest Stock Split),
there are (i) 206,669,874 shares of Qwest Common Stock issued and outstanding,
(ii) no shares of Qwest Common Stock held in the treasury of Qwest, (iii) no
shares of Qwest Preferred Stock issued and outstanding, (iv) 13,883,000 shares
of Qwest Common Stock reserved for issuance upon exercise of outstanding stock
options issued by Qwest to current or former employees and directors of Qwest
and its Subsidiaries, (v) 6,117,000 shares of Qwest Common Stock reserved for
issuance upon exercise of authorized but unissued stock options and (vi)
8,600,000 shares of Qwest Common Stock reserved for issuance upon exercise of
a warrant issued to Anschutz Family Investment Company LLC.

(c) All outstanding shares of Qwest Common Stock are duly authorized,
validly issued, fully paid and nonassessable, free from any Liens created by
Qwest with respect to the issuance and delivery thereof and not subject to
preemptive rights.

(d) Except with respect to the outstanding shares of Qwest Common Stock,
there are no outstanding bonds, debentures, notes or other indebtedness or
other securities of Qwest having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of Qwest may vote.

(e) All outstanding Equity Securities of Qwest were issued in compliance
with all applicable Regulations, including, without limitation, the
registration provisions of applicable federal and state securities laws.
Equity Securities of Qwest that were issued and reacquired by Qwest were so
reacquired (and, if reissued, so reissued) in compliance with all applicable
Regulations, and Qwest has no liability with respect to the reacquisition or
reissuance of such Equity Securities.

SECTION 5.10 SEC DOCUMENTS. Qwest has filed with the Securities and Exchange
Commission all reports, schedules, forms, statements and other documents
required by the Securities Act or the Exchange Act to be filed by Qwest since
April 18, 1997 (collectively, and in each case including all exhibits and
schedules thereto and documents incorporated by reference therein, the "QWEST
SEC DOCUMENTS"). Section 5.10 of the Qwest and Qwest Subsidiary's Disclosure
Schedule sets forth a list of all Qwest SEC Documents. As of their respective
dates, except to the extent revised or superseded by a subsequent filing with
the Securities and Exchange Commission on or before the date of this
Agreement, the Qwest SEC Documents filed by Qwest complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as
the case may be, and none of the Qwest SEC Documents (including any and all
financial statements included therein) filed by Qwest as of such dates
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of Qwest and its
consolidated Subsidiaries included in the Qwest SEC Documents, including any
amendments thereto, comply as to form in all material respects with applicable
accounting requirements and the published

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rules and regulations of the Securities and Exchange Commission with respect
thereto. Qwest has filed with the Securities and Exchange Commission as
exhibits to the Qwest SEC Documents all agreements, contracts and other
documents or instruments required to be so filed, and such exhibits are true
and complete copies of such agreements, contracts and other documents or
instruments, as the case may be. None of the Subsidiaries of Qwest is required
to file any reports, schedules, statements or other documents with the
Securities and Exchange Commission.

SECTION 5.11 PROXY/STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information with respect to any of Qwest and its
Subsidiaries to be included in the Proxy Statement/Prospectus or the
Registration Statement will in the case of the Proxy Statement/Prospectus or
any amendments thereof or supplements thereto, at the time of the mailing of
the Proxy Statement/Prospectus or any amendments thereof or supplements
thereto, and at the time of the Company Stockholders Meeting, or, in the case
of the Registration Statement, at the time it becomes effective, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the representing party
with respect to information supplied in writing by the Company or any
Affiliate of the Company specifically for inclusion in the Proxy
Statement/Prospectus or the Registration Statement. The Registration Statement
will comply in all material respects with the provisions of the Securities
Act. The registration statement on Form S-4, in which the Proxy
Statement/Prospectus will be included, and all exhibits thereto, required to
be filed with the Securities and Exchange Commission in connection with this
Agreement and the Merger are collectively referred to as the "REGISTRATION
STATEMENT".

SECTION 5.12 OWNERSHIP OF COMPANY COMMON STOCK. None of Qwest and its
Subsidiaries owns any shares of Company Common Stock or other Equity
Securities of the Company (exclusive of any shares of Company Common Stock
owned by any Employee Plan of Qwest and its Subsidiaries).

SECTION 5.13 MISSTATEMENTS. Except to the extent revised or superseded by a
subsequent schedule furnished to the Company pursuant to this Agreement, no
schedule furnished to the Company by or with respect to any of Qwest or its
Subsidiaries pursuant to this Agreement contained as of the date thereof any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statement contained therein, in the light of the
circumstances under which it was made, not misleading.

SECTION 5.14 CONTINUING REPRESENTATIONS AND WARRANTIES.

(a) Each of the representations and warranties made by Qwest or Qwest
Subsidiary in this Agreement as of any date other than the Closing Date shall
be true and correct in all material respects on and as of the Closing Date,
except as otherwise contemplated by this Agreement.

(b) Not less than three Business Days prior to the Closing Date, Qwest and
Qwest Subsidiary shall prepare and deliver to the Company such updates or
other revisions of the written disclosures referred to in this Article V as
have been delivered by Qwest and Qwest Subsidiary to the Company as shall be
necessary in order to make each of such written disclosures correct and
complete in all material respects on and as of the Closing Date. The
requirement to prepare and deliver updates or other revisions of the written
disclosures, and the receipt by the Company of information pursuant to
Sections 6.1(d) and 8.4 or otherwise on or before the Closing Date, shall not
limit the right of the Company under Article III to require as a condition
precedent to the performance of its obligations under this Agreement on such
Closing Date the accuracy in all material respects of the representations and
warranties made by the representing party in this Agreement and the
performance in all material respects of the covenants of Qwest or Qwest
Subsidiary made in this Agreement (without regard to such updates or other
revisions) and to receive an unqualified certificate with respect to the same.

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ARTICLE VI

Covenants of the Parties

SECTION 6.1 COVENANTS OF THE PARTIES. The Company covenants and agrees for
the benefit of Qwest and Qwest Subsidiary with respect to the Company, and (1)
Qwest and Qwest Subsidiary, jointly and severally, covenant and agree with
respect to subsections (a), (b), (c), (d), (e), (f), (g) and (i) of this
Section 6.1, and (2) Qwest covenants and agrees with respect to subsection (h)
of this Section 6.1, for the benefit of the Company, in each case that the
party with respect to which the covenant and agreement is made shall (and,
with respect to the Company, that the Company shall cause its Subsidiaries to)
do the following until the Effective Time and, with respect to Section 6.1(e),
indefinitely after the date of this Agreement:

(a) Maintenance of Existence. Preserve and maintain its corporate existence
and good standing in the jurisdiction of its incorporation and qualify and
remain qualified as a foreign corporation in each jurisdiction in which
qualification is required either (1) to own, lease, license or use its
properties now owned, leased, licensed or used and proposed to be owned,
leased, licensed or used or (2) to carry on its business as now conducted or
proposed to be conducted, except where the failure to effect or obtain such
qualification, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

(b) Compliance With Regulations. Comply in all respects with all Regulations
of each Governmental Body and all decisions, rulings, orders and awards of
each arbitrator applicable to it or its business, properties or operations in
connection with the Transactions if a failure to comply with any of the
foregoing, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, including, without limitation, use its best
efforts to comply (and exchange information with other parties to enable them
to comply) with any applicable requirements under the Hart-Scott-Rodino Act
relating to filing and furnishing information to the Department of Justice and
the Federal Trade Commission, including, without limitation, the following:

(1) assisting in the preparation and filing of each applicable "Antitrust
Improvements Act Notification and Report Form for Certain Mergers and
Acquisitions" and taking all other action required by 16 C.F.R. Parts 801-
803 (or any successor form or Regulation);

(2) complying with any additional request for documents or information
made by the Department of Justice or the Federal Trade Commission or by a
court; and

(3) causing all affiliated persons of the "ultimate parent entity" of the
party within the meaning of the Hart-Scott-Rodino Act to cooperate and
assist in such filing and compliance.

(c) Best Efforts. Upon the terms and subject to the conditions provided in
this Agreement or the other Transaction Documents, use its best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties to this Agreement or any other
Transaction Document in doing all things necessary, proper or advisable to
cause the satisfaction of the conditions to the conclusion of the Transactions
contemplated hereby or thereby including, without limitation, using its best
efforts to obtain all Approvals that are required or advisable on the part of
any party with respect to the Transactions.

(d) Notification. Give prompt notice to the other parties to this Agreement
or any other Transaction Document, as the case may be, of (1) the occurrence,
or failure to occur, of any event that would be likely to cause any
representation or warranty of the party contained herein or therein to be
untrue or inaccurate in any material respect at any time from the date of this
Agreement to the Closing Date, any failure of the party to perform or
otherwise comply with, in any material respect, any covenant, condition or
agreement to be performed or complied with by it hereunder or thereunder and
(2) the receipt by the party of written or oral notice from any Governmental
Body or other person

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stating, or causing such party to believe, that there is a reasonable
likelihood that an Approval required by this Agreement to be obtained from
such Governmental Body or other person will not be obtained timely or at all;
which covenant of notification shall not limit the right of any other party
hereunder or thereunder to require as a condition precedent to the performance
of its obligations hereunder or thereunder the continuing accuracy and
performance of the representations and warranties and covenants of the
notifying party made herein or therein and to receive an unqualified
certificate with respect to the same.

(e) Publicity and Reports. Except as may be required by applicable laws,
court process or by obligations pursuant to any listing agreement with the
NASD or the American Stock Exchange, refrain from issuing any press release or
make any public filings with respect to the Transactions, without affording
the other parties the opportunity to review and comment upon such release or
filing.

(f) Tax-Free Reorganization. Use, and cause its Affiliates to use, all
reasonable efforts to cause the Merger to qualify as a reorganization under
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code; not take, and cause its
Affiliates not to take, any action what would cause the Merger not to qualify
as a reorganization under those Sections; and take the position for all
purposes that the Merger qualifies as a reorganization under those Sections.

(g) Confidentiality. Keep confidential any information disclosed by any
other party or its representatives to the covenanting party or its
representatives, whether before or after the date of this Agreement, in
connection with the Transactions or the discussions and negotiations preceding
the execution of the Transaction Documents, and do not use such information
other than as contemplated by the Transaction Documents, in each case on the
terms and conditions set forth in the letter agreement dated November 12, 1997
between the Company and Qwest Communications Corporation (the "CONFIDENTIALITY
AGREEMENT"), as though the agreements and obligations of the parties
thereunder were also the agreements and obligations of each party to this
Agreement owed to the other parties to this Agreement, mutatis mutandis.

(h) Accuracy of Information. Cause all reports, schedules, forms, statements
and other documents required by the Securities Act or the Exchange Act to be
filed by the Company or Qwest, as the case may be (collectively, and in each
case including all exhibits and schedules thereto and documents incorporated
by reference therein, such party's "SEC DOCUMENTS"), as of their respective
dates, except to the extent revised or superseded by a subsequent filing with
the Securities and Exchange Commission on or before the Effective Time, to
comply in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and cause all of such party's SEC
Documents (including any and all financial statements included therein) filed
by it as of such dates not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading, except to the extent revised or
superseded by a subsequent filing with the Securities and Exchange Commission
on or before the Closing Date that corrects any such untrue statement or
omission.

(i) Further Assurances. Promptly upon request by any other party, (1)
correct any defect or error that may be discovered in any Transaction Document
or in the execution or acknowledgement of any Transaction Document and
execute, acknowledge, deliver, file, re-file, register and re-register, any
and all such further acts, certificates, assurances and other instruments as
the requesting party may reasonably require from time to time in order (a) to
carry out more effectively the purposes of each Transaction Document, (b) to
enable the requesting party to exercise and enforce its rights and remedies
and collect any payments and proceeds under each Transaction Document and (c)
to better transfer, preserve, protect and confirm to the requesting party the
rights granted or now or hereafter intended to be granted to the requesting
party under each Transaction Document or under each other instrument executed
in connection with any Transaction Document, or (2) if the parties agree to
permit

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the Closing to occur prior to the receipt of all Approvals required by Section
3.1(d) (without giving effect to the reference therein to the possible
occurrence of a Material Adverse Effect), enter into such other transactions,
agreements and arrangements with the other parties or their Affiliates so as
to give Qwest and Qwest Subsidiary the benefit of the bargain, all without
cost, expense or any other liability whatsoever to any of the Company, Qwest,
Qwest Subsidiary and their Affiliates. Notwithstanding the foregoing but
subject to Sections 8.2 and 8.3, none of Qwest, Qwest Subsidiary or any
Affiliate of Qwest shall have any obligation to provide financial assistance
of any sort whatsoever to any of the Company or its Subsidiaries.

SECTION 6.2 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As soon as
practicable following the execution of this Agreement, the Company shall
prepare and file with the Securities and Exchange Commission the Proxy
Statement/Prospectus and each of the Company and Qwest shall use its best
efforts to have the Proxy Statement/Prospectus cleared by the Securities and
Exchange Commission as promptly as practicable. As soon as practicable
following such clearance, Qwest shall prepare and file with the Securities and
Exchange Commission the Registration Statement, of which the Proxy
Statement/Prospectus will form a part, and shall use its best efforts to have
the Registration Statement declared effective by the Securities and Exchange
Commission as promptly as practicable thereafter. The Company and Qwest shall
cooperate with each other in the preparation of the Proxy
Statement/Prospectus, and each shall provide to the other promptly copies of
all correspondence between it or any of its representatives and the Securities
and Exchange Commission. Each of the Company and Qwest shall furnish to the
other all information concerning it and its Affiliates required to be included
in the Proxy Statement/Prospectus and the Registration Statement. As promptly
as practicable after the effectiveness of the Registration Statement, the
Company shall mail the Proxy Statement/Prospectus to the stockholders of the
Company. No amendment or supplement to the Proxy Statement/Prospectus or the
Registration Statement shall be made without the approval of each of the
Company and Qwest, which approval shall not be unreasonably withheld,
conditioned or delayed. Each of the Company and Qwest shall advise the other,
promptly after it receives notice thereof, of the time when the Registration
Statement has become effective or any amendment thereto or any supplement or
amendment to the Proxy Statement/Prospectus has been filed, or the issuance of
any stop order, or the suspension of the qualification of Qwest Common Stock
to be issued in the Merger for offering or sale in any jurisdiction, or of any
request by the Securities and Exchange Commission or the NASD for amendment of
the Registration Statement or the Proxy Statement/Prospectus. The parties
shall take any action required to be taken under state blue sky or securities
Regulations in connection with the Transactions.

SECTION 6.3 LETTERS OF ACCOUNTANTS. Each of the Company and Qwest shall use
commercially reasonable efforts to cause to be delivered to the other
"comfort" letters of Grant Thornton LLP, the Company's independent public
accountants, and of KPMG Peat Marwick LLP, Qwest's independent public
accountants, respectively, in each case, dated and delivered on the date on
which the Registration Statement shall become effective and as of the
Effective Time, and addressed to the Boards of Directors of the Company and
Qwest, in form and substance reasonably satisfactory to the other and
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.

ARTICLE VII

Additional Covenants Of The Company

SECTION 7.1 AFFIRMATIVE COVENANTS OF THE COMPANY. The Company agrees for the
benefit of Qwest and Qwest Subsidiary that, until the Effective Time, the
Company shall, and shall cause each of its Subsidiaries to, do the following:

(a) American Stock Exchange. Take all action required, if any, to cause the
Company Common Stock to continue to be listed for trading on the American
Stock Exchange and give such notice to the

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American Stock Exchange and the NASD as shall be required, if any, with
respect to the Transaction Documents and the Transactions.

(b) Maintenance of Records. Keep adequate records and books of account
reflecting all its financial transactions, keep minute books containing
accurate records of all meetings and accurately reflecting all corporate
action of its stockholders and its Board of Directors (including committees)
and keep stock books and ledgers correctly recording all transfers and
issuances of all capital stock.

(c) Maintenance of Properties. Maintain, keep and preserve all its Material
Properties such that the representations and warranties stated in Section
4.15(c) shall at all times be true.

(d) Conduct of Business. Except as otherwise contemplated by this Agreement,
continue to engage in the Ordinary Course in the same lines of business as
conducted by it on the date of this Agreement; and use its best efforts to
preserve the business of the Company and its Subsidiaries and to preserve the
goodwill of customers, suppliers and others having business relations with any
of the Company and its Subsidiaries.

(e) Maintenance of Insurance. Maintain insurance such that the
representations and warranties stated in Section 4.18 shall at all times
remain true.

(f) Payment of Taxes. (1) Timely file (or cause to be filed) all Tax Returns
that are required to be filed by it, except for the filing of such Tax Returns
as to which the failure to file, individually or in the aggregate, could not
reasonably be expected to have a Materially Adverse Effect, and (2) pay (or
cause to be paid) before they become delinquent all Taxes due whether or not
shown on such Tax Returns or any assessment received by it or otherwise
required to be paid, except Taxes being contested in good faith by appropriate
proceedings and for which adequate reserves or other provisions are
maintained.

