===============================================================================

ELECTRIC LIGHTWAVE, INC. FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

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

FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2000

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

For the transition period from to Commission file number 0-23393

ELECTRIC LIGHTWAVE, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 93-1035711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3 HIGH RIDGE PARK
P. O. BOX 3801
STAMFORD, CT 06905
(Address, zip code of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 614-5600

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.

YES |X| NO |_|

The number of shares outstanding of the registrant's class of common stock as of
July 26, 2000 were:

COMMON STOCK CLASS A 9,602,428
COMMON STOCK CLASS B 41,165,000

INDEX

Page No.
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
Balance Sheets at June 30, 2000 and December 31, 1999 (unaudited) 2
Statements of Operations for the Three and Six months ended 3
June 30, 2000 and 1999 (unaudited)
Condensed Statements of Cash Flows for the Six months ended 4
June 30, 2000 and 1999 (unaudited)
Notes to Financial Statements 5

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 9
AND RESULTS OF OPERATIONS
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION 17

SIGNATURES 19

-1-

Electric Lightwave, Inc.
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
- ----------------------------------

BALANCE SHEETS
(In thousands except share data)
- --------------------------------
(Unaudited)

June 30, December 31,
Assets 2000 1999
--------- ---------

Current assets:
Cash ...................................................... $ 21,027 $ 21,378
Trade receivables, net .................................... 30,344 39,952
Other receivables ......................................... 6,549 6,239
Other current assets ...................................... 3,439 2,846
--------- ---------
Total current assets ................................... 61,359 70,415
--------- ---------
Property, plant and equipment .................................. 936,368 771,947
Less accumulated depreciation and amortization ................. (101,561) (76,288)
--------- ---------
Property, plant and equipment, net ........................ 834,807 695,659
--------- ---------
Other assets ................................................... 7,571 9,160
--------- ---------
Total assets ........................................... $ 903,737 $ 775,234
========= =========

Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities .................. $ 66,978 $ 61,066
Current portion of long-term obligations .................. 28,901 25,105
Due to Citizens Communications Company .................... 6,823 14,650
Other accrued taxes ....................................... 15,136 11,153
Interest payable .......................................... 9,759 4,950
Other current liabilities ................................. 5,275 3,314
--------- ---------
Total current liabilities .............................. 132,872 120,238

Deferred revenue ............................................... 14,141 6,888
Other long-term liabilities .................................... 970 952
Deferred income taxes payable .................................. 3,139 2,658
Capital lease obligations ...................................... 120,154 39,997
Long-term debt ................................................. 679,000 585,000
--------- ---------
Total liabilities ...................................... 950,276 755,733
--------- ---------

Shareholders' equity (deficit):
Common stock issued, $.01 par value
Class A, authorized 110,000,000 shares, 9,319,297 shares
and 8,966,276 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively .. 93 90
Class B, authorized 60,000,000 shares, 41,165,000 shares
issued and outstanding at June 30, 2000 and
December 31, 1999 .................................. 412 412
Additional paid-in-capital ................................ 330,531 326,477
Deficit ................................................... (377,575) (307,478)
--------- ---------
Total shareholders' equity (deficit) ................... (46,539) 19,501
--------- ---------

Total liabilities and shareholders' equity (deficit) ... $ 903,737 $ 775,234
========= =========

See accompanying notes
-2-

STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
- ----------------------------------------
(Unaudited)

For the three months For the six months
ended June 30, ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------

Revenue ................................ $ 60,620 $ 46,095 $ 117,398 $ 84,311
--------- --------- --------- ---------

Operating expenses:
Network access .................... 18,294 23,702 38,990 48,926
Operations ........................ 13,446 9,633 25,021 18,667
Selling, general and administrative 30,315 29,447 61,487 56,214
Depreciation and amortization ..... 14,721 8,150 27,476 15,144
--------- --------- --------- ---------
Total operating expenses ....... 76,776 70,932 152,974 138,951
--------- --------- --------- ---------

Loss from operations .............. (16,156) (24,837) (35,576) (54,640)

Interest expense ....................... 18,662 8,066 33,858 13,167
Loss on disposal of assets ............. 209 195 775 195
Interest income and other .............. (315) (193) (593) (515)
--------- --------- --------- ---------

Net loss before income taxes ...... (34,712) (32,905) (69,616) (67,487)

Income tax expense ..................... 246 300 481 670
--------- --------- --------- ---------

Net loss .......................... $ (34,958) $ (33,205) $ (70,097) $ (68,157)
========= ========= ========= =========