(g) Reporting Requirements. Furnish to Qwest and Qwest Subsidiary:

(1) Adverse events. Promptly after the occurrence, or failure to occur,
of any such event, information with respect to any event (A) which could
reasonably be expected to have a Material Adverse Effect, (B) which, if
known as of the date of this Agreement, would have been required by any
Transaction Document to be disclosed to Qwest or Qwest Subsidiary or (C)
which could reasonably be expected to cause any representation or warranty
contained in any Transaction Document with respect to the Company or a
Subsidiary to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Effective Time;

(2) Monthly financial statements. As soon as available, and in any event
within 30 days after the end of each month, the consolidated balance sheet
of the Company and its consolidated Subsidiaries as of the end of the month
and the related consolidated statements of income (loss), stockholders'
equity and cash flows for the portion of the fiscal year of the Company
ended with the last day of the month, all in reasonable detail and stating
in comparative form the respective consolidated figures for the
corresponding date and period in the previous fiscal year (subject to year-
end adjustments);

(3) Quarterly financial statements. As soon as available and in any event
within 45 days after the end of each of the first three quarters of each
fiscal year of the Company, the consolidated balance sheet of the Company
and its consolidated Subsidiaries as of the end of the quarter and the
related consolidated statements of income (loss) and stockholders' equity
and cash flows for the portion of the fiscal year ended with the last day
of the quarter, all in reasonable detail and stating in comparative form
the respective consolidated figures for the corresponding date and period
in the previous fiscal year and certified by the chief financial officer of
the Company (subject to year-end adjustments);

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(4) Annual financial statements. As soon as available and in any event
within 90 days after the end of each fiscal year of the Company, the
consolidated balance sheet of the Company and its consolidated Subsidiaries
as of the end of the fiscal year and the related consolidated statements of
income (loss) and stockholders' equity and cash flows for the fiscal year,
all in reasonable detail and stating in comparative form the respective
consolidated figures for the corresponding date and period in the prior
fiscal year and accompanied by an opinion of Grant Thornton LLP or other
independent accountants of recognized national standing selected by the
Company;

(5) Notice of litigation. Promptly after the commencement of each such
matter, notice of all Actions affecting the Company or a Subsidiary that,
individually or in the aggregate, if determined adversely to any of them,
could reasonably be expected to have a Material Adverse Effect;

(6) Access to information. Afford to Qwest and Qwest Subsidiary and their
respective officers, employees, financial advisors, attorneys, accountants
and other representatives, reasonable access and duplicating rights (at the
requesting party's expense) during normal business hours and upon
reasonable advance notice to all its properties, books, contracts
commitments, personnel and records; furnish as promptly as practicable to
Qwest and Qwest Subsidiary and their respective officers, employees,
financial advisors, attorneys, accountants and other representatives such
information with respect to the business, properties, operations, prospects
or condition (financial or otherwise) of the Company and its Subsidiaries
as they may from time to time reasonably request and instruct the officers,
employees, financial advisors, attorneys, accountants and other
representatives of each of the Company and its Subsidiaries to cooperate
with Qwest and Qwest Subsidiary and their respective officers, employees,
financial advisors, attorneys, accountants and other representatives in
their investigation of each of the Company and the Subsidiaries;

(7) Reports to creditors and other persons. Promptly after the furnishing
of each such document, copies of any statement or report furnished to any
other person pursuant to the terms of the Credit Agreement or any other
indenture, loan or credit or similar agreement and not otherwise required
by any other clause of this Section 8.1 to be furnished to Qwest and Qwest
Subsidiary;

(8) SEC documents. Promptly after filing any report, schedule, form,
statement or other document with the Securities and Exchange Commission,
the Company shall deliver a copy thereof to Qwest and Qwest Subsidiary; and

(9) General information. Such other information respecting the condition
or operations, financial or otherwise, of any of the Company and its
Subsidiaries as Qwest or Qwest Subsidiary may from time to time reasonably
request.

(h) Certain Resignations and Releases. Obtain from the persons identified in
Section 3.1(m)(1) the resignations and releases referred to therein, without
cost or other liability, subject to Section 8.3(c), to any of the Company, its
Subsidiaries, Qwest and Qwest Subsidiary.

(i) Affiliate Agreements. Deliver to Qwest and Qwest Subsidiary a list
(reasonably satisfactory to counsel for Qwest and Qwest Subsidiary), setting
forth names and addresses who are, at the time of the Company Stockholders
Meeting, in the Company's reasonable judgment, "affiliates" of the Company for
purposes of Rule 145 under the Securities Act; furnish such information and
documents as Qwest and Qwest Subsidiary may reasonably request for the purpose
of reviewing such list; and use its best efforts to obtain from each such
person the written agreement referred to in Section 3.1(m)(2), without cost or
other liability to any of the Company, its Subsidiaries, Qwest and Qwest
Subsidiary.

(j) Stock Options, Warrants, etc. Cancel or otherwise terminate, without
cost or other liability to any of the Company, Qwest, Qwest Subsidiary and any
other person, all of the Stock Options and

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Warrants, and all rights of participants in any stock option, stock purchase,
stock appreciation rights, phantom stock, restricted stock or other Company
Employee Plan, that shall not have been exercised or exchanged on or before
the Business Day preceding the Closing Date, in each case on terms approved by
Qwest and Qwest Subsidiary; provided that, (1) Company Series F Warrants
exercisable for no more than 275,000 shares of Company Common Stock in the
aggregate, (2) Company Sunrise Warrants exercisable for no more than 103,333
shares of Company Common Stock in the aggregate and (3) Company AmeriConnect
Rights exchangeable for no more than 20,390 shares of Company Common Stock in
the aggregate, may remain outstanding after the Closing Date if both (x) the
Company shall have used commercially reasonably efforts to cause the
cancellation or other termination of such Company Series F Warrants and
Company Sunrise Warrants and the exchange of such Company AmeriConnect Rights,
in each case as the case may be, and (y) only shares of Qwest Common Stock
(and no Equity Securities of the Surviving Corporation or any other person)
shall be issuable upon the exercise or exchange, as the case may be, of such
Company Series F Warrants, Company Sunrise Warrants and Company AmeriConnect
Rights after the Effective Time.

(k) Voting Agreements. Recognize and give effect to the proxies granted by
the Principal Stockholders in their respective Voting Agreements and direct
the transfer agent for the Company Common Stock not to effect the transfer by
any Principal Stockholder of any Company Restricted Shares in violation of the
related Voting Agreement.

(l) Company Stockholders Meeting; Proxy Statement/Prospectus.

(1) The Company (to the extent necessary, acting through its Board of
Directors) shall, in accordance with applicable Regulations and as soon as
practicable following the execution and delivery of this Agreement, (A)
duly call, give notice of, convene and hold a meeting of the holders of the
Company Common Stock (the "Company Stockholders Meeting") for the purpose
of considering the approval of this Agreement and the Merger, which date
shall be not less than 20 days after the date the Proxy
Statement/Prospectus shall be first mailed to the stockholders of the
Company, (B) fix a record date for determining stockholders entitled to
vote at the Company Stockholders Meeting and (C) subject to Section 7.2(z),
include in the Proxy Statement/Prospectus the recommendation by the Board
of Directors of the Company that the stockholders of the Company approve
this Agreement and the Merger.

(2) Notwithstanding the provisions of Section 7.2(z) and this Section
7.1(l), the obligations of the Company under Section 7.1(l)(1) shall not be
affected by the withdrawal or modification by the Board of Directors of the
Board Approval with respect to any matter other than the approval of this
Agreement and the Merger.

(m) Customer Introductions. To the extent practicable, upon the request of
Qwest or Qwest Subsidiary, introduce Qwest or Qwest Subsidiary, or arrange for
a personal introduction of their respective representatives, to customers of
any of the Company and its Subsidiaries for the purpose of ensuring good
customer relationships following the Closing.

(n) Dissenters. Cause, without cost or other liability to any of the
Company, Qwest, Qwest Subsidiary, the Surviving Corporation and any other
person, the number of shares of Company Common Stock with respect to which
demands for appraisal pursuant to Section 262 of the DGCL shall be perfected
to be equal to or less than the number that is equal to 5.25% of the Aggregate
Number.

SECTION 7.2 NEGATIVE COVENANTS OF THE COMPANY. The Company agrees for the
benefit of Qwest and Qwest Subsidiary that, until the Effective Time and
except as contemplated by the Transaction Documents or with the prior written
approval of Qwest and Qwest Subsidiary (which approval may be granted,
withheld, delayed or conditioned in their sole discretion), the Company shall
not, and shall not permit any of its Subsidiaries to, do any of the following
or enter into any agreement or other arrangement (other than the Transaction
Documents) with respect to any of the following:

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(a) Dissolution. Dissolve any of the Company and its Subsidiaries, or take
any action in contemplation thereof.

(b) Charter documents. Except as contemplated by Section 7.1(n), amend its
articles of incorporation, certificate of incorporation, bylaws, operating
agreement or limited partnership agreement, as applicable.

(c) Capitalization. Issue any shares of capital stock or other Equity
Securities, except in connection with the exercise of any Stock Options and
Warrants, or enter into an agreement or arrangement restricting the voting or
transfer of any Equity Securities of any of the Company and its Subsidiaries.

(d) Debt. Create, incur, assume or suffer to exist any Debt, except:

(1) any Debt under the Credit Agreement, in an aggregate principal amount
not greater than $4,620,000 plus the aggregate outstanding amount of
revolving advances under Section 2 of the Credit Agreement, on the terms
and conditions thereof in existence as of the date of this Agreement or on
other terms and conditions reasonably satisfactory to Qwest and Qwest
Subsidiary; and

(2) any other Debt existing on the date of this Agreement, and all
amendments, extensions, modifications, refunding, renewals, refinancings
and substitutions thereof, but only if the aggregate principal amount
thereof is not increased thereby, the term thereof is not extended thereby
and the other terms and conditions thereof, taken as a whole, are not less
advantageous to the Company and its Subsidiaries than those in existence as
of the date of this Agreement.

(e) Liens. Create, incur, assume, or suffer to exist any Lien upon or with
respect to any of its properties, now owned or hereafter acquired, except
Permitted Liens.

(f) Liabilities. Any of (1) incur any Liability, except Liabilities (A)
incurred in the Ordinary Course or (B) expressly contemplated by the
Transaction Documents, (2) pay, discharge or satisfy any Liabilities, except
Liabilities (A) reflected or reserved against in, or contemplated by, the
financial statements (or the notes thereto) of the Company and its
Subsidiaries referred to in Section 4.5, (B) incurred in the Ordinary Course,
(C) legally required to be paid, discharged or satisfied or (D) expressly
contemplated by the Transaction Documents and (3) renegotiate, settle or
compromise the Sprint Payables Obligation or the MCI Payables Obligation or
both (provided that the approval of Qwest and Qwest Subsidiary with respect to
such renegotiation, settlement or compromise shall not be unreasonably
withheld, delayed or conditioned).

(g) Settle Litigation. Settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement) or settle, pay or compromise
any claims not required to be paid (which are not payable or reimbursable
under policies of insurance maintained by or on behalf of any of the Company
and its Subsidiaries), individually in an amount in excess of $50,000 and in
the aggregate in an amount in excess of $100,000, other than in consultation
and cooperation with Qwest and Qwest Subsidiary, and, with respect to any such
settlement, with the prior written consent of Qwest and Qwest Subsidiary.

(h) Restricted Payments. Declare or make any Restricted Payment to any
person other than any of the Company and its Wholly-Owned Subsidiaries.

(i) Capital Expenditures. Make (or commit to make) any Capital Expenditures
except in the Ordinary Course.

(j) Acquisitions. Acquire (1) by merger, consolidation, acquisition of stock
or assets, or otherwise, all or substantially all of the Equity Securities of
any corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated association or other entity or organization
or (2) any assets except for fair value and in the Ordinary Course.

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(k) Investments. Make or acquire any Investment in any person, other than
(1) Investments in Wholly-Owned Subsidiaries and (2) Investments existing on
the date of this Agreement in other Subsidiaries, including, without
limitation, any extension of the maturity, renewal, refunding or modification
of such existing Investments in other Subsidiaries and all amendments,
extensions, modifications, refundings, renewals and substitutions of such
existing Investments, but only if the aggregate amount of such existing
Investments shall not increase except as a result of the accrual of interest,
dividends and other amounts payable in respect of such Investments.

(l) Mergers, Etc. Merge or consolidate with any person, sell, lease, license
or dispose of all or substantially all of its assets (whether now owned or
hereafter acquired) to any person or acquire all or substantially all of the
assets or the business of any person, or take any other action to effect, any
Business Combination Transaction (other than the Transactions), in each case
whether in one transaction or in a series of transactions, except that a
Subsidiary may merge into or transfer assets to the Company or a Wholly-Owned
Subsidiary.

(m) Leases. Create, incur, assume or suffer to exist, pursuant to a
Guarantee or otherwise, any obligation as lessee for the rental or hire of any
real or personal property, except the following:

(1) conditional sale contracts that are Permitted Liens;

(2) capitalized leases that are Permitted Liens;

(3) leases existing on the date of this Agreement and any extensions or
renewals of those leases; and

(4) leases (other than capitalized leases) entered into in the Ordinary
Course.

(n) Sale and Leaseback. Transfer any real or personal property to any person
and thereafter directly or indirectly lease back the same or similar property.

(o) Sale or Lease of Assets. Transfer any of its assets now owned or
hereafter acquired (including, but not limited to, shares of capital stock and
indebtedness of Subsidiaries and leasehold interests), except the following:

(1) assets that are no longer used or useful in the conduct of its
business; and

(2) assets that are transferred for fair value and in the Ordinary
Course.

(p) Conduct of Business. Either (1) cease to engage in the Ordinary Course
in the same lines of business as conducted by the Company or a Subsidiary on
the date of this Agreement, (2) engage in any line of business that is not
conducted by the Company or a Subsidiary on the date of this Agreement or (3)
enter into any agreement, arrangement, commitment, contract or transaction,
amend or terminate any of the same, take any action or omit to take any action
or otherwise conduct any of its affairs, in any case not in the Ordinary
Course.

(q) Confidential Information. Except as otherwise expressly permitted by the
proviso to Section 7.2(z) with respect to a Business Combination Proposal or
pursuant to confidentiality agreements with respect to the business,
properties and operations of the Company and its Subsidiaries in effect as of
the date of this Agreement or entered into thereafter in the ordinary course
of business and consistent with past practice, use or disclose to any person
(other than Qwest, Qwest Subsidiary and their Affiliates), except as required
by law, any material non-public information concerning the business,
properties, operations, prospects or condition (financial or otherwise) of the
Company and its Subsidiaries.

(r) Transactions with Affiliates. Enter into any transaction (including, but
not limited to, the purchase, sale or exchange of property or the rendering of
any service or the amendment, modification or termination of any of, or waiver
of any provision of, the Affiliate Agreements) with any of its directors,

A-45

officers or stockholders having beneficial ownership of 5.0% or more of the
shares of any class of Company Common Stock or Company Preferred Stock then
issued and outstanding, or with any of its Affiliates or the directors,
officers or such stockholders thereof, except (1) transactions among the
Company and its Wholly-Owned Subsidiaries, (2) transactions pursuant to
agreements, arrangements or understandings that are set forth in Section
7.2(r) of the Company's Disclosure Schedule and (3) transactions that do not
require the payment or provision by or to any of the Company and its
Subsidiaries of money in an aggregate amount, or goods or services having an
aggregate value, in excess of $50,000.

(s) Compliance With ERISA. Permit there to occur an Employee Plan Event that
results in any material liability of any of the Company and its Subsidiaries.

(t) Compensation. Permit (1) an increase in the amount of compensation of
any senior executive officer of any of the Company and its Subsidiaries
(including wages, salaries, bonuses, extra compensation, pension and
continuation, severance or termination pay of all types, whether paid or
accrued) that is not required by an existing agreement or, if not so required,
is not in the Ordinary Course, (2) the adoption or amendment of, or
acceleration of payment or vesting of the amounts payable or to become payable
under, any bonus, profit sharing, compensation, severance, termination, stock
option, stock purchase, stock appreciation rights, phantom stock, restricted
stock or other stock-based plan, pension, retirement, employment or other
employee benefit agreement, trust, plan or other arrangement for the benefit
or welfare of any current or former officer, director, employee, consultant or
agent of any of the Company and its Subsidiaries, (3) grant of any additional
Stock Options or Warrants, (4) the payment of any benefit not required by any
existing agreement, (5) the adoption or amendment of any existing, employment,
consulting, continuation pay, severance pay or termination pay agreement
(including, without limitation, any such agreement that provides for the
acceleration or payment of any benefit upon the occurrence of a change in
control, however defined) with any officer, director or employee of any of the
Company and its Subsidiaries or, except in accordance with the existing
written policies of the Company or the Subsidiary, as the case may be, in
existence as of the date of this Agreement, the grant of any continuation,
severance or termination pay to any officer, director or employee of any of
the Company and its Subsidiaries or (6) the placement of any assets in any
trust for the benefit of officers, directors or employees of any of Company
and its Subsidiaries; provided, however, that notwithstanding the foregoing,
(x) each of the Company and its Subsidiaries may amend the provisions of any
employee pension plan which is intended to be qualified under Section 401(a)
of the Code in order to maintain such qualified status and (y) except as
contemplated by this Agreement, none of the Company and its Subsidiaries shall
take any action, or refrain from taking any action, as the result of which the
Company and its Subsidiaries shall be, or upon the occurrence of any change of
control (however defined) or other event become, obligated to pay benefits.

(u) New Executive Officers. Employ, directly or indirectly (including as a
consultant), any executive officers of any of the Company and its Subsidiaries
not employed by the Company or the Subsidiary, as the case may be, in the same
position or capacity on the date of this Agreement.

(v) Union Contracts. Enter into or amend any agreements with any labor union
or other collective bargaining group, other than in the Ordinary Course.

(w) Stock of Subsidiary. Transfer any shares of capital stock of any
Subsidiary, except in connection with a transaction permitted by Section
7.2(z).

(x) Taxes. Make any tax election or settle or compromise any income tax
liability.

(y) Accounting Changes. Except as disclosed in Section 7.2 of the Company's
Disclosure Schedule, make or permit any significant change in accounting
policies or reporting practices, except for any change required by GAAP, in
the opinion of the Company's independent accountants.

A-46

(z) Business Combination Transactions. Do, or permit any of its officers,
directors, employees, financial advisors and other representatives to do, any
of the following or to enter into an agreement or other arrangement (other
than the Transaction Documents) with respect to any of the following:

(1) enter into any agreement with respect to, or take any other action to
effect, any Business Combination Transaction (other than the Transactions)
with respect to any of the Company and its Subsidiaries;

(2) solicit, initiate or encourage (including, without limitation, by way
of furnishing information), or take any other action to facilitate, any
inquiry or the making of any proposal to any of the Company, its
Subsidiaries and its stockholders from any person (other than Qwest, Qwest
Subsidiary or any Affiliate of, or any person acting in concert with, Qwest
or Qwest Subsidiary) which constitutes, or may reasonably be expected to
lead to, a proposal with respect to a Business Combination Transaction
(other than the Transactions) with respect to any of the Company and its
Subsidiaries, or endorse any Business Combination Transaction (other than
the Transactions) with respect to any of the Company and its Subsidiaries;
or

(3) continue, enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person
any information with respect to the business, properties, operations,
prospects or condition (financial or otherwise) of the Company and its
Subsidiaries or any of the foregoing, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek any of the foregoing;

provided, that this Section 7.2(z) shall not prohibit (1) the Company from (A)
furnishing to any person (other than a Principal Stockholder or any Affiliate
of, or other person acting in concert with, the Company or a Principal
Stockholder) that has made an unsolicited, bona fide written proposal with
respect to a Business Combination Transaction with respect to any of the
Company and its Subsidiaries information concerning the Company and its
Subsidiaries and the business, properties, operations, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries or (B) engaging
in discussions or negotiations with such a person that has made such written
proposal with respect to a Business Combination Transaction, (2) following
receipt of such written proposal with respect to a Business Combination
Transaction, the Company from taking and disclosing to its stockholders a
position contemplated by Rule 14e-2(a) under the Exchange Act, or (3)
following receipt of such written proposal with respect to a Business
Combination Transaction, the Board of Directors of the Company from
withdrawing or modifying the Board Approval; provided, however, that the
Company or the Board of Directors of the Company, as the case may be, (x)
shall take any action referred to in the preceding clauses (1) and (3) with
respect to such written proposal (a "SUPERIOR PROPOSAL") only if such action
is consistent with (i) the written opinion, subject only to customary
qualifications, of a financial advisor of nationally recognized reputation,
taking into account the terms and conditions of such proposed Business
Combination Transaction and the Merger, respectively, all other legal,
financial, regulatory and other aspects of such proposed Business Combination
Transaction and the Merger, respectively, and the identity of the person
making such Superior Proposal, that (A) such proposed Business Combination
Transaction is reasonably capable of being completed and would, if completed,
result in a transaction more favorable to the Company and its stockholders
from a financial and strategic point of view than is the Merger and (B)
financing for such proposed Business Combination Transaction, to the extent
required, is then committed and is reasonably capable of being provided by a
financial institution or other source able to provide such financing and (ii)
the written opinion of independent counsel for the Company that the failure to
take such action would result in a substantial risk of liability for a breach
by the Board of Directors of the Company of its fiduciary obligations under
applicable law, (y) shall furnish to the person making such Superior Proposal
any information referred to in the preceding clause (1)(A) only if both (A)
the Company shall then furnish such information to Qwest and Qwest Subsidiary,
or shall have previously furnished such information to Qwest or Qwest
Subsidiary, and (B) such information shall be so furnished to such person
pursuant to a confidentiality agreement no less favorable to the Company

A-47

than the terms of the Confidentiality Agreement and (z) shall take any action
referred to in the preceding clauses (1), (2) and (3) only if the Board of
Directors of the Company shall, by written notice delivered to Qwest and Qwest
Subsidiary not less than 24 hours prior thereto, inform Qwest and Qwest
Subsidiary of its intention to take such action. The Company shall cease and
cause to be terminated any existing activities, discussions or negotiations
with all persons (other than Qwest, Qwest Subsidiary or any Affiliate of, or
any person acting in concert with, Qwest or Qwest Subsidiary) conducted on or
before the date of this Agreement with respect to any Business Combination
Transaction. The Company shall inform the persons referred to in the first
sentence of this Section 7.2(z) of the obligations undertaken in this Section
7.2(z). If the Company, or any member of the Board of Directors thereof,
receives a proposal with respect to a Business Combination Transaction with
respect to any of the Company and its Subsidiaries, then the Company shall, by
written notice delivered within 24 hours after the receipt of such proposal,
inform Qwest and Qwest Subsidiary of the terms and conditions of such proposal
and the identity of the person making the proposal with respect to such
Business Combination Transaction and shall keep Qwest and Qwest Subsidiary
generally informed with reasonable promptness of any steps it is taking
pursuant to the preceding sentence with respect to such proposal.

ARTICLE VIII

Additional Covenants of Qwest

SECTION 8.1 AFFIRMATIVE COVENANTS OF QWEST. Qwest agrees for the benefit of
the Company that, until the Effective Time, Qwest shall take all action
required, if any, to cause the Qwest Common Stock that shall be issued in the
Merger to be approved for inclusion in NASDAQ/NM, if necessary, subject only
to official notice of issuance, and give such notice to the NASD as shall be
required, if any, with respect to the Transaction Documents and the
Transactions.

SECTION 8.2 DIRECTORS' AND OFFICERS' INSURANCE; INDEMNIFICATION. Qwest
agrees for the benefit of the Indemnified Persons that Qwest shall do the
following:

(a) For six years after the Effective Time, the Surviving Corporation and
its Subsidiaries shall indemnify each person who is now, or has been at any
time prior to the date of this Agreement, a director, officer, employee or
agent of any of the Company and its Subsidiaries, and the successors and
assigns of such person (individually, an "INDEMNIFIED PERSON" and,
collectively the "INDEMNIFIED PERSONS"), to the same extent and in the same
manner as is now provided in the respective articles of incorporation,
certificates of incorporation, by-laws, operating agreements or limited
partnership agreements, as applicable, of the Company and its Subsidiaries in
effect on the date of this Agreement, with respect to any Loss whenever
asserted or claimed (an "INDEMNIFIED LIABILITY"), based in whole or in part
on, or arising before or after the Effective Time in whole or in part out of,
any matter existing or occurring at or prior to the Effective Time. Qwest
hereby guarantees the obligation of the Surviving Corporation provided for
under this Section 8.2(a); provided, that the guarantee obligation of Qwest
provided for in this Section 8.2(a) shall, in the aggregate, be limited to an
amount equal to (1) the aggregate value of the consolidated assets of the
Company and its consolidated Subsidiaries minus (2) the aggregate value of the
consolidated liabilities of the Company and its consolidated Subsidiaries,
each as reflected on the books and records of the Company as of the Closing
Date.

(b) Qwest shall cause the Surviving Corporation to maintain in effect for
not less than six years after the Effective Time the current policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries on the date of this Agreement; provided that (x) Qwest may
substitute therefor policies providing coverage with respect to matters
existing or occurring at or prior to the Effective Time (whether arising
before or after the Effective Time) and containing terms and conditions that,
taken as a whole, are no less advantageous to the persons covered by such
current

A-48

insurance policies and (y) if the aggregate annual premiums for such insurance
at any time during such period shall exceed 200% of the per annum rate of
premiums paid by the Company and its Subsidiaries for such insurance on the
date of this Agreement, then Qwest shall cause the Surviving Corporation to,
and the Surviving Corporation shall, provide the maximum coverage that shall
then be available at an annual premium equal to 200% of such rate, and, in
addition to the indemnification provided above in this Section 8.2(b), shall
indemnify the Indemnified Persons for the balance of such insurance coverage
on the same terms and conditions as though Qwest were the insurer under those
policies.

(c) Promptly after receipt by an Indemnified Person of notice of the
assertion (an "ASSERTION") of any claim or the commencement of any action
against the person in respect of which indemnity or reimbursement may be
sought hereunder against any of the Company, Qwest, the Surviving Corporation
or their respective Subsidiaries (collectively, "INDEMNITORS"), such
Indemnified Person shall notify any Indemnitor in writing of the Assertion,
but the failure to so notify any Indemnitor shall not relieve any Indemnitor
of any liability it may have to such Indemnified Person hereunder except where
such failure shall have materially prejudiced Indemnitor in defending against
such Assertion. The Indemnitors shall be entitled to participate in and, to
the extent the Indemnitors elect by written notice to such Indemnified Person
within 30 days after receipt by any Indemnitor of notice of such Assertion, to
assume the defense of such Assertion, at their own expense, with counsel
chosen by the Indemnitors and reasonably satisfactory to an Indemnified
Person. Notwithstanding that the Indemnitors shall have elected by such
written notice to assume the defense of any Assertion, such Indemnified Person
shall have the right to participate in the investigation and defense thereof,
with separate counsel chosen by such Indemnified Person, but in such event the
fees and expenses of such counsel shall be paid by such Indemnified Person,
except to the extent that, in the opinion of counsel for the Indemnified
Person, the Indemnified Person and the Indemnitor have conflicting interests
in which case the Indemnitor shall pay the fees and expenses of such separate
counsel; provided that, in connection with any Action or substantially similar
actions in the same jurisdiction arising out of the same general allegations,
the Indemnitors shall not be liable for fees and expenses of more than one
separate firm of attorneys for all Indemnified Persons, which firm shall be
identified in writing to the Indemnitors. No Indemnified Person shall settle
any Assertion without the prior written consent of Qwest nor shall Qwest
settle any assertion without either (1) the written consent of all Indemnified
Persons against whom such Assertion was a made or (2) obtaining a general
release from the party making the Assertion for all Indemnified Persons as a
condition of such settlement.

SECTION 8.3 EMPLOYEE BENEFITS MATTERS.

(a) On and after the Effective Time, Qwest shall cause the Surviving
Corporation and its Subsidiaries to promptly pay or provide when due all
compensation and benefits earned through or prior to the Effective Time as
provided pursuant to the terms of any compensation arrangements, employment
agreements and employee or director benefit plans (including, without
limitation, deferred compensation plans), programs and policies in existence
as of the date of this Agreement for all employees, former employees,
directors and former directors of any of the Company and its Subsidiaries.

(b) On and after the Effective Time, if employees of any of the Company and
its Subsidiaries become eligible to participate in a medical, dental or health
plan of any of Qwest and its Subsidiaries, Qwest shall cause such plan to (1)
waive any pre-existing condition limitations for conditions covered under the
applicable medical, health or dental plans of the Company and its Subsidiaries
existing on the date of this Agreement and (2) honor any deductible and out-
of-pocket expenses incurred by the employees and their beneficiaries under
such plans during the portion of the calendar year prior to the date on which
such employees become eligible for such participation.

(c) At the Effective Time, Qwest shall pay, or shall cause the Surviving
Corporation to pay, all amounts then due to Wallace M. Hammond and Jon F.
Beizer, respectively, pursuant to their

A-49

respective employment agreements by reason of the occurrence of a change of
control (as defined therein), subject in each case to all necessary
withholdings, and Qwest shall pay, or shall cause the Surviving Corporation to
pay, all reasonable out-of-pocket costs, fees and expenses of such persons
(including, without limitation, the reasonable fees and disbursements of
counsel and the expenses of litigation) incurred by them in connection with
collecting such amounts.

(d) Nothing in this Section 8.3 shall (1) before or after the Effective
Time, require the continued employment of any person by any of the Company,
Qwest, the Surviving Corporation and their respective Subsidiaries, either
before or after the Effective Time, or (2) after the Effective Time, prevent
any of the Company, the Surviving Corporation and their respective
Subsidiaries from taking any action or refraining from taking any action with
respect to any employee that may then be permitted by law.

SECTION 8.4 SEC DOCUMENTS. Promptly after filing any report, schedule, form,
statement or other document with the Securities and Exchange Commission, Qwest
or Qwest Subsidiary, as the case may be, shall deliver a copy thereof to the
Company.

SECTION 8.5 TRANSFER OF SURVIVING CORPORATION. Promptly after the Effective
Time, Qwest shall take all action required to cause all shares of capital
stock of the Surviving Corporation to be held by Qwest Communications
Corporation, a Delaware corporation and an indirect, Wholly-Owned Subsidiary
of Qwest.

ARTICLE IX

Termination

SECTION 9.1 TERMINATION.

(a) The obligations of the parties under this Agreement (other than Section
6.1(g) and Articles IX and X) may be terminated and the Merger abandoned on
any date (the "TERMINATION DATE") prior to the Effective Time, whether before
or after this Agreement and the Merger shall have been approved by the
stockholders of the Company, in each case by:

(1) the agreement of the parties;

(2) the Company, on or after May 31, 1998, if (A) the Closing shall then
not have occurred for any reason other than the breach or violation by the
Company, in any material respect, of any of its representations,
warranties, covenants and agreements set forth in this Agreement, (B) there
shall not have occurred and be continuing a breach or violation by the
Company, in any material respect, of any of its representations,
warranties, covenants and agreements set forth in this Agreement and (C)
the Company shall have paid in full to Qwest and Qwest Subsidiary all
amounts then owed to Qwest and Qwest Subsidiary pursuant to Section 9.2, if
any;

(3) Qwest or Qwest Subsidiary, on or after May 31, 1998, if (A) the
Closing shall then not have occurred for any reason other than the breach
or violation by Qwest or Qwest Subsidiary, in any material respect, of any
of their respective representations, warranties, covenants and agreements
set forth in this Agreement and (B) there shall not have occurred and be
continuing a breach or violation by Qwest or Qwest Subsidiary, in any
material respect, of any of its representations, warranties, covenants and
agreements set forth in this Agreement;

(4) the Company, if (A) a representation, warranty, covenant or agreement
of either Qwest or Qwest Subsidiary set forth in this Agreement is breached
or violated by Qwest or Qwest Subsidiary, as the case may be, in any
material respect, and (B) there shall not have occurred and be continuing a
breach or violation by the Company, in any material respect, of any of its
representations, warranties, covenants and agreements set forth in this
Agreement and (C) the Company shall have paid in full to Qwest and Qwest
Subsidiary all amounts then owed to Qwest and Qwest Subsidiary pursuant to
Section 9.2, if any;

A-50

(5) Qwest or Qwest Subsidiary, if (A) any one or more of (i) a
representation, warranty, covenant or agreement of the Company set forth in
this Agreement is breached or violated by the Company in any material
respect, (ii) there shall exist or there shall have occurred an event
(other than an Event of Default (as defined) under the Credit Agreement)
that has had, will have or could reasonably be expected to have a Material
Adverse Effect on the Company and its Subsidiaries and (iii) there shall
have occurred and be continuing an Event of Default (as defined) under the
Credit Agreement and the Debt thereunder shall have become due and payable
or the lender thereunder shall have exercised any rights or remedies in
connection therewith and (B) there shall not have occurred and be
continuing a breach or violation by Qwest or Qwest Subsidiary, in any
material respect, of any of its representations, warranties and covenants
set forth in this Agreement;

(6) the Company, if the stockholders of the Company shall not have
approved this Agreement and the Merger at the Company Stockholders Meeting,
or any adjournment thereof, and the Company shall have paid in full to
Qwest and Qwest Subsidiary all amounts then owed to Qwest and Qwest
Subsidiary pursuant to Section 9.2, if any;

(7) Qwest or Qwest Subsidiary, if the stockholders of the Company shall
not have approved this Agreement and the Merger at the Company Stockholders
Meeting, or any adjournment thereof;

(8) Qwest or Qwest Subsidiary, if the Company or the Board of Directors
of the Company (A) shall have authorized, recommended or proposed (or
publicly announced its intention to authorize, recommend or propose) an
agreement with respect to a Business Combination Transaction (other than
the Transactions) with respect to any of the Company and its Subsidiaries,
(B) shall have recommended that the stockholders of the Company accept or
approve any such Business Combination Transaction or (C) within the time
period contemplated by Rule 14e-2 under the Exchange Act, shall have failed
to publicly confirm the Board Approval and recommend against the acceptance
by the stockholders of the Company of any tender offer or exchange offer
that, if concluded in accordance with its terms, would constitute or result
in a Business Combination Transaction (which failure shall include, without
limitation, the determination by the Board of Directors of the Company to
take no position with respect to such tender offer or exchange offer);

(9) the Company, if (A) the Board of Directors of the Company shall have
determined that an unsolicited, bona fide proposal made by any person
(other than a Principal Stockholder or an Affiliate of, or other person
acting in concert with, the Company or a Principal Stockholder) with
respect to a Business Combination Transaction with respect to any of the
Company and its Subsidiaries is a Superior Proposal, (B) the Board of
Directors of the Company shall have complied in all material respects with
Section 7.2(z) with respect to actions taken or proposed to be taken by the
Company or the Board of Directors of the Company with respect to such
Superior Proposal, (C) the Company shall have notified Qwest and Qwest
Subsidiary in writing, in each case not less than three full Business Days
in advance of taking such action, of its election to terminate the
obligations of the parties pursuant to this Section 9.1 for the purpose of
recommending that the stockholders of the Company accept or approve such
Superior Proposal or authorizing, recommending or proposing an agreement
with respect to such Superior Proposal, (D) the Company and its advisors
and representatives shall have discussed with Qwest and Qwest Subsidiary
the modifications to the terms of this Agreement and the other Transaction
Documents that would permit the Company to conclude the Merger in lieu of
concluding such Superior Proposal, (E) at the end of such three Business
Day period the Board of Directors of the Company shall have determined that
such Superior Proposal continues to constitute a Superior Proposal and (F)
the Company shall have paid in full to Qwest and Qwest Subsidiary all
amounts then owed to Qwest and Qwest Subsidiary pursuant to Section 9.2; or

(10) Qwest and Qwest Subsidiary, if there shall have occurred a Business
Combination Transaction (other than the Transactions) with respect to any
of the Company and its Subsidiaries.

A-51

(b) Any termination of the obligations of the parties pursuant to this
Section 9.1 shall be made by written agreement or by written notice from the
terminating party to the other parties.

(c) Except as provided to the contrary in Sections 9.2 and 10.11, and
subject to the limitations stated therein, no party shall have any liability
(in contract, tort or otherwise) to other parties or persons, whether based on
the same or different claims or causes of action, in excess of $100,000 in the
aggregate, in respect of (1) the termination of the obligations of the parties
pursuant to Section 9.1 or (2) any breach of any warranty, covenant or
agreement of such party, or for any misrepresentation by such party, under any
Transaction Document (other than Section 6.1(g) of this Agreement).

SECTION 9.2 FEES; EXPENSES; OTHER AMOUNTS.

(a) Damages. Promptly following the termination of the obligations of the
parties pursuant to clause (4) or (5) of Section 9.1(a) by the Company or by
Qwest and Qwest Subsidiary, as the case may be, the other party or parties
shall promptly, but in no event later than three Business Days following
receipt of written demand therefor, pay to the party terminating such
obligations, as liquidated damages (and not as a fee or a penalty), the amount
of $100,000 in the aggregate. The parties acknowledge that the damages that
will result from any breach or violation giving rise to such termination are
uncertain and not capable of accurate calculation, and will be difficult to
prove. The parties further acknowledge that the foregoing liquidated damages'
amount is neither unconscionable nor unreasonably large or small, given the
circumstances, and such amount is not intended as a penalty and is not and
should not be construed as a penalty. In light of the foregoing, and the
inconvenience or nonfeasibility of otherwise obtaining an adequate remedy, the
parties agree that the liquidated damages' amount set forth above is
reasonable in all respects.