Net loss per common share:
Basic ............................. $ (0.69) $ (0.67) $ (1.39) $ (1.37)
Diluted ........................... $ (0.69) $ (0.67) $ (1.39) $ (1.37)

Weighted average shares outstanding .... 50,418 49,822 50,289 49,812

See accompanying notes
-3-

CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------
(Unaudited)

For the six months
ended June 30,
----------------------
2000 1999
--------- ---------

Net cash used for operating activities ................ $ (18,349) $ (55,455)
--------- ---------

Cash flows used for investing activities:
Capital expenditures ............................. (69,884) (108,458)
--------- ---------

Cash flows from financing activities:
Revolving bank credit facility proceeds .......... 104,000 156,000
Revolving bank credit facility repayments ........ (10,000) (310,000)
Note issuance .................................... -- 325,000
Reduction of capital lease obligation ............ (9,576) (172)
Other ............................................ 3,458 (1,846)
--------- ---------
Net cash provided by financing activities ..... 87,882 168,982
--------- ---------

Net increase (decrease) in cash ....................... (351) 5,069

Cash at January 1, .................................... 21,378 13,120
--------- ---------
Cash at June 30, ...................................... $ 21,027 $ 18,189
========= =========

Supplemental cash flow information:
Cash paid for interest, net of capitalized portion $ 26,381 $ 11,210
Non-cash increase in capital lease asset ......... $ 96,510 $ 45,195

See accompanying notes
-4-

NOTES TO FINANCIAL STATEMENTS
-----------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. BASIS OF PRESENTATION AND USE OF ESTIMATES

Electric Lightwave, Inc. is referred to as "we", "us" or "our" in this
report. We have prepared these unaudited financial statements in accordance
with generally accepted accounting principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, we have condensed or omitted certain
information and footnote disclosures. In our opinion, these financial
statements include all adjustments and recurring accruals necessary to
present fairly the results for the interim periods shown.

Preparing financial statements in conformity with GAAP requires us to make
estimates and assumptions which affect the amounts of assets, liabilities,
revenue and expenses we have reported and our disclosure of contingent
assets and liabilities at the date of the financial statements. The results
of the interim periods are not necessarily indicative of the results for
the full year. We have made certain reclassifications of balances
previously reported to conform to the current financial statement
presentation. You should read these financial statements in conjunction
with the audited financial statements and the related notes included in our
Annual Report on Form 10-K for the year ended December 31, 1999.

b. CAPITALIZED INTEREST

Property, plant and equipment includes interest costs capitalized during
the installation and expansion of our communications networks.
Approximately $1,237,000 and $2,949,000 of interest costs were capitalized
in the three months ended June 30, 2000 and 1999, respectively, and
approximately $3,270,000 and $6,167,000 were capitalized in the six months
ended June 30, 2000 and 1999, respectively.

c. REVENUE RECOGNITION

We recognize revenue from communications services when the services are
provided. Amounts received from long-term leases of fiber optic cable are
included in deferred revenue and are amortized on a straight-line basis
over the terms of the related leases.

d. NET LOSS PER SHARE

We follow the provisions of Statement of Financial Accounting Standards
(SFAS) 128, "Earnings Per Share" which requires presentation of both basic
and diluted earnings per share (EPS) on the face of the Statements of
Operations. Basic EPS excludes dilution and is computed using the weighted
average number of common shares outstanding during the period. The diluted
EPS calculation assumes that all stock options or contracts to issue common
stock were exercised or converted into common stock at the beginning of the
period. We have excluded certain common stock equivalents from our diluted
EPS calculation during the quarters ended June 30, 2000 and 1999 as their
effect would have reduced our net loss per share.

-5-

2. EXIT COSTS

In the third quarter 1999, we announced two strategic decisions that led to
$1.5 million in employee severance and facility shutdown costs that we
recorded in selling, general and administrative expense in our Statements
of Operations for the year ended December 31, 1999. On August 24, 1999, we
announced that we were eliminating our prepaid calling card and
videoconferencing products, effective November 1, 1999. On September 1,
1999, we announced that we were consolidating our national retail sales
efforts in Dallas and closing six retail sales offices in the eastern
United States by October 8, 1999. We have maintained all of our data
points-of-presence and wholesale sales offices. In the first half of 2000,
we incurred additional exit costs of $0.4 million related to these
decisions that we recorded in selling, general and administrative expense
in our Statements of Operations.