(b) Subsequent Event Fee. If the obligations of the parties shall terminate
pursuant to clauses (5), (6), (7), (8), (9) or (10) of Section 9.1(a) and a
Business Combination Transaction (other than the Transactions) with respect to
any of the Company and its Subsidiaries shall occur on or before January 5,
1999, then the Company shall pay to Qwest not later than the conclusion of
such Business Combination Transaction the amount by which $3,000,000 exceeds
the amount paid to Qwest, if any, pursuant to Section 9.2(a).

(c) Collection Expenses. In addition to the other provisions of this Section
9.2, each party shall promptly, but in no event later than three Business Days
following receipt of written demand therefor, together with related bills or
receipts, reimburse the other parties for all reasonable out-of-pocket costs,
fees and expenses (including, without limitation, the reasonable fees and
disbursements of counsel and the expenses of litigation) incurred in
connection with collecting fees, expenses and other amounts due under this
Section 9.2.

(d) Other Expenses. Except as otherwise provided in this Section 9.2,
whether or not the Merger is concluded, all costs and expenses incurred or
paid by a party shall be paid by the party incurring or paying such expenses.
Notwithstanding the foregoing, the Company shall pay the costs and expenses of
complying with the Hart-Scott-Rodino Act.

(e) Company's Fees for Financial Advisors, Brokers and Finders. The Company
or, after the Effective Time, the Surviving Corporation shall pay or cause to
be paid to each Financial Advisor the entire amount of the fee, commission,
expense reimbursement or other payment to which Financial Advisor shall become
so entitled in connection with the Transactions, all without cost, expense or
any other liability whatsoever to any of Qwest, Qwest Subsidiary and any other
person.

(f) Qwest's Fees for Financial Advisors, Brokers and Finders. Qwest and
Qwest Subsidiary shall pay or cause to be paid the entire amount of the fee,
commission, expense reimbursement or other payment to which any financial
advisor, broker or finder engaged by Qwest or Qwest Subsidiary shall become so
entitled in connection with the Transactions, all without cost, expense or any
other liability whatsoever to any of the Company, its Subsidiaries and any
other person.

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ARTICLE X

Miscellaneous

SECTION 10.1 NOTICES. All notices, requests and other communications to any
party or under any Transaction Document shall be in writing. Communications
may be made by telecopy or similar writing. Each communication shall be given
to a party at its address stated on the signature pages of this Agreement or
any other Transaction Document or at any other address as the party may
specify for this purpose by notice to the other parties. Each communication
shall be effective (1) if given by telecopy, when the telecopy is transmitted
to the proper address and the receipt of the transmission is confirmed, (2) if
given by mail, 72 hours after the communication is deposited in the mails
properly addressed with first class postage prepaid or (3) if given by any
other means, when delivered to the proper address and a written
acknowledgement of delivery is received.

SECTION 10.2 NO WAIVERS; REMEDIES; SPECIFIC PERFORMANCE.

(a) No failure or delay by any party to, or express beneficiary of, any
Transaction Document in exercising any right, power or privilege under such
Transaction Document shall operate as a waiver of the right, power or
privilege. A single or partial exercise of any right, power or privilege shall
not preclude any other or further exercise of the right, power or privilege or
the exercise of any other right, power or privilege. The rights and remedies
provided in the Transaction Documents shall be cumulative and not exclusive of
any rights or remedies provided by law.

(b) Each party agrees that each other party shall be entitled to specific
enforcement of the terms of Section 6.1(g) in addition to any other remedy to
which the other party may be entitled, at law or in equity, with respect to
such provision.

SECTION 10.3 AMENDMENTS, ETC. No amendment, modification, termination, or
waiver of any provision of any Transaction Document, and no consent to any
departure by a party to any Transaction Document from any provision of the
Transaction Document, shall be effective unless it shall be in writing and
signed and delivered by the other parties to the Transaction Document, and
then it shall be effective only in the specific instance and for the specific
purpose for which it is given.

SECTION 10.4 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES.

(a) No party may assign its rights or delegate its obligations under this
Agreement. Any assignment or delegation in contravention of this Section 10.4
shall be void ab initio and shall not relieve the assigning or delegating
party of any obligation under this Agreement.

(b) The provisions of each Transaction Document shall be binding upon and
inure solely to the benefit of the parties to such Transaction Document, and,
except and to the extent that persons are expressly identified therein as
beneficiaries of one or more of the provisions thereof, nothing in any
Transaction Document is intended to or shall confer upon any other person any
right, benefit or remedy whatsoever under or by reason of any Transaction
Document (including, without limitation, by means of subrogation). Without
limiting the generality of the foregoing, (1) the provisions of Section 1.1(f)
are intended to be for the express benefit of the stockholders referred to in
that Section and their respective heirs, executors, legal representatives,
successors and permitted assigns, and no other person, (2) the provisions of
Section 8.2 are intended to be for the express benefit of Indemnified Persons
and their respective heirs, executors, legal representatives, successors and
permitted assigns, and no other person, (3) the provisions of Section 8.3(c)
are intended for the benefit of, and may be relied upon or enforced by, the
persons referred to therein and their respective heirs, executors, legal
representatives, successors and permitted assigns and (4) the other provisions
of Section 8.3 are not intended for the benefit of, and may not be relied upon
or enforced by, any employee of any of the Company, Qwest, the Surviving
Corporation or their respective Subsidiaries and their respective heirs,
executors, legal representatives, successors and permitted assigns.

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SECTION 10.5 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified, all accounting terms shall be interpreted, all accounting
determinations shall be made, all records and books of account shall be kept
and all financial statements required to be prepared or delivered shall be
prepared in accordance with GAAP, applied on a basis consistent (except for
changes approved by the Company's independent public accountants) with the
latest audited financial statements referred to in Section 4.5.

SECTION 10.6 GOVERNING LAW. Except to the extent provided to the contrary in
6 Del.C. (S)1-105(2), each Transaction Document, and all rights, remedies,
liabilities, powers and duties of the parties hereunder and thereunder, shall
be governed by and construed in accordance with the laws of the State of
Delaware without regard to principles of conflicts of laws.

SECTION 10.7 COUNTERPARTS; EFFECTIVENESS. Each Transaction Document may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if all signatures were on the same instrument.

SECTION 10.8 SEVERABILITY OF PROVISIONS.

(a) Any provision of any Transaction Document that is prohibited or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions of the Transaction Document or affecting
the validity or enforceability of the provision in any other jurisdiction.

(b) The parties agree that the fees, expenses and other amounts provided in
Sections 9.2(a), 9.2(b) and 9.2(c) are fair and reasonable. If a court of
competent jurisdiction shall nonetheless, by a final, non-appealable judgment,
determine that the amount of any such fee exceeds the maximum amount permitted
by law, then the amount of fees, expenses and other amounts shall be reduced
to the maximum amount permitted by law in the circumstances, as determined by
a court of competent jurisdiction.

SECTION 10.9 HEADINGS AND REFERENCES. Article and section headings in any
Transaction Document are included in the Transaction Document for the
convenience of reference only and do not constitute a part of the Transaction
Document for any other purpose. References to parties, express beneficiaries,
articles, sections, exhibits and schedules in any Transaction Document are
references to the parties to, or the express beneficiaries, articles and
sections of, or the exhibits and schedules to the Transaction Document, as the
case may be, unless the context shall require otherwise. Any of the terms
defined in this Agreement may, unless the context otherwise requires, be used
in the singular or the plural, depending on the reference. The use in any
Transaction Document of the word "include" or "including," when following any
general statement, term or matter, shall not be construed to limit such
statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters, whether or not
nonlimiting language (such as "without limitation" or "but not limited to" or
words of similar import) is used with reference thereto, but rather shall be
deemed to refer to all other items or matters that fall within the broadest
possible scope of such general statement, term or matter.

SECTION 10.10 ENTIRE AGREEMENT. The Transaction Documents embody the entire
agreement and understanding of the respective parties, and supersede all prior
agreements or understandings, with respect to the subject matters of the
Transaction Documents, except that the provisions of the Confidentiality
Agreement shall also bind the parties.

SECTION 10.11 SURVIVAL. The representations and warranties of the Company
contained in Article IV and of Qwest and Qwest Subsidiary contained in Article
V shall terminate and have no force or effect at any time after the Effective
Time. Each covenant or agreement of a party to a Transaction

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Document required to be performed on or after the Closing Date shall remain in
full force and effect thereafter in accordance with its terms and, unless
expressly provided otherwise, for an indefinite period.

SECTION 10.12 EXCLUSIVE JURISDICTION. Each party, and each express
beneficiary as a condition to its right to enforce or defend its rights under
or in connection with any Transaction Document, (1) agrees that any Action
with respect to any Transaction Document or any Transaction shall be brought
exclusively in the courts of the State of Delaware or of the United States of
America sitting in the State of Delaware, (2) accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of
those courts and (3) irrevocably waives any objection, including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of
any Action in those jurisdictions; provided, however, that any party may
assert in an Action in any other jurisdiction or venue each mandatory defense,
third-party claim or similar claim that, if not so asserted in such Action,
may thereafter not be asserted by such party in an original Action in the
courts referred to in clause (1) above. This Agreement and the other
Transaction Documents do not involve less than $100,000, and the parties
intend that 6 Del.C. (S)2708 shall apply to all the Transaction Documents.

SECTION 10.13 WAIVER OF JURY TRIAL. Each party, and each express beneficiary
as a condition to its right to enforce or defend its rights under or in
connection with any Transaction Document, waives any right to a trial by jury
in any Action to enforce or defend any right under any Transaction Document
and agrees that any Action shall be tried before a court and not before a
jury.

SECTION 10.14 AFFILIATE. Nothing contained in any Transaction Document shall
constitute Qwest or Qwest Subsidiary an "affiliate" of any of the Company and
its Subsidiaries within the meaning of the Securities Act and the Exchange
Act, including, without limitation, Rule 501 under the Securities Act and Rule
13e-3 under the Exchange Act.

SECTION 10.15 NON-RECOURSE. No recourse under any Transaction Document shall
be had against any "controlling person" (within the meaning of Section 20 of
the Exchange Act) of any party or the stockholders, directors, officers,
employees, agents and Affiliates of the party or such controlling persons,
whether by the enforcement of any assessment or by any legal or equitable
proceeding, or by virtue of any Regulation, it being expressly agreed and
acknowledged that no personal liability whatsoever shall attach to, be imposed
on or otherwise be incurred by such controlling person, stockholder, director,
officer, employee, agent or Affiliate, as such, for any obligations of the
party under this Agreement or any other Transaction Document or for any claim
based on, in respect of or by reason of such obligations or their creation.

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.

Phoenix Network Inc.

/s/ Wallace M. Hammond
By: _________________________________
Wallace M. Hammond
President and Chief Executive
Officer

Address: 13952 Denver West Parkway
Building 53
Golden, Colorado 80402
Attention: Wallace M.
Hammond

Telecopy: (303) 215-5501

Qwest Communications International
Inc.

/s/ Joseph P. Nacchio
By: _________________________________
Joseph P. Nacchio
President and Chief Executive
Officer

Address: 1000 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
Attention: Marc B. Weisberg

Telecopy: (303) 291-1723

Qwest 1997-5 Acquisition Corp.

/s/ Joseph P. Nacchio
By: _________________________________
Joseph P. Nacchio
President

Address: 1000 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202
Attention: Marc B. Weisberg

Telecopy: (303) 291-1723

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ANNEX 1

DEFINITION ANNEX

"ACQUISITION VALUE" has the meaning stated in Section 1.1(a)(2) of this
Agreement.

"ACTION" against a person means an action, suit, investigation, complaint or
other proceeding threatened or pending against or affecting the person or its
property, whether civil or criminal, in law or in equity or before any
arbitrator or Governmental Body.

"AFFILIATE" of a person means (1) any other person that directly or
indirectly controls, is controlled by or is under common control with, such
person or any of its Subsidiaries and (2) if such person is an individual, any
other individual that is a relative (by blood or marriage) of such person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.

"AFFILIATE AGREEMENTS" means, collectively, the agreements between any of
the Company and its Subsidiaries, on the one part, and any director or officer
of any of the Company and its Subsidiaries, any stockholder having beneficial
ownership of 5.0% or more of the shares of Company Common Stock or Company
Preferred Stock then issued and outstanding or any Affiliate of any of the
foregoing, and all stockholders' agreements and voting trusts with respect to
the Company.

"AGGREGATE NUMBER" has the meaning stated in Section 1.1(a)(2) of this
Agreement.

"APPROVAL" means an authorization, consent, approval or waiver of, clearance
by, notice to or registration or filing with, or any other similar action by
or with respect to a Governmental Body or any other person and the expiration
or termination of all prescribed waiting, review or appeal periods with
respect to any of the foregoing.

"AVERAGE MARKET PRICE" per share of any class of stock on any date means the
average of the daily Closing Prices of the shares of such stock for the
fifteen (15) consecutive Trading Days commencing twenty (20) Trading Days
before such date.

"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any securities
means having "beneficial ownership" of such securities (as determined pursuant
to Regulation 13D-G under the Exchange Act), except as provided below,
including pursuant to any agreement, arrangement or understanding, whether or
not in writing. Without duplicative counting of the same securities by the
same holder, securities beneficially owned by a person shall include
securities beneficially owned by all Affiliates of such person and all other
persons with whom such person would constitute a Group.

"BEST EFFORTS" means the use of all reasonable efforts, including, without
limitation, the expenditure of amounts reasonably related to the objective
sought to be achieved, with respect to matters and actions over which the
person has or could reasonably be expected to exert any control or influence.

"BOARD APPROVAL" has the meaning stated in Section 4.29 of this Agreement.

"BUSINESS COMBINATION TRANSACTION" with respect to any of the Company and
its Subsidiaries means, whether concluded or intended to be concluded in one
transaction or series of transactions, each of the following:

(1) the acquisition from any of the Company and its Subsidiaries, or from
any Principal Stockholder or any other holder thereof, of shares of any
class of Equity Securities of any of the Company and its Subsidiaries as a
result of which the holders of shares of such class of Equity

A-57

Securities of any of the Company and its Subsidiaries immediately before
such transaction would own beneficially directly or indirectly less than
90% of the shares of such class of Equity Securities of the Company or such
Subsidiary, as the case may be, issued and outstanding immediately after
such transaction; provided that the acquisition from any Principal
Stockholder or other holder of Equity Securities of the Company of not more
than 30% of the shares of any class of Equity Securities of the Company, in
the aggregate, pursuant to broker's transactions (as defined in Rule 144
under the Securities Act) shall not be included in determining whether a
Business Combination Transaction shall have occurred;

(2) the merger or consolidation of any of the Company and its
Subsidiaries with or into any person other than the Company or its Wholly-
Owned Subsidiary;

(3) the transfer of a substantial portion of the assets of any of the
Company and its Subsidiaries to any person or Group other than the Company
or its Wholly-Owned Subsidiary;

(4) any transaction (whether or not any of the Company and its
Subsidiaries shall be a party thereto) as a result of which a majority of
the members of the board of directors, or similar officials, of the Company
or such Subsidiary would not be persons who on the day after the closing
date of such transaction were members of the board of directors, or similar
officials, or who were nominated for election or elected with the approval
of a majority of the directors, or similar officials, who were directors,
or similar officials, on that date or whose nomination or election was
previously so approved; or

(5) any other transaction (whether or not any of the Company and its
Subsidiaries shall be a party thereto) the conclusion of which would or
could reasonably be expected to impede, interfere with, prevent or
materially delay the conclusion of any of the Transactions or which would
or could reasonably be expected to materially reduce the benefits to Qwest
or Qwest Subsidiary of the Transactions.

"BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is
a legal holiday in any of the States of Colorado and New York or is a day on
which banking institutions located in any such jurisdiction are authorized or
required by law or other governmental action to close.

"CAPITAL EXPENDITURE" of a person means payments that are made by the person
for the rental, lease, purchase, construction or use of any property the value
or cost of which should be capitalized and appear on the balance sheet of the
person in the category of property, plant or equipment, without regard to the
manner in which the payments or the instrument pursuant to which they are made
are characterized by the person including, without but not limited to,
payments for the installment purchase of property under conditional sale
contracts and payments under capitalized leases.

"CERTIFICATES" has the meaning stated in Section 1.1(b) of this Agreement.

"CERTIFICATE OF MERGER" has the meaning stated in Section 1.1(a) of this
Agreement.

"CLOSING" has the meaning stated in Section 2.1 of this Agreement.

"CLOSING DATE" has the meaning stated in Section 2.1 of this Agreement.

"CLOSING PRICE" means, as applied to any class of stock on any date, the
last reported sales price, regular way, per share of such stock on such day,
or if no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in each case, as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if shares of such stock
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the shares of such stock are listed or admitted to trading, or, if the
shares of such stock are not listed or admitted to

A-58

trading on any national securities exchange, the last quoted sale price or, if
not so quoted, the average of the high bid and low asked prices in the over-
the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations Systems ("NASDAQ") or, if not so reported,
as reported by any similar interdealer system then in general use, or, if on
any such date the shares of such stock are not quoted or reported by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the shares of such stock
selected by the Board of Directors of the Company, if such stock is the
Company Common Stock, or by the Holder, if such stock is not the Company
Common Stock. If such stock is not publicly held or so listed or publicly
traded, "CLOSING PRICE" means the fair market value per share as determined in
good faith by the Board of Directors of the Company.

"CODE" has the meaning stated in Recital C to this Agreement.

"COMPANY" has the meaning stated in the heading to this Agreement.

"COMPANY AMERICONNECT RIGHTS" means the rights of former stockholders of
AmeriConnect, Inc. to receive shares of Company Common Stock pursuant to the
Amended and Restated Agreement and Plan of Merger dated as of June 14, 1996
among AmeriConnect Inc., the Company and Phoenix Merger Corp.

"COMPANY COMMON STOCK" has the meaning stated in Section 1.1(a)(2) of this
Agreement.

"COMPANY EMPLOYEE PLAN" means any Employee Plan of the Company or any of its
Subsidiaries.

"COMPANY ERISA PLAN" means any ERISA Plan of the Company or any of its
Subsidiaries.

"COMPANY'S DISCLOSURE SCHEDULE" means the schedule with respect to certain
matters referred to in Article IV of this Agreement that has been delivered by
the Company to Qwest or Qwest Subsidiary, as such schedule may be modified in
accordance with this Agreement.

"COMPANY PREFERRED STOCK" has the meaning stated in Section 4.13(a) of this
Agreement.

"COMPANY QUALIFIED PLAN" means any Qualified Plan of the Company or any of
its Subsidiaries.

"COMPANY SEC DOCUMENTS" has the meaning stated in Section 4.27 of this
Agreement.

"COMPANY SERIES F WARRANTS" means the Warrants issued by the Company in
connection with the issuance of the Series F Convertible Preferred Stock, par
value $.001 per share, of the Company.

"COMPANY SERIES I PREFERRED STOCK" has the meaning stated in Section 4.13 of
this Agreement.

"COMPANY STOCKHOLDERS MEETING" has the meaning stated in Section 7.1(l) of
this Agreement.

"COMPANY SUNRISE WARRANTS" means the Warrants issued by the Company in
connection with the Settlement Agreement dated May 27, 1996 among Sunrise
Financial Group, Inc., Thomas Bell and the Company.

"CONFIDENTIALITY AGREEMENT" has the meaning stated in Section 6.1(f) of this
Agreement.

"CONSOLIDATED" means, as applied to any financial or accounting term, the
term determined on a consolidated basis for a person and its Subsidiaries,
excluding intercompany items and minority interests.

"CONTINGENT CASH CONSIDERATION" has the meaning stated in Section 1.1(a)(2)
of this Agreement.

"CONTINGENT CASH CONSIDERATION DATE" has the meaning stated in Section
1.1(a)(2) of this Agreement.

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"CONVERSION NUMBER" has the meaning stated in Section 1.1(a)(2) of this
Agreement.

"CREDIT AGREEMENT" means the Amended and Restated Loan and Security
Agreement dated as of September 26, 1995 among Foothill Capital Corporation,
the Company, Phoenix Network Acquisition Corp. and AmeriConnect, Inc., as
amended by Amendments Nos. One, Two, Three, Four, Six, Seven and Eight,
respectively, and as further amended in accordance with the terms of this
Agreement.

"DEBT" of a person at any date means, without duplication, the sum of the
following:

(1) all obligations of the person (A) for borrowed money, (B) evidenced
by bonds, debentures, notes or other similar instruments, (C) to pay the
deferred purchase price of property or services, except current trade
accounts payable arising in the ordinary course of business, (D) as
purchaser under conditional sales contracts, (E) as lessee under
capitalized leases, (F) under letters of credit issued for the account of
the person and (G) arising under acceptance facilities; plus

(2) all Debt of others Guaranteed by the person; plus

(3) all Debt of others secured by a Lien on any asset of the person and
whether or not such Debt is assumed by the person; plus

(4) any balance sheet liability with respect to an ERISA Plan recognized
pursuant to Financial Accounting Standards Board Statement 87 or 88, or
with respect to post-retirement benefits other than pension benefits
recognized pursuant to Financial Accounting Standards Board Statement 106;
plus

(5) any withdrawal liability under Section 4201 of ERISA with respect to
a withdrawal from a Multiemployer Plan, as such liability shall have been
set forth in a notice of withdrawal liability under Section 4219 of ERISA,
and as adjusted from time to time subsequent to the date of such notice.

"DEBT SECURITIES" of a person means the bonds, debentures, notes and other
similar instruments of the person and all other securities convertible into or
exchangeable or exercisable for any such debt securities, all rights or
warrants to subscribe for or to purchase, all options for the purchase of, and
all calls, commitments or claims of any character relating to, such debt
securities and any securities convertible into or exchangeable or exercisable
for any of the foregoing.

"DEPARTMENT OF JUSTICE" means the Department of Justice of the United States
of America.

"DGCL" means the General Corporation Law of the State of Delaware, Title 8
Del. Code (S)(S) 101 et seq., as amended.

"DISSENTING SHARES" has the meaning stated in Section 1.1(h) of this
Agreement.

"DOLLARS" and "$" refer to United States dollars and other lawful currency
of the United States of America from time to time in effect.

"EFFECTIVE TIME" has the meaning stated in Section 1.1(a) of this Agreement.

"EFFECTIVE TIME ADJUSTED AVERAGE MARKET PRICE"has the meaning stated in
Section 1.1(a)(2) of this Agreement.

"EMPLOYEE PLAN" of a person means any plan, contract, commitment, program,
policy, arrangement or practice maintained or contributed to by the person and
providing benefits to any employee, former employee, director or agent of the
person, including, without limitation, (1) any ERISA Plan, (2) any
Multiemployer Plan, (3) any other "EMPLOYEE BENEFIT PLAN" (within the meaning

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of Section 3(3) of ERISA), (4) any profit-sharing, deferred compensation,
bonus, stock option, stock purchase, stock appreciation rights, phantom stock,
restricted stock, other stock-based pension, retainer, consulting, retirement,
severance, welfare or incentive plan, contract, commitment, program, policy,
arrangement or practice and (5) any plan, contract, commitment, program,
policy, arrangement or practice providing for "fringe benefits" or
perquisites, including, without limitation, benefits relating to automobiles,
clubs, vacation, child care, parenting, sabbatical or sick leave and medical,
dental, hospitalization, life insurance and other types of insurance.

"EMPLOYEE PLAN EVENT" means any of the following:

(1) "REPORTABLE EVENT" (within the meaning of Section 4043 of ERISA) with
respect to any ERISA Plan for which the requirement of notice to the PBGC
has not been waived by regulation;

(2) the failure to meet the minimum funding standard of Section 412 of
the Code with respect to any ERISA Plan (whether or not waived in
accordance with Section 412(d) of the Code) or the failure to make by its
due date a required installment under Section 412(m) of the Code with
respect to any ERISA Plan or the failure to make any required contribution
to a Multiemployer Plan;

(3) the provision by the administrator of any ERISA Plan pursuant to
Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in
a distress termination described in Section 4041(c) of ERISA;

(4) the withdrawal from any ERISA Plan during a plan year by a
"substantial employer" as defined in Section 4001(a)(2) of ERISA resulting
in liability pursuant to Section 4062(e) or Section 4063 of ERISA;

(5) the institution by the PBGC of proceedings to terminate any ERISA
Plan, or the occurrence of any event or condition which might constitute
grounds under ERISA for the termination of, or the appointment of a trustee
to administer, any ERISA Plan;

(6) the imposition of liability pursuant to Sections 4064 or 4069 of
ERISA or by reason of the application of Section 4212(c) of ERISA;

(7) the withdrawal in a complete or partial withdrawal (within the
meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if
there is any potential liability therefor, or the receipt of notice from
any Multiemployer Plan that it is in reorganization or insolvency pursuant
to Sections 4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Sections 4041A or 4042 of ERISA;

(8) the occurrence of an act or omission which could give rise to the
imposition of fines, penalties, taxes or related charges under Chapter 43
of the Code or under Sections 409, 502(c), 502(i), 502(l) or 4071 of ERISA
in respect of any such Employee Plan;

(9) the assertion of a material claim (other than routine claims for
benefits) against any Employee Plan other than a Multiemployer Plan or the
assets of any Employee Plan, or against the person maintaining or
contributing to such plan in connection with any such plan;

(10) receipt from the IRS of notice of the failure of any Qualified Plan
to qualify under Section 401(a) of the Code, or the failure of any trust
forming part of any Qualified Plan to fail to qualify for exemption from
taxation under Section 501(a) of the Code; or

(11) the imposition of a lien pursuant to Sections 401(a)(29) or 412(n)
of the Code or pursuant to ERISA with respect to any ERISA Plan.

"ENVIRONMENTAL LAWS" means any and all presently existing federal, state,
local and foreign Regulations, and any orders or decrees, in each case as now
or hereafter in effect, relating to the regulation or protection of human
health, safety or the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or toxic or
hazardous

A-61

substances or wastes into the indoor or outdoor environment, including,
without limitation, ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes.

"EQUITY SECURITIES" of a person means the capital stock of the person and
all other securities convertible into or exchangeable or exercisable for any
shares of its capital stock, all rights or warrants to subscribe for or to
purchase, all options for the purchase of, and all calls, commitments or
claims of any character relating to, any shares of its capital stock and any
securities convertible into or exchangeable or exercisable for any of the
foregoing.

"ERISA" means the Employee Retirement Income Security Act of 1974 and the
related Regulations, in each case as amended as of the date hereof and as the
same may be amended or modified from time to time. References to titles,
subtitles, sections, paragraphs or other provisions of ERISA and the related
Regulations also refer to successor provisions.

"ERISA AFFILIATE", as applied to any person, means (1) any corporation which
is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Code of which such person is a member, (2) any trade or
business (whether or not incorporated) which is a member of a group of trades
or businesses under common control within the meaning of Section 414(c) of the
Code of which such person is a member, and (3) any member of an affiliated
service group within the meaning of Section 414(m) or (o) of the Code of which
such person, any corporation described in clause (1) above or any trade or
business described in clause (2) above is a member. Any former ERISA Affiliate
of Company or its Subsidiaries shall continue to be considered an ERISA
Affiliate within the meaning of this definition with respect to the period
such entity was an ERISA Affiliate of Company or its Subsidiaries and with
respect to liability arising after such period for which Company or its
Subsidiaries could be liable under the Code or ERISA.

"ERISA PLAN" of a person means an "employee pension benefit plan" (within
the meaning of Section 3(2) of ERISA), other than a Multiemployer Plan, that
is covered by Title IV of ERISA or subject to the minimum funding standards of
Section 412 of the Code or Section 302 of ERISA that is maintained by the
person, to which the person contributes or has an obligation to contribute or
with respect to which the person is an "employer" (within the meaning of
Section 3(5) of ERISA).

"EXCESS SHARES" has the meaning stated in Section 1.1(g)(2) of this
Agreement.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the related rules and regulations thereunder.

"EXCHANGE AGENT" has the meaning stated in Section 1.1(c) of this Agreement.

"EXCHANGE FUND" has the meaning stated in Section 1.1(c) of this Agreement.

"FEDERAL TRADE COMMISSION" means the Federal Trade Commission of the United
States of America.

"FINANCIAL ADVISORS" means, collectively, J.C. Bradford & Co., L.L.C. and
McGettigan, Wick & Co., Inc.

"GAAP" means generally accepted accounting principles as in effect in the
United States of America from time to time.

A-62

"GOVERNMENTAL BODY" means any agency, bureau, commission, court, department,
official, political subdivision, tribunal or other instrumentality of any
government, whether federal, state, county or local, domestic or foreign.

"GROUP" has the meaning given such term in Section 13(d)(3) of the Exchange
Act.

"GUARANTEE" by any person means any obligation, contingent or otherwise, of
the person directly or indirectly guaranteeing the payment or other
performance of any Liability of any other person or in any manner providing
for the payment or other performance of any Liability of any other person or
the investment of funds in any other person or otherwise protecting the holder
of such Liability against loss (whether by agreement to indemnify, to lease
assets as lessor or lessee, to purchase assets, goods, securities or services,
or to take-or-pay or otherwise), but the term "GUARANTEE" does not include
endorsements for collection or deposit in the ordinary course of business. The
term "GUARANTEE" used as a verb has a correlative meaning.

"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the related rules, regulations and published
interpretations thereunder.

"HAZARDOUS SUBSTANCE" means, collectively, (1) any petroleum or petroleum
products, geothermal products, natural gas, flammable explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing polychlorinated
biphenyls (PCB's), (2) any chemicals or other materials or substances which
are now or hereafter become defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials", "extremely
hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic
pollutants", "contaminants", "pollutants" or words of similar import under any
Environmental Law and (3) any other chemical or other material or substance,
exposure to which is now or hereafter prohibited, limited or regulated under
any Environmental Law and which is present in concentrations or at locations
that present a threat to human health or the environment.

"INDEMNIFIED PERSONS" has the meaning stated in Section 8.2(a) of this
Agreement.

"INVESTMENT" of a person means any investment in any other person (other
than a Subsidiary), whether by means of loan, capital contribution, purchase
of capital stock, obligations or other securities, or any commitment or option
to make an investment or otherwise.

"IRS" means the United States Internal Revenue Service or any Governmental
Body succeeding to any or all of its functions.

"KNOWLEDGE" of (1) an individual means the actual knowledge of such
individual with respect to a representation or warranty of such person
contained in any Transaction Document after due inquiry by such individual or
(2) if a person that is not an individual, means, after due inquiry by such
person of each of the following persons, the actual knowledge of any of the
officers or other employees of such person and its Subsidiaries having
managerial responsibility for the portion of the operations, assets or
liabilities of such person and its Subsidiaries with respect to which such
knowledge of such person is being represented.

"LDDS LIABILITY" has the meaning stated in Section 1.1(a)(2) of this
Agreement.

"LDDS LITIGATION" has the meaning stated in Section 1.1(a)(2) of this
Agreement.

"LIABILITIES" means all debts, claims, costs, expenses, liabilities, losses,
damages, and obligations (in each case whether fixed, contingent or absolute,
matured, unmatured, or inchoate, liquidated or unliquidated, accrued or not
accrued, known or unknown, whenever or however arising

A-63

and whether or not the same would be required by generally accepted accounting
principles to be reflected in financial statements of any person or disclosed
in the notes thereto).

"LICENSE" means any license, permit, franchise, certificate of authority, or
order, or any extension, modification or waiver of the foregoing, required to
be issued by a Governmental Body.

"LIEN" means any mortgage, deed of trust, lien (statutory or otherwise),
pledge, hypothecation, charge, deposit arrangement, preference, priority,
security interest, restriction or transfer or encumbrance of any kind
(including, without limitation, any conditional sale contract, any capitalized
lease or any financing lease having substantially the same economic effect as
the foregoing and the filing of or agreement to give any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction to
evidence any of the foregoing).

"LOSS" means, with respect to any person, any cost, damage, disbursement,
expense, liability, judgment, loss, deficiency, obligation, Tax, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable
(including, without limitation, interest or other carrying costs, penalties,
legal, accounting, expert witness, consultant and other professional fees and
expenses incurred by such person in the investigation, collection, prosecution
and defense of Actions (including, without limitation, claims in connection
with the enforcement of any rights under any of the Transaction Documents) and
amounts paid in settlement), that may be imposed on or otherwise incurred or
suffered by such person.

"MATERIAL ADVERSE EFFECT" means, with respect to a circumstance or event
that is a condition to the obligation of a person in any Transaction Document
or is the subject of a representation, warranty, covenant or other agreement
of a person in any Transaction Document that includes a reference therein to
the possible occurrence of a Material Adverse Effect, whether considered
individually or together in the aggregate with all other circumstances or
events that are included in the same condition or are the subject either of
the same representation, warranty, covenant or other agreement or of other
representations, warranties, covenants or other agreements by such person in
the Transaction Documents, any one or more of the following:

(1) a material adverse effect on the business, properties, operations,
prospects or condition (financial or otherwise) of such person and its
Subsidiaries, taken as a whole;

(2) a material adverse effect on the ability of such person to perform
its obligations under any Transaction Document to which it is or may become
a party; or

(3) the term or condition of an Approval, a Regulation, a decision,
ruling, order or award of any arbitrator applicable to such person or its
business, properties or operations or an Action, pending or threatened, in
each case that restricts in any material respect or prohibits (or, if
successful, would restrict or prohibit) the conclusion of any of the
Transactions.

Notwithstanding the foregoing, none of (a) a judgment in the LDDS
Litigation, (b) the occurrence of an Event of Default (as defined) under the
Credit Agreement as a result of a Change of Control (as defined therein) at
the Effective Time and (c) the occurrence of an Event of Default (as defined)
under the promissory note dated January 14, 1997 of the Company payable to
Judy Van Essen Kenyon as a result of any non-payment of amounts due and
payable on January 16, 1998 pursuant to Section 2.2 of the promissory note,
shall, individually or collectively, constitute a "Material Adverse Effect"
with respect to any of the Company and its Subsidiaries.

"MATERIAL CONTRACT" has the meaning stated in Section 4.22(a) of this
Agreement.

"MATERIAL DEBT" has the meaning stated in Section 4.19(a) of this Agreement.

"MATERIAL LICENSE" has the meaning stated in Section 4.11 of this Agreement.

A-64

"MATERIAL PROPERTIES" has the meaning stated in Section 4.15(a) of this
Agreement.

"MATERIAL PROPRIETARY RIGHTS" has the meaning stated in Section 4.17(a) of
this Agreement.

"MCI PAYABLES OBLIGATION" has the meaning stated in Section 1.1(a)(2) of
this Agreement.

"MERGER" has the meaning stated in Recital A to this Agreement.

"MERGER CONSIDERATION" has the meaning stated in Section 1.1(a)(2) of this
Agreement.

"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
3(37) of ERISA.

"NASD" means the National Association of Securities Dealers, Inc. and each
person succeeding to the authority thereof with respect to matters
contemplated by or arising from the Transaction Documents and the
Transactions.

"NASDAQ/NM" means the National Association of Securities Dealers Automated
Quotation/National Market.

"ORDINARY COURSE" means, with respect to any person and as of any date of
determination, the conduct or operation of a line of business of such person
in the ordinary course of such business, as then conducted and proposed to be
conducted, in a manner consistent with the past business practices of such
person and in accordance with the reasonable requirements of such business, in
each case as determined with respect to such business as of such date of
determination.

"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

"PERMITTED LIENS" means, collectively, with respect to any of the Company
and its Subsidiaries, (i) Liens for Taxes or governmental assessments, charges
or claims the payment of which is not yet due, or for Taxes the validity of
which are being contested in good faith by appropriate proceedings, (2)
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
materialmen and other similar persons and other Liens imposed by applicable
Regulations of any Governmental Body incurred in the ordinary course of
business for sums not yet delinquent or being contested in good faith, (3)
Liens relating to deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security, (4) Liens on the Real Property which do not in the
aggregate materially interfere with or impair the operation of any parcel of
such Real Property for the purposes for which it is or may reasonably be
expected to be used, (5) Liens securing the executory obligations of any
person under any lease that constitutes an "operating lease" under GAAP, (6)
Liens securing Debt permitted to be created, incurred, assumed or suffered to
exist by any of the Company and its Subsidiaries pursuant to Section 7.2(d) of
this Agreement, and (7) other Liens approved by Qwest and Qwest Subsidiary in
writing; provided, however, that, with respect to each of clauses (1)-(6)
above, to the extent that any such Lien relates to, or secures the payment of,
a Liability that is required to be accrued under GAAP, such Lien shall not be
a Permitted Lien unless adequate accruals for such Liability have been
established therefor by the Company or such Subsidiary on the financial
statements referred to in Section 4.5 in conformity with GAAP. Notwithstanding
the foregoing, no Lien arising under the Code or ERISA with respect to the
operation, termination, restoration or funding of any employee benefit plan or
arrangement sponsored by, maintained by or contributed to by the Company or
any of its ERISA Affiliates or arising in connection with any excise tax or
penalty tax with respect to such plan or arrangement shall be a Permitted
Lien.

"PERSON" means an individual, a corporation, a partnership, a limited
liability company, a joint venture, an association, a trust, an unincorporated
association or any other entity or organization, including a Governmental
Body.

A-65

"PRINCIPAL STOCKHOLDERS" means, collectively, Thomas H. Bell, Bell Living
Trust, Bell Family Trust, Bell Exempt Trust, Bell Non Exempt Marital Trust,
Claudia Bell Non Exempt Trust, James W. Gallaway, Merrill L. Magowan, Myron A.
Wick III, Wallace M. Hammond, John David Singleton, Max E. Thornhill, Jon D.
Gruber, J. Patterson McBaine, Charles C. McGettigan, ProActive Partners, L.P.,
McGettigan, Wick & Co., Lagunitas Partners, L.P., Fremont ProActive Partners
and Robert M. Kaemmer.

"PROPERTY" means any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or
intangible.

"PROPRIETARY RIGHTS" means all copyrights, uncopyrighted works, trademarks,
trademark rights, service marks, trade names, trade name rights, patents,
patent rights, unpatented inventions, licenses, permits, trade secrets, know-
how, inventions, computer software, seismic data and intellectual property
rights and other proprietary rights together with applications and licenses
for, and the goodwill of the business relating to, any of the foregoing.

"PROXY" has the meaning stated in Section 1.2 of this Agreement.

"PROXY STATEMENT/PROSPECTUS" has the meaning stated in Section 4.28 of this
Agreement.

"QUALIFIED PLAN" of a person means any ERISA Plan of the person and any
other pension, profit sharing or stock bonus plan within the meaning of
Section 401(a) of the Code maintained by the person or to which the person
contributes or has an obligation to contribute.

"QWEST" has the meaning stated in the heading to this Agreement.

"QWEST AND QWEST SUBSIDIARY'S DISCLOSURE SCHEDULE"means the schedule with
respect to certain matters referred to in Article V of this Agreement that has
been delivered by Qwest and Qwest Subsidiary to the Company, as such schedule
may be modified in accordance with this Agreement.

"QWEST COMMON STOCK" has the meaning stated in Section 1.1(a)(2) of this
Agreement. All references in this Agreement to Qwest Common Stock, unless
otherwise indicated, shall be deemed to refer to Qwest Common Stock after
giving effect to the Qwest Stock Split. In case of any capital reorganization
or any reclassification (other than a change in par value) of the capital
stock of Qwest, or of any exchange or conversion of Qwest Common Stock for or
into securities of another corporation, or in case of the consolidation or
merger of Qwest with or into any other person (other than a merger which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Qwest Common Stock), each share of "Qwest Common Stock"
that shall then be included as a part of any unpaid Merger Consideration shall
refer to the kind and amount of shares of stock, other securities, cash and
other property receivable upon such capital reorganization, reclassification
of capital stock, consolidation or merger, as the case may be, by a holder of
a share of Qwest Common Stock immediately prior to the effective date of such
capital reorganization, reclassification of capital stock, consolidation or
merger, assuming (1) such holder of Qwest Common Stock is not a person with
which Qwest consolidated or into which Qwest merged or which merged into
Qwest, as the case may be (a "constituent entity"), or an affiliate of a
constituent entity, and (2) such person failed to exercise his rights of
election, if any, as to the kind of amount of securities, cash and other
property receivable upon such capital reorganization, reclassification of
capital stock, consolidation or merger.

"QWEST PREFERRED STOCK" has the meaning stated in Section 5.9(a) of this
Agreement.

"QWEST SEC DOCUMENTS" has the meaning stated in Section 5.10 of this
Agreement.

"QWEST STOCK SPLIT" means the two-for-one stock split announced on January
20, 1998 by Qwest's Board of Directors, payable on February 24, 1998 as a
dividend to the holders of record of Qwest Common Stock on February 2, 1998.

A-66

"QWEST SUBSIDIARY" has the meaning stated in the heading to this Agreement.

"REGISTRATION STATEMENT" has the meaning stated in Section 5.11 of this
Agreement.

"REGULATION" means (1) any applicable law, rule, regulation, ordinance,
judgment, decree, ruling, order, award, injunction, recommendation or other
official action of any Governmental Body, and (2) any official change in the
interpretation or administration of any of the foregoing by the Governmental
Body or by any other Governmental Body or other person responsible for the
interpretation or administration of any of the foregoing.

"RESTRICTED PAYMENT" with respect to a person means the following:

(1) any dividend or other distribution of any kind on any shares of the
person's capital stock, except dividends payable solely in shares of its
capital stock, other than an Equity Security of the person which by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable or exercisable), or upon the happening of any
event or with the passage of time, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part, or which is convertible
into or exchangeable or exercisable for debt securities of the person or
any of its Subsidiaries, and

(2) any payments in cash or otherwise, on account of the purchase,
redemption, retirement or acquisition of any Equity Securities of the
person.

"RESTRICTED COMPANY SHARES" has the meaning stated in Section 1.2 of this
Agreement.

"SEC DOCUMENTS" has the meaning stated in Section 6.1(h) of this Agreement.

"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
related rules and regulations thereunder.

"SPRINT PAYABLES OBLIGATION" has the meaning stated in Section 1.1(a)(2) of
this Agreement.

"STOCK OPTION" means any option to purchase Equity Securities of the Company
granted under the Company's 1989 Option Stock Plan or the Company's 1992 Non-
Employee Directors' Stock Option Plan.

"SUBSIDIARY" of a person means (1) any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect
a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the person or (2) a
partnership or limited liability company in which the person or a Subsidiary
of the person is, at the date of determination, a general partner, limited
partner or member, as the case may be, but only if the person or its
Subsidiary is entitled at any time to receive more than 50% of the amounts
distributed or distributable by such partnership or limited liability company
to the partners or members thereof whether upon dissolution or otherwise.
Unless the context requires otherwise, references to one or more Subsidiaries
shall be references to Subsidiaries of the Company.

"SUPERIOR PROPOSAL" has the meaning stated in the proviso to the first
sentence of Section 7.2(z) of this Agreement.

"TAXES" means all taxes, charges, fees, levies, duties, imposts,
withholdings, restrictions, fines, interest, penalties, additions to tax or
other assessments or charges, including, but not limited to, income, excise,
property, withholding, sales, use, gross receipts, value added and franchise
taxes, license recording, documentation and registration fees and custom
duties imposed by any Governmental Body.

A-67

"TAX RETURN" means a report, return or other information required to be
filed by a person with or submitted to a Governmental Body with respect to
Taxes, including, where permitted or required, combined or consolidated
returns for any group of entities that includes the person.

"TERMINATION DATE" has the meaning stated in Section 9.1(a) of this
Agreement.

"TRADING DAY" means, as applied to any class of stock, any day on which the
New York Stock Exchange or, if shares of such stock are not listed or admitted
to trading on the New York Stock Exchange, the principal national securities
exchange on which the shares of such stock are listed or admitted for trading
or, if the shares of such stock are not listed or admitted for trading on any
national securities exchange, the NASDAQ or, if the shares of such stock are
not included therein, any similar interdealer system then in general use in
which the shares of such stock are included, is open for the trading of
securities generally and with respect to which information regarding the sale
of securities included therein, or with respect to which sales information is
reported, is generally available.

"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Voting
Agreement, the other Voting Documents and all other instruments and documents
executed and delivered by any person in connection with the conclusion of one
or more of the transactions contemplated hereby and thereby.

"TRANSACTIONS" means, collectively, the transactions undertaken pursuant to,
or otherwise contemplated by, the Transaction Documents.

"TRANSFER" means a sale, an assignment, a lease, a license, a grant, a
transfer or other disposition of an asset or any interest of any nature in an
asset. The term "transfer" used as a verb has a correlative meaning.

"VAN ESSEN INDEMNIFICATION AND HOLD HARMLESS AGREEMENT" means the
Indemnification and Hold Harmless Agreement dated as of January 16, 1996 among
Phoenix Network Acquisition Corp., the Company, Automated Communications, Inc.
and Judy Van Essen Kenyon, as amended, relating to certain outstanding items
of litigation.

"VOTING AGREEMENT" has the meaning stated in Section 1.2 of this Agreement.

"VOTING DOCUMENTS" means, collectively, the Voting Agreement and the other
agreements, instruments and other documents executed and delivered by the
Principal Stockholders in connection therewith.

"WARRANTS" means any securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind (other than
the Stock Options) for the issuance, delivery or sale of shares of the Company
Common Stock or other Equity Securities of the Company.

"WHOLLY-OWNED SUBSIDIARY" of a person means any Subsidiary all of the shares
of capital stock or other ownership interests of which, except directors'
qualifying shares, are at the time directly or indirectly owned by the person.
Unless the context requires otherwise, references to one or more Wholly-Owned
Subsidiaries shall be references to Wholly-Owned Subsidiaries of the Company.

A-68

EXHIBIT B

January 6, 1998

Board of Directors
Phoenix Network, Inc.
13952 Denver West Parkway
Golden, Colorado 80402

Gentlemen:

You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding common stock, par value $0.001 per
share (the "Common Stock") and holders of the outstanding Series I convertible
preferred stock, par value $0.001 per share (the "Preferred Stock"), of
Phoenix Network, Inc. (the "Company"), of the Merger Consideration (as such
term is defined in the hereinafter described Merger Agreement) proposed to be
received by such holders pursuant to the proposed Agreement and Plan of
Merger, dated as of December 31, 1997 (the "Merger Agreement"), by and among
Qwest Communications International, Inc. ("Qwest"), a wholly-owned subsidiary
of Qwest ("Sub") and the Company. For purposes of this opinion, we have
assumed that the draft Merger Agreement in the form previously provided to us
will not vary in any material respect from the Merger Agreement to be signed
by the parties thereto. Capitalized terms used but not defined herein have the
meanings ascribed to such terms in the Merger Agreement.

The Merger Agreement provides for the merger of Sub with and into the
Company (the "Merger"), as a result of which (i) all issued and outstanding
Common Stock (including shares of Common Stock issued or issuable upon the
conversion of the Preferred Stock) will be converted into the right to receive
from Qwest the Conversion Number (as such term is defined in the Merger
Agreement) of shares of common stock, par value $0.01 per share, of Qwest and
(ii) each issued and outstanding share of Preferred Stock into the number of
shares of Qwest common stock equal to the product of (a) the number of shares
of Common Stock issuable upon conversion of the Preferred Stock times (b) the
Conversion Number. The terms and conditions of the Merger are more fully set
forth in the Merger Agreement.

J.C. Bradford & Co., L.L.C., as part of its investment banking business,
engages in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. We have acted as financial advisor to the Board
of Directors of the Company in connection with the proposed Merger and will
receive a fee from the Company for our services.

In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the Merger Agreement; (ii) the historical and
current financial position and results of operations of the Company as set
forth in its periodic reports and proxy materials filed with the Securities
and Exchange Commission; (iii) certain internal operating data and financial
analyses and forecasts of the Company for the fiscal year beginning January 1,
1997 and ending December 31, 1998, prepared for the Company by its senior
management; (iv) a schedule of the Company's current indebtedness and the
maturities of such indebtedness; (v) certain financial analysis and forecasts
for Qwest for the fiscal years beginning January 1, 1998 and ending December
31, 1999 prepared and published by financial analysts covering the Company;
(vi) certain financial and securities trading data of certain other companies,
the securities of which are publicly traded, that we believed to be comparable
to the Company or relevant to the transaction; (vii) the financial terms of
certain other transactions that we believed to be relevant; (viii) reported
price and trading activity for the Common Stock and the

B-1

Preferred Stock and the capital stock of Qwest; and (ix) such other financial
studies, analyses and investigations as we deemed appropriate for purposes of
our opinion. We also have held discussions with the senior lender of the
Company regarding the Company's liquidity and borrowing ability, with members
of the senior management of the Company regarding the past and current
business operations, financial condition and future prospects of the Company
(including its ability to pay its current indebtedness) and with officials of
Qwest regarding the current business operations and prospects of Qwest.

We have taken into account our assessment of general economic, market and
financial and other conditions and our experience in other transactions, as
well as our experience in securities valuation and our knowledge of the
industries in which the Company operates generally. Our opinion is necessarily
based upon the information made available to us and conditions as they exist
and can be evaluated as of the date hereof. We have relied upon the accuracy
and completeness of all of the financial and other information reviewed by us
for purposes of our opinion and have not assumed any responsibility for, nor
undertaken an independent verification of, such information. With respect to
the internal operating data and financial analyses and forecasts supplied to
us by the Company, we have assumed that such data, analyses and forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's senior management as to the recent and likely
future performance of the Company. Accordingly, we express no opinion with
respect to such analyses or forecasts or the assumptions on which they are
based. We were not asked to consider and our opinion does not address the
relative merits of the proposed Conversion and Merger as compared to any
alternative business strategies that might exist for the Company or the effect
of any other transactions in which the Company might engage. Furthermore, we
have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or any of its subsidiaries or affiliates and have
not been furnished with any such evaluation or appraisal.

The Company and Qwest are entitled to reproduce this opinion, in whole but
not in part, in the Company's Proxy Statement and in the related Qwest
Registration Statement as required by applicable law or appropriate; provided,
that any excerpt from or reference to this opinion (including any summary
thereof) in such documents must be approved by us in advance in writing.
Notwithstanding the foregoing, this opinion does not constitute a
recommendation to any holder of Common Stock or Preferred Stock to accept the
Merger Consideration or to vote in favor of the Merger.

Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Merger Consideration to be received by the holders of the Common Stock and the
holders of the Preferred Stock in the Merger is fair to such holders from a
financial point of view.

Very truly yours,

J.C. Bradford & Co., L.L.C.

/s/ N.B. Forrest Shoaf
By: _________________________________
N.B. Forrest Shoaf
Senior Vice President

B-2

EXHIBIT C

FORM OF
AMENDED AND RESTATED VOTING AGREEMENT AND PROXY

AMENDED AND RESTATED VOTING AGREEMENT AND PROXY dated as of December 31,
1997 (this "Agreement") between the person referred to on the signature page
hereof as the Shareholder ("Shareholder") and QWEST COMMUNICATIONS
INTERNATIONAL INC., a Delaware corporation (together with its successors and
assigns, "Qwest").

RECITALS

A. Shareholder beneficially owns not less than the number of shares of
Common Stock, par value $.001 per share, of Phoenix Network, Inc., a Delaware
corporation (the "Company") (the "Company Common Stock"). All such shares
together with all other shares of capital stock of the Company with respect to
which Shareholder has beneficial ownership as of the date of this Agreement or
acquires beneficial ownership on or before the Termination Date, are referred
to as the "Restricted Shares".

B. Shareholder and Qwest desire to enter into this Agreement to provide for
(1) the obligation of Shareholder to vote the Restricted Shares to approve the
Amended and Restated Agreement and Plan of Merger dated as of December 31,
1997 (as amended to the date hereof and as it may be further amended, restated
or otherwise modified, the "Merger Agreement") among the Company, Qwest and
Qwest 1997-5 Acquisition Corp., a Delaware corporation ("Qwest Subsidiary"),
the merger contemplated thereby (the "Merger") and against any Business
Combination (other than the Transactions), (2) the grant by Shareholder to
each of Qwest and Qwest Subsidiary of an irrevocable proxy in connection
therewith and (3) certain restrictions on the sale or other transfer of the
Restricted Shares by Shareholder. This Agreement and all other agreements,
instruments and other documents executed and delivered by Shareholder in
connection with this Agreement are collectively referred to as the "Voting
Documents". Terms not otherwise defined in this Agreement have the meanings
stated in the Merger Agreement.

C. Shareholder acknowledges that Qwest and Qwest Subsidiary are entering
into the Merger Agreement in reliance on the representations, warranties,
covenants and other agreements of Shareholder set forth in this Agreement and
would not enter into the Merger Agreement if Shareholder did not enter into
this Agreement.

AGREEMENT

The parties agree as follows:

Section 1. Covenants of Shareholder.

(a) Voting. Until the day following the Termination Date, subject to the
receipt of proper notice and the absence of a preliminary or permanent
injunction or other final order by any United States federal court or state
court barring such action, Shareholder shall do the following:

(1) be present, in person or represented by proxy, at each meeting
(whether annual or special, and whether or not an adjourned or postponed
meeting) of the stockholders of the Company, however called, or in
connection with any written consent of the stockholders of the Company, so
that all Restricted Shares then entitled to vote may be counted for the
purposes of determining the presence of a quorum at such meetings; and

C-1

(2) at each such meeting held before the Effective Time and with respect
to each such written consent, vote (or cause to be voted) the Restricted
Shares (A) to approve each of the Merger Agreement and the Merger, and any
action required in furtherance thereof, (B) except as otherwise approved in
writing in advance by Qwest (which approval may be granted, withheld,
conditioned or delayed in its sole discretion), against any action or
agreement that would result in any breach of any representation, warranty,
covenant or agreement of Shareholder or the Company contained in any
Transaction Document, that would or could reasonably be expected to impede,
interfere with, prevent or materially delay the conclusion of any of the
Transactions or that would or could reasonably be expected to materially
reduce the benefits to Qwest or Qwest Subsidiary of the Transactions, (C)
except as otherwise approved in writing in advance by Qwest (which approval
may be granted, withheld, conditioned or delayed in its sole discretion),
against any Business Combination Transaction (other than the Transactions)
and (D) except as otherwise approved in writing in advance by Qwest (which
approval may be granted, withheld, conditioned or delayed in its sole
discretion), against any amendment to the articles of incorporation or the
certificate of incorporation, as the case may be, or bylaws of the Company.

(b) Business Combination Transactions. Until the day following the
Termination Date, Shareholder shall not do any of the following or enter into
any agreement or other arrangement (other than the Voting Documents) with
respect to any of the following:

(1) enter into any agreement with respect to or take any other action to
effect any Business Combination Transaction (other than the Transactions)
with respect to any of the Company and its Subsidiaries;

(2) solicit, initiate or encourage (including, without limitation, by way
of furnishing information) any inquiry or the making of any proposal to any
of the Company, its Subsidiaries and its stockholders from any person
(other than Qwest, Qwest Subsidiary or any Affiliate of, or any person
acting in concert with, Qwest or Qwest Subsidiary) which constitutes, or
may reasonably be expected to lead to, a proposal with respect to a
Business Combination Transaction (other than the Transactions) with respect
to any of the Company and its Subsidiaries, or endorse any Business
Combination Transaction (other than the Transactions) with respect to any
of the Company and its Subsidiaries; or

If Shareholder receives a proposal with respect to a Business Combination
Transaction with respect to any of the Company and its Subsidiaries, then
Shareholder shall, by written notice delivered within 24 hours after receipt
of such proposal, inform Qwest and Qwest Subsidiary of the terms and
conditions of such proposal and the identity of the person making a proposal
with respect to such Business Combination Transaction. Shareholder agrees that
the restrictions in this Section 1(b) are reasonable and properly required to
accomplish the purposes of this Agreement.

Section 2. Irrevocable Proxy. Shareholder hereby revokes any previous
proxies and appoints each of Qwest and Qwest Subsidiary, with full power of
substitution, as attorney and proxy of the undersigned, (1) to attend any and
all meetings of stockholders of the Company, (2) to vote in accordance with
the provisions of Section 1 the Restricted Shares that the undersigned is then
entitled to vote, (3) to grant or withhold in accordance with the provisions
of Section 1 all written consents with respect to the Restricted Shares that
the undersigned is then entitled to vote, and (4) to represent and otherwise
to act for the undersigned in the same manner and with the same effect as if
the undersigned were personally present, with respect to all matters subject
to Section 1. This proxy shall

C-2

be deemed to be a proxy coupled with an interest, is irrevocable until the day
following the Termination Date and shall not be terminated by operation of law
upon the occurrence of any event. Shareholder authorizes such attorney and
proxy to substitute any other person to act hereunder, to revoke any
substitution and to file this proxy and any substitution or revocation with
the Secretary of the Company.

Section 3. Transfer of Restricted Shares. Until the day following the
Termination Date, Shareholder shall not transfer any Restricted Shares to any
person other than Qwest; provided that Shareholder may transfer Restricted
Shares to (1) Qwest Subsidiary or any Affiliate thereof in connection with the
conclusion of the Transactions and (2) any other person approved in advance in
writing by Qwest, which approval may be granted, withheld, conditioned or
delayed in the sole discretion of Qwest, if such other person shall execute
and deliver to Qwest an agreement identical in all respects to this Agreement
except for the change in the name of Shareholder and the number of shares of
Company Common Stock beneficially owned by Shareholder. For the purposes of
this Agreement, the term "transfer" means a sale, an assignment, a grant, a
transfer or other disposition of any Restricted Shares or any interest of any
nature in any Restricted Shares, including, without limitation, the
"beneficial ownership" of such Restricted Shares (as determined pursuant to
Regulation 13D-G under the Exchange Act).

Section 4. Representations and Warranties of Shareholder. Shareholder
represents and warrants to Qwest as follows:

(a) Existence and Power. If Shareholder is not a natural person, Shareholder
(1) is a corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or is a limited
liability company, general partnership or limited partnership formed and
validly existing under the laws of the jurisdiction of its formation and (2)
has all necessary power and authority (as a corporation, limited liability
company, general partnership or limited partnership, as the case may be) to
execute and deliver each Voting Document to which it is or may become a party.

(b) Authorization; Contravention. The execution and delivery by Shareholder
of each Voting Document and the performance by it of its obligations under
each Voting Document have been duly authorized by all necessary action (as a
corporation, limited liability company, general partnership or limited
partnership, as the case may be), if Shareholder is not a natural person, and
do not and will not (1) contravene, violate, result in a breach of or
constitute a default under, (A) its articles of incorporation, certificate of
incorporation, operating agreement, partnership agreement, bylaws or articles
or deed of trust, as applicable, (B) any Regulation of any Governmental Body
or any decision, ruling, order or award of any arbitrator by which
Shareholder, the Restricted Shares or any of its other properties may be bound
or affected or (C) any agreement, indenture or other instrument to which
Shareholder is a party or by which Shareholder, the Restricted Shares or any
of its other properties may be bound or affected or (2) result in or require
the creation or imposition of any Lien on the Restricted Shares or any of the
other properties now owned or hereafter acquired by it.

(c) Binding Effect. Each Voting Document is, or when executed and delivered
by Shareholder will be, the legally valid and binding obligation of
Shareholder, enforceable against Shareholder in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally and
general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.

(d) Ownership. Shareholder is the sole beneficial owner of all the
Restricted Shares, free and clear of all Liens. As of the date of this
Agreement, Shareholder does not beneficially own any Equity Securities of the
Company other than the Restricted Shares.

(e) Litigation. There is no Action pending against Shareholder or, to the
knowledge of Shareholder, threatened against Shareholder or any other person
that restricts in any material respect

C-3

or prohibits (or, if successful, would restrict or prohibit) the exercise by
any party or beneficiary of its rights under any Voting Document or the
performance by any party of its obligations under any Voting Document.

Section 5. Restrictions.

(a) Legend. The following legend shall be printed, typed, stamped or
otherwise impressed on each certificate for the Restricted Shares and any
certificates issued in exchange therefor or upon transfer thereof (other than
to Qwest or Qwest Subsidiary):

"The shares represented by this certificate are subject to certain voting
and transfer restrictions contained in the Voting Agreement dated as of
December 31, 1997 from the registered holder to Qwest Communications
International Inc."

(b) Stop Order. Qwest may direct the Company to impose stop orders to
prevent the transfer of the Restricted Shares on the books of the Company in
violation of this Agreement.

Section 6. Miscellaneous Provisions.

(a) Notices. All notices, requests and other communications to any party
under any Voting Document shall be in writing. Communications may be made by
telecopy or similar writing. Each communication shall be given the party at
its address stated on the signature pages of this Agreement or at any other
address as the party may specify for this purpose by notice to the other
party. Each communication shall be effective (1) if given by telecopy, when
the telecopy is transmitted to the proper address and the receipt of the
transmission is confirmed, (2) if given by mail, 72 hours after the
communication is deposited in the mails properly addressed with first class
postage prepaid or (3) if given by any other means, when delivered to the
proper address and a written acknowledgement of delivery is received.

(b) No Waivers; Remedies; Specific Performance.

(1) No failure or delay by Qwest in exercising any right, power or
privilege under any Voting Document shall operate as a waiver of the right,
power or privilege. A single or partial exercise of any right, power or
privilege shall not preclude any other or further exercise of the right,
power or privilege or the exercise of any other right, power or privilege.
The rights and remedies provided in the Voting Documents shall be
cumulative and not exclusive of any rights or remedies provided by law.

(2) In view of the uniqueness of the agreements contained in the Voting
Documents and the transactions contemplated hereby and thereby and the fact
that Qwest would not have an adequate remedy at law for money damages in
the event that any obligation under any Voting Document is not performed in
accordance with its terms, Shareholder therefore agrees that Qwest shall be
entitled to specific enforcement of the terms of each Voting Document in
addition to any other remedy to which Qwest may be entitled, at law or in
equity.

(c) Amendments, Etc. No amendment, modification, termination, or waiver of
any provision of any Voting Document, and no consent to any departure by
Shareholder or Qwest from any provision of any Voting Document, shall be
effective unless it shall be in writing and signed and delivered by
Shareholder and Qwest, and then it shall be effective only in the specific
instance and for the specific purpose for which it is given.

(d) Successors and Assigns; Third Party Beneficiaries.

(1) Neither party shall assign any of its rights or delegate any of its
obligations under any Voting Document. Any assignment or delegation in
contravention of this Section 6(d) shall be void ab initio and shall not
relieve the assigning or delegating party of any obligation under any
Voting Document.

C-4

(2) The provisions of each Voting Document shall be binding upon and
inure to the benefit of the parties, the express beneficiaries thereof (to
the extent provided therein) and their respective permitted heirs,
executors, legal representatives, successors and assigns, and no other
person.

(e) Governing Law. Except to the extent provided to the contrary in 6 Del.C.
(S)1-105(2), each Voting Document and all rights, remedies, liabilities,
powers and duties of the parties hereto and thereto, shall be governed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws.

(f) Severability of Provisions. Any provision of any Voting Document that is
prohibited or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of the prohibition or
unenforceability without invalidating the remaining provisions of the Voting
Document or affecting the validity or enforceability of the provision in any
other jurisdiction.

(g) Headings and References. Article and section headings in any Voting
Document are included for the convenience of reference only and do not
constitute a part of the Voting Document for any other purpose. References to
parties, express beneficiaries, articles and sections in any Voting Document
are references to parties to or the express beneficiaries and sections of the
Voting Document, as the case may be, unless the context shall require
otherwise. Any of the terms defined in this Agreement may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. The use in this Agreement of the word "include" or "including,"
when following any general statement, term or matter, shall not be construed
to limit such statement, term or matter to the specific items or matters set
forth immediately following such word or to similar items or matters, whether
or not nonlimiting language (such as "without limitation" or "but not limited
to" or words of similar import) is used with reference thereto, but rather
shall be deemed to refer to all other items or matters that fall within the
broadest possible scope of such general statement, term or matter.

(h) Entire Agreement. The Voting Documents embody the entire agreement and
understanding of Shareholder and Qwest, and supersedes all prior agreements or
understandings, with respect to the subject matters of the Voting Documents.

(i) Survival. Except as otherwise specifically provided in any Voting
Document, each representation, warranty or covenant of a party contained in
the Voting Document shall remain in full force and effect, notwithstanding any
investigation or notice to the contrary or any waiver by any other party or
beneficiary of a related condition precedent to the performance by the other
party or beneficiary of an obligation under the Voting Document.

(j) Exclusive Jurisdiction. Each party, and each express beneficiary of a
Voting Document as a condition of its right to enforce or defend any right
under or in connection with such Voting Document, (1) agrees that any Action
with respect to any Voting Document or any transaction contemplated by any
Voting Document shall be brought exclusively in the courts of the State of
Delaware or of the United States of America sitting in the State of Delaware,
(2) accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of those courts, (3) agrees that service of
process may be made on such party, or such express beneficiary, as the case
may be, by prepaid certified mail with a proof of mailing receipt validated by
the United States Postal Service constituting evidence of valid service, and
that service made pursuant to this clause (3) shall have the same legal force
and effect as if served upon such person personally within the State of
Delaware, and (4) irrevocably waives any objection, including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of
any legal action in those jurisdictions; provided, however, that any party may
assert in an Action in any other jurisdiction or venue each mandatory defense,
third-party claim or similar claim that, if not so asserted in such Action,
may thereafter not be asserted by such party in an original Action in the

C-5

courts referred to in clause (1) above. This Agreement and the other Voting
Documents do not involve less than $100,000, and the parties intend that 6
Del.C. (S)2708 shall apply to all the Voting Documents.

(k) Waiver of Jury Trial. Each party, and each express beneficiary of a
Voting Document as a condition of its right to enforce or defend any right
under or in connection with such Voting Document, waives any right to a trial
by jury in any Action to enforce or defend any right under any Voting Document
and agrees that any Action shall be tried before a court and not before a
jury.

(l) Termination. Qwest may terminate all or any of its rights under this
Agreement and the proxy granted pursuant to Section 2 of this Agreement at any
time upon written notice to Shareholder.

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

C-6

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.

[** SHAREHOLDER **]

By:__________________________________
Name:
Title:

Address:

Telecopy:

Qwest Corporation

By:__________________________________
Name:
Title:

Address:

Telecopy:

C-7

EXHIBIT D

INDEMNIFICATION AND HOLD HARMLESS AGREEMENT

This Indemnification and Hold Harmless Agreement (the "Agreement") is
entered into this 16th day of January, 1996, between and among PHOENIX NETWORK
ACQUISITION CORP., a Delaware corporation ("PAC"), PHOENIX NETWORK, INC., a
Delaware corporation ("Parent"), AUTOMATED COMMUNICATIONS, INC., a Colorado
corporation ("ACI"), and JUDY VAN ESSEN, individually ("Shareholder"), the
sole shareholder of ACI prior to the merger of ACI with and into PAC.

Recitals

A. PAC, Parent, ACI and Shareholder have entered into an Agreement and Plan
of Merger ("Plan") whereby ACI will merge with and into PAC effective as of
the Effective Time as defined in the Plan.

B. ACI is involved in certain pending or threatened lawsuits, including but
not limited to those listed on Exhibit A attached hereto as well as claims
that may arise in the future relating solely to actions which took place on or
prior to the date of this Agreement (collectively, the "Legal Claims").

C. PAC, Parent, ACI and Shareholder desire that PAC, ACI and Parent shall be
indemnified to the extent that any of them are required to participate in,
defend, or in any way be responsible or liable for any costs, fees, judgments,
settlements, payments or other obligations relating in any manner to the Legal
Claims.

E. PAC's and Parent's willingness to enter into the Plan is expressly
conditioned upon entering into this separate Indemnification and Hold Harmless
Agreement with Shareholder, and PAC would not agreed to have ACI merged with
and into PAC without Shareholder's agreement to fully indemnify PAC, Parent
and ACI pursuant to the terms and conditions of this Agreement.

F. Any capitalized term not defined herein shall have the meaning set forth
in the Plan.

Now, Therefore, in consideration of the premises, promises, and the mutual
covenants and agreements set forth in this Agreement, the sufficiency of which
are hereby acknowledged, the Parties agree as follows:

Agreement

1. (a) Shareholder hereby acknowledges and agrees that she shall be solely
responsible for the defense (and related fees and costs) relating to or
arising from any and all of the Legal Claims. Shareholder shall have the right
and obligation to direct and control the defense, prosecution and settlement
of all of the Legal Claims.

(b) Shareholder hereby acknowledges and agrees that she shall be solely
responsible for the defense (and related fees and costs) relating to or
arising from the revocation or nonallowance of ACI's election to be taxed
under Subchapter "S" of the Internal Revenue Code of 1986, as amended (a "Tax
Claim") for the three (3) tax years ending prior to the Effective Date.
Shareholder shall have the right and obligation to direct and control the
defense, prosecution and settlement of a Tax Claim.

(c) Prior to the engagement of legal counsel to defend any Tax Claim or
Legal Claims pursuant to this paragraph 1, Shareholder shall provide PAC and
Parent with a letter signed by such legal counsel substantially in the form
attached hereto as Exhibit 1.

D-1

2. Shareholder further agrees to fully indemnify, defend and hold harmless
PAC, Parent and ACI against any and all claims, judgments, payments, expenses,
liabilities and actual damages, including reasonable attorneys' fees, that
PAC, Parent and/or ACI shall incur or suffer which arise, result from or
relate in any way to a Tax Claim or Legal Claims (collectively, a "Claim").
Shareholder's indemnity obligation shall not extend to or cover any claims
asserted against PAC or Parent that are not Legal Claims or Tax Claims.

3. Promptly after the receipt by PAC, Parent or ACI of written notice of any
Claim or threat of Claim, PAC, Parent or ACI shall give written notice of such
Claim to Shareholder. This notice shall include, at a minimum, all details of
the claim then known to PAC and/or Parent and all documents which PAC and/or
Parent received. Thereafter, Shareholder, upon request of PAC, Parent or ACI,
shall assume the defense thereof, including retaining counsel mutually agreed
upon with PAC to represent PAC, Parent and ACI, and shall pay the fees and
expenses of any such counsel related to the Claim or proceeding as well as any
outside professional fees and expenses incurred by PAC, Parent and ACI.
Concerning any such Claim or proceeding, PAC, Parent and ACI shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of them, unless (i) PAC, Parent or ACI and Shareholder
shall have mutually agreed to retention of such counsel; (ii) the Claim
relates to the Omitted Claims; or (ii) the named parties to such proceeding
(including impleaded parties) include PAC, Parent or ACI and Shareholder, and
representation of more than one of such parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.

4. Notwithstanding anything to the contrary hereinabove, Shareholder's
obligation to indemnify pursuant to paragraphs 1 through 3 above shall
terminate under the following conditions:

(a) With regard to Claims relating to any of the matters disclosed on
Exhibit A attached hereto, Shareholder's obligations shall continue
indefinitely;

(b) With regard to Claims which arise in connection with the collection
of ACI's accounts receivable by PAC or Parent, written notice of such a
Claim must have been provided to Shareholder on or before eighteen (18)
months following the date of this Agreement or Shareholder's obligations to
indemnify shall terminate with regard to those Claims for which notice has
not been provided within such period;

(c) With regard to Tax Claims, written notice of a Tax Claim must have
been provided to Shareholder on or before thirty-six (36) months following
the date Shareholder files ACI's final tax return or Shareholder's
obligations to indemnify shall terminate with regard to a Tax Claim for
which notice has not been provided within such period;

(d) With regard to all other Claims not otherwise described in
subparagraphs (a) through (c) above, written notice of a such Claim must
have been provided to Shareholder on or before thirty-six (36) months
following the date of this Agreement or Shareholder's obligations to
indemnify shall terminate with regard to any such Claims for which notice
has not been provided within such period.

(e) To the extent any notice of a Claim is given pursuant to any of
subparagraphs 4(b), (c) or (d) above, and such Claim is disputed by
Shareholder, PAC or Parent shall initiate formal arbitration to resolve
such dispute with respect to such Claim within ninety (90) days of the date
of such notice of Claim or Shareholder's indemnification obligations as to
such Claim shall terminate and be null and void.

5. In addition to any rights of setoff or other rights that PAC and/or
Parent may have at common law, by statute or otherwise, PAC and/or Parent
shall have the right to set off any amount that may be owed to either PAC or
Parent pursuant to this Agreement against any amount otherwise payable by PAC
or Parent under the Note, the Temporary Note or the Escrow Agreement (as these
terms are defined in the Plan) to the Shareholder.

D-2

PAC and Parent shall also have the option of the setoff of all or any part
of any damages they may suffer by notifying the Shareholder in writing that
PAC and/or Parent is electing to recover Shares from the Escrow Deposit
established by the Escrow Agreement (as those terms are defined in the Plan)
between PAC and Shareholder, subject to the terms and conditions of said
Escrow Agreement, the Plan and this Agreement. For the purposes of setoff
against the Escrow Deposit, the Temporary Note, or the Note, the priorities
set forth in the Plan shall control.

6. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on
the fifth (5th) day after mailing, if mailed to the party to whom notice is to
be given, by first class mail, registered or certified, postage prepaid and
properly addressed, to the party as follows:

if to ACI:

Automated Communications, Inc.
1687 Cole Boulevard
Golden, CO 80401
Attention: President

with a copy to:

Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Attention: Ernest J. Panasci, Esq.

if to the PAC or Parent:

PAC Network Acquisition Corp.
PAC Network, Inc.
550 California Street, 11th Floor
San Francisco, CA 94104
Attention: Jeffrey L. Bailey

with a copy to:

Freeborn & Peters
950 17th Street, Suite 2600
Denver, Colorado 80202
Attention: Ernest J. Panasci, Esq.

if to Shareholder:

Ms. Judy Van Essen
1559 Genesee Vista
Golden, Colorado 80401

with a copy to:

Christoffel, Elliott & Albrecht, P.A.
805 Capital Centre
386 North Wabasha Street
Saint Paul, MN 55102
Attn: James F. Christoffel, Esq.
Fax: (612) 224-0550

Any party may change its address for the purpose of this Agreement by giving
the other party written notice of its new address in the manner set forth
above.

D-3

7. This Agreement binds and inures to the benefit of all the Parties, their
representatives, successors in interest, agents, employees, assigns, or any
other person or entity claiming through any party to this Agreement.

8. Each party to this Agreement has entered into the Agreement freely and
voluntarily. The parties have been advised by and represented by counsel in
the negotiation, drafting, and execution of this Agreement and have consulted
counsel prior to the signing of this Agreement.

9. This Agreement represents the entire agreement between the parties and
supersedes all prior negotiations, representations, or agreements between
parties, either written or oral, on the subject matter of this Agreement. This
Agreement may be amended only by a written instrument designed as an amendment
to this Agreement and executed by all the parties.

10. This Agreement shall be governed by and construed in accordance with the
laws of the State of Colorado.

In Witness Whereof, the parties have executed this Agreement to be effective
as of the date and year first written above.

PAC: PARENT:
Phoenix Network Acquisition Corp.

Phoenix Network, Inc.

/s/ Wallace M. Hammond /s/ Wallace M. Hammond
By: _________________________________ By: _________________________________
WALLACE M. HAMMOND, PRESIDENT WALLACE M. HAMMOND, PRESIDENT

ACI: SHAREHOLDER:
Automated Communications, Inc.

/s/ Judy Van Essen /s/ Judy Van Essen
By: _________________________________ _____________________________________
JUDY VAN ESSEN, CHIEF EXECUTIVE JUDY VAN ESSEN, INDIVIDUALLY
OFFICER

D-4

EXHIBIT E

DELAWARE GENERAL CORPORATION LAW
SECTION 262 APPRAISAL RIGHTS

262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:

(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:

a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;

b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.

E-1

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or

(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's

E-2

shares in accordance with this subsection. An affadavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
For purposes of determining the stockholders entitled to receive either
notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If
no record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.

(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay

E-3

to borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon
the appraisal prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that he is not entitled to appraisal rights under this
section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.

E-4

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by reason of the fact
that such person is or was an officer or director of such corporation or is or
was serving at the request of such corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, if
such officer or director acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such officer's or director's conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation in the performance of his
duty. Where an officer or director is successful on the merits or otherwise in
the defense of any action referred to above, the corporation must indemnify
such officer or director against the expense which such officer or director
actually and reasonably incurred.

In accordance with Section 102(b)(7) of the DGCL, Qwest's Certificate of
Incorporation provides that directors shall not be personally liable for
monetary damages for breaches of their fiduciary duty as directors except for
(i) breaches of their duty of loyalty to Qwest or its stockholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, (iii) certain transactions under Section 174 of the
DGCL (unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) transactions from which a director derives an improper
personal benefit. The effect of this provision is to eliminate the personal
liability of directors for monetary damages for actions involving a breach of
their fiduciary duty of care, including any actions involving gross
negligence.

The Qwest Certificate of Incorporation and the Qwest Bylaws provide for
indemnification of Qwest's officers and directors to the fullest extent
permitted by applicable law, except that the Qwest Bylaws provide that Qwest
is required to indemnify an officer or director in connection with a
proceeding initiated by such person only if the proceeding was authorized by
the Qwest Board. In addition, Qwest maintains insurance policies which provide
coverage for its officers and directors in certain situations where Qwest
cannot directly indemnify such officers or directors.

Pursuant to Section 145 of the DGCL and the Qwest Certificate of
Incorporation and the Qwest Bylaws, Qwest maintains directors' and officers'
liability insurance coverage.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(i) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement, which are incorporated herein:

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

2 Amended and Restated Agreement and Plan of Merger dated as of December
31, 1997 among Phoenix Network, Inc., Qwest Communications
International Inc. and Qwest 1997-5 Acquisition Corp. (attached as
Exhibit A to the Proxy Statement/Prospectus included as part of this
Registration Statement).
3.1* Amended and Restated Certificate of Incorporation of Qwest.
3.2** Bylaws of Qwest.
4.1 Indenture dated as of March 31, 1997 with Bankers Trust Company with
respect to Qwest's 10 7/8% Senior Notes due 2007 (substantially
identical in all material respects (other than with respect to
principal amount, interest rate and maturity) to the Indenture
incorporated by reference in exhibit 4.2 hereto).

II-1

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

4.2***** Indenture dated as of October 15, 1997 with Bankers Trust Company
with respect to Qwest's 9.47% Senior Discount Notes due 2007.
4.3 Indenture dated as of January 29, 1998 with Bankers Trust Company
with respect to Qwest's 8.29% Senior Discount Notes due 2008
(substantially identical in all material respects (other than with
respect to principal amount, interest rate and maturity) to the
Indenture incorporated by reference in exhibit 4.2 hereto).
4.4 Registration Agreement dated January 29, 1998 with Salomon Brothers
Inc. relating to Qwest's 8.29% Senior Discount Notes due 2008
(substantially identical in all material respects to the
Registration Agreement dated October 15, 1997 relating to Qwest's
9.47% Senior Discount Notes due 2007, which is incorporated by
reference to exhibit 4.2 in Form S-4 declared effective on January
5, 1998 (File No. 333-42847)).
5.1 Opinion of O'Melveny & Myers LLP with respect to the legality of the
Qwest Common Stock being registered.
5.2 Opinion of Morris, James, Hitchens & Williams, special Delaware
counsel to Qwest, with respect to the legality of Qwest's
obligation to pay the Contingent Cash Consideration.
8 Opinion of Grant Thornton LLP with respect to certain tax matters.
10.1* Growth Share Plan, as amended, effective October 1, 1996.
10.2* Employment Agreement dated December 21, 1996 with Joseph P. Nacchio.
10.3* Promissory Note dated November 20, 1996 and Severance Agreement
dated December 1, 1996 with Robert S. Woodruff.
10.4* Settlement Agreement, General Release and Covenant Not to Sue dated
as of November 11, 1996 with Douglas H. Hanson.
10.5*+ IRU Agreement dated as of October 18, 1996 with Frontier
Communications International Inc.
10.6*+ IRU Agreement dated as of February 26, 1996 with WorldCom Network
Services, Inc.
10.7*+ IRU Agreement dated as of May 2, 1997 with GTE.
10.8* Equity Incentive Plan.
11.1*** Statement re Computation of Per Share Earnings.
21**** Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Dollinger, Smith & Co.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of O'Melveny & Myers LLP (contained in Exhibit 5.1).
23.5 Consent of Morris, James, Hitchens & Williams, special Delaware
counsel to Qwest (contained in Exhibit 5.2).
23.6 Consent of J.C. Bradford & Co., L.L.C.
24 Power of Attorney.
99.1 Form of Amended and Restated Voting Agreement and Proxy dated as of
December 31, 1997 (attached as Exhibit C to the Proxy
Statement/Prospectus included as part of this Registration
Statement).
99.2 Form of Proxy.

(ii) Financial Statement Schedules. The following is a complete list of
Financial Statement Schedules filed as part of this Registration Statement,
which are incorporated herein:

SCHEDULE
NO. QWEST COMMUNICATIONS INTERNATIONAL INC.
-------- ---------------------------------------

I --Condensed Information as to the Financial Position of Registrant
II --Valuation and Qualifying Accounts

- --------
* Incorporated by reference to the exhibit of the same number in Form S-1 as
declared effective on June 23, 1997 (File No. 333-25391).
** Incorporated by reference to exhibit 3 in Form 10-Q for the quarter ended
September 30, 1997 (File No. 000-22609).
*** Incorporated by reference to exhibit 11 in Form 10-Q for the quarter ended
September 30, 1997 (File No. 000-22609) and exhibit 11.1 in Form S-1 as
declared effective on June 23, 1997 (File No. 333-25391).
**** Incorporated by reference to exhibit 21 in Form S-4 as declared effective
on January 5, 1998 (File No. 333-42847).
***** Incorporated by reference to exhibit 4.1 in Form S-4 as declared
effective on January 5, 1998 (File No. 333-42847).
+Portions have been omitted pursuant to a request for confidential treatment.

II-2

ITEM 22. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of rule 145(c) under the Securities Act of 1933, as amended
(the "Securities Act"), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.

(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415 under the Securities Act, will
be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.

(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
registrant being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-3

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AS
AMENDED QWEST COMMUNICATIONS INTERNATIONAL INC. HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF COLORADO, ON FEBRUARY 11,
1998.

Qwest Communications International
Inc.

/s/ Robert S. Woodruff
By: _________________________________
NAME: ROBERT S. WOODRUFF
TITLE: EXECUTIVE VICE
PRESIDENT--FINANCE

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE CAPACITY DATE

Philip F. Anschutz* Chairman of the February 11,
- ------------------------------------- Board 1998
PHILIP F. ANSCHUTZ

Joseph P. Nacchio* Director, President February 11,
- ------------------------------------- and Chief Executive 1998
JOSEPH P. NACCHIO Officer (Principal
Executive Officer)

/s/ Robert S. Woodruff Director and February 11,
- ------------------------------------- Executive Vice 1998
ROBERT S. WOODRUFF President--Finance
and Chief Financial
Officer and
Treasurer
(Principal
Financial Officer)

Richard L. Smith* Vice President and February 11,
- ------------------------------------- Controller 1998
RICHARD L. SMITH (Principal
Accounting Officer)

Cannon Y. Harvey* Director February 11,
- ------------------------------------- 1998
CANNON Y. HARVEY

II-4

SIGNATURE CAPACITY DATE

Richard T. Liebhaber* Director February 11,
- ------------------------------------- 1998
RICHARD T. LIEBHABER

Douglas L. Polson* Director February 11,
- ------------------------------------- 1998
DOUGLAS L. POLSON

Craig D. Slater* Director February 11,
- ------------------------------------- 1998
CRAIG D. SLATER

Jordan L. Haines* Director February 11,
- ------------------------------------- 1998
JORDAN L. HAINES

W. Thomas Stephens* Director February 11,
- ------------------------------------- 1998
W. THOMAS STEPHENS

/s/ Robert S. Woodruff, as attorney-
in-fact
*By: ___________________________________
ROBERT S. WOODRUFF

II-5

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Qwest Communications International Inc.:

Under date of February 19, 1997, except as to note 18, which is as of May
23, 1997, and note 1 paragraph (i) and note (20), which are as of February 2,
1998, we reported on the consolidated balance sheets of Qwest Communications
International Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996
which are included in the Proxy Statement/Prospectus. In connection with our
audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedules in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

KPMG Peat Marwick LLP

Denver, Colorado
February 19, 1997,
except as to
notes 2 and 3
which are as of
February 2, 1998.

S-1

SCHEDULE I
Page 1 of 5

QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED INFORMATION AS TO THE FINANCIAL POSITION OF THE REGISTRANT
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Assets
- ------
Current asset--short-term advances to Qwest Corporation............... $ 19,138
Investment in Qwest Corporation....................................... 9,442
--------
Total assets...................................................... $ 28,580
========
Liability and Stockholder's Equity
- ----------------------------------
Current liability--advances from Anschutz Company (the "Parent")...... $ 19,138
Stockholder's equity (notes 2 and 3):
Preferred stock, $.01 par value. Authorized 25,000,000 shares
No shares issued and outstanding.................................... --
Common stock, $.01 par value. Authorized 400,000,000 shares
Issued and outstanding 173,000,000 shares........................... 1,730
Additional paid-in capital .......................................... 54,162
Accumulated deficit.................................................. (46,450)
--------
Total stockholder's equity........................................ 9,442
--------
Total liability and stockholder's equity.......................... $ 28,580
========

See accompanying notes to financial statement schedules.

S-2

SCHEDULE I
---------
Page 2 of 5

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED INFORMATION AS TO THE OPERATIONS OF THE REGISTRANT
YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

Equity in loss of Qwest Corporation...................................... $(6,967)
-------
Net loss................................................................. $(6,967)
=======
Net loss per share....................................................... $ (0.04)
=======
Weighted average common and common equivalent shares..................... 176,316
=======

See accompanying notes to financial statement schedules.

S-3

SCHEDULE I
Page 3 of 5

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED INFORMATION AS TO THE CASH FLOWS OF THE REGISTRANT
YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------

Cash flows from operating activities -
Net loss........................................................... $ (6,967)
Adjustments to reconcile net loss to net cash used by operating
activities -
Equity in loss of Qwest Corporation.............................. 6,967
--------
Net cash used in operating activities.......................... --
--------
Cash flows from investing activities -
Repayments from Qwest Corporation, net of advances and expenses
incurred by Parent on Qwest Corporation's behalf................ 18,047
--------
Net cash used in investing activities.......................... 18,047
--------
Cash flows from financing activities -
Repayments to Parent, net of advances.............................. (19,069)
Expenses incurred by Parent on Qwest Corporation's behalf.......... 1,022
--------
Net cash provided by financing activities...................... (18,047)
--------
Net increase in cash and cash equivalents...................... --
Cash and cash equivalents, beginning of year......................... --
Cash and cash equivalents, end of year............................... $ --
========
Supplemental disclosure of significant non-cash financing activity-
Reduction in additional paid-in capital attributable to effect of
cancellation of income tax benefit receivable from Parent......... $ 11,088
========

See accompanying notes to financial statement schedules.

S-4

SCHEDULE I
---------
Page 4 of 5

QWEST COMMUNICATIONS INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENT SCHEDULES

DECEMBER 31, 1996
- -------------------------------------------------------------------------------
(1) ORGANIZATION

Qwest Communications International Inc. (the "Company") is wholly-owned by
Anschutz Company (the "Parent"). The Company became the sole owner of Qwest
Corporation and the ultimate holding company of Qwest Communications
Corporation and subsidiaries through a merger in 1996 with another wholly-
owned subsidiary of the Parent. The merger was accounted for as a business
combination of entities under common control using carryover basis.

(2) SECURITIES OFFERING

In April 1997, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering (the
Offering) of 27 million shares of Common Stock. On May 23, 1997, the Board of
Directors approved a change in the Company's capital stock to authorize 400
million shares of $.01 par value Common Stock, of which shares 20 million are
reserved for issuance under the equity incentive plan, 4 million are reserved
for issuance under the Growth Share Plan and 8.6 million are reserved for
issuance upon exercise of warrants (as described below), and 25,000,000 shares
of $.01 par value Preferred Stock. On May 23, 1997, the Board of Directors
declared a stock dividend to the existing shareholder of 172,980,000 shares of
Common Stock, which is payable immediately prior to the effectiveness of the
registration statement. This dividend is accounted for as a stock split. All
shares and per share information included in the accompanying financial
statements has been adjusted to give retroactive effect to the change in
capitalization.

Effective May 23, 1997, the Company sold to an affiliate (the Affiliate) of
the Parent for $2,300,000 in cash, a three year warrant to acquire 8.6 million
shares of Common Stock at an exercise price of $14 per share, exercisable on
May 23, 2000. The warrant is not transferable. Stock issued upon exercise of
the warrant will be subject to restrictions on sale or transfer for two years
after exercise.

On May 23, 1997, the Board of Directors and the stockholder of the Company
approved an equity incentive plan. Under this plan, stock options, stock
appreciation rights, restricted stock awards, stock units and other stock
grants may be granted (with respect to up to 20,000,000 shares of Common
Stock) to eligible participants who significantly contribute to the Company's
growth and profitability.

(3) STOCK SPLIT

On January 20, 1998, the board of Directors declared a stock dividend of one
share for every share outstanding to stockholders of record as of February 2,
1998, to be distributed on February 24, 1998. This dividend is accounted for
as a two-for-one stock split. All share and per share information included in
the Financial Statement Schedules have been adjusted to give retroactive
effect to the change in capitalization.

S-5

SCHEDULE II

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN THOUSANDS)

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

ADDITIONS DEDUCTIONS
---------------------- ----------
WRITE-
BALANCE AT CHARGED OFFS, BALANCE
BEGINNING OF TO PROFIT NET OF AT END OF
YEAR AND LOSS OTHER (1) RECOVERIES YEAR
------------ --------- --------- ---------- ---------

Description
Year ended December 31,
1996:
Allowance for doubtful
receivables - trade... $2,621 2,841 -- (1,793) 3,669
====== ===== === ====== =====
Year ended December 31,
1995:
Allowance for doubtful
receivables - trade... $1,253 1,758 646 (1,036) 2,621
====== ===== === ====== =====
Year ended December 31,
1994:
Allowance for doubtful
receivables - trade... $1,510 735 -- (992) 1,253
====== ===== === ====== =====

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

Note (1): Represents additions resulting from acquisitions.

S-6

QWEST COMMUNICATIONS INTERNATIONAL INC.

INDEX TO EXHIBITS

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

5.1 Opinion of O'Melveny & Myers LLP with respect to the legality of the
securities being registered.
5.2 Opinion of Morris, James, Hitchens & Williams, special Delaware
counsel to Qwest, with respect to the legality of Qwest's obligation
to pay the Contingent Cash Consideration.
8 Opinion of Grant Thornton LLP with respect to certain tax matters.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Dollinger, Smith & Co.
23.3 Consent of Grant Thornton LLP.
23.6 Consent of J.C. Bradford & Co., L.L.C.
24 Power of Attorney.
99.2 Form of Proxy.