As a result of both of these decisions, we eliminated 63 sales and sales
support positions, and incurred charges relating to employee severance and
facility shutdown costs of $0.9 million and $1.0 million, respectively. The
balance of the exit cost accrual at June 30, 2000 of $0.2 million is
included in Accounts Payable and Accrued Liabilities on our balance sheet.
A summary of the activity in the exit costs accrual since December 31, 1999
is as follows:

Balance Balance
December 31, New June 30,
($ In thousands) 1999 Charges Payments 2000
- ---------------- ------------ -------- -------- ---------

Severance related costs .... $ -- $131 $131 $ --
Network and facilities costs 134 226 139 221
---- ---- ---- ----
Total ................. $134 $357 $270 $221
==== ==== ==== ====

3. COMMITMENTS AND CONTINGENCIES

We have entered into an 18-month take-or-pay contract, that expires on
February 28, 2001, to provide data products to a significant customer. The
take-or-pay contract will provide $20 million in revenue for 2000. There is
no assurance this take-or-pay contract will be renewed in 2001.

We have entered into various capital and operating leases for fiber optic
cable to interconnect our local networks with long-haul fiber optic routes.
The terms of the various agreements range from 20 to 25 years, with varying
optional renewal periods.

In addition to the long-haul agreements above, we have also entered into
certain operating and capital leases in order to develop our local
networks. The terms of the various agreements range from 15 to 30 years,
with varying optional renewal periods. One of these contracts provides us
with an exclusive right to use the facilities as long as certain minimum
usage is satisfied. We have met those requirements as of June 30, 2000.

We are involved in various claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on our results of
operations, financial position or liquidity.

4. RELATED PARTY TRANSACTIONS

Citizens Communications Company (Citizens) owns approximately 83% of our
common stock. On December 1, 1997, we entered into an Administrative
Services Agreement (Agreement) under which Citizens provides us with
certain administrative services including, but not limited to, financial
management services, information services, legal and contract services and
planning and human resources services. Under the terms of the Agreement,
Citizens bills us for direct costs and an allocation of indirect costs,
plus an administrative charge. The current practice of allocating indirect
costs is based on four factors: plant assets, operating expenses, number of
customers and payroll expenses. We believe that this allocation method and
the resultant amounts are reasonable as contemplated by the Agreement. In
addition, we reimburse third party costs incurred by Citizens on our
behalf. We believe that the amounts charged by Citizens do not exceed
comparable amounts that would be charged by an unaffiliated third party.
Also, we believe that the accompanying financial statements include all of
our costs of doing business.

-6-

In April 2000, Citizens announced a plan to buy up to $25 million of
Electric Lightwave, Inc.'s Class A common stock which was completed July
2000. In August 2000, Citizens announced a plan to purchase up to one
million shares of Electric Lightwave, Inc.'s Class A common stock on the
open market.

This table summarizes the activity in the liability account Due to Citizens
for the six months ended June 30,

($ In thousands) 2000 1999
- ---------------- -------- --------

Balance beginning of period ...... $ 14,650 $ 5,254
Guarantee fees ................... 13,072 8,087
Administrative services:
Services provided by Citizens 2,929 4,555
ELI expenses paid by Citizens 4,183 3,742
Payments to Citizens ............. (28,011) (11,500)
-------- --------
Balance end of period ............ $ 6,823 $ 10,138
======== ========

5. SIGNIFICANT CUSTOMER

Qwest (formerly U S WEST Communications, Inc.) accounted for 18% of our
total revenues for each of the three and six-month periods ended June 30,
2000 and 1999. Most of the Qwest revenue was generated from reciprocal
compensation. No other customer accounted for 10% or more of our total
revenues for either of the three months or six months ended June 30, 2000.

6. INCOME TAXES

Citizens includes us in their consolidated federal income tax return which
uses a calendar year reporting period. We record income taxes as if we were
a stand-alone company. We recorded income tax expense of $246,000 and
$300,000 for the three months ended June 30, 2000 and 1999, respectively,
and $481,000 and $670,000 for the six months ended June 30, 2000 and 1999,
respectively. This expense represents the deferred tax effect of the
increase in temporary differences between our GAAP financial statements and
our tax return that may not be fully offset with the use of tax loss
carryforwards when the temporary differences reverse in future periods.

The income taxes payable by Citizens' consolidated group have been reduced
as a consequence of our losses for tax purposes in past years. We would
have been able to carry-forward our tax losses to future periods to offset
taxable income in these future periods had we been a stand-alone company.
In accordance with the tax sharing agreement, Citizens has agreed to
reimburse us for the taxes we would be required to pay in the future, if we
have taxable income, to the extent that these loss carryforwards would
otherwise remain available on a stand-alone basis.

-7-

7. SEGMENT DISCLOSURES

We operate in a single industry segment, communications services. Our
operations involve developing an integrated advanced fiber network to
provide the full range of our products and services in the western United
States as well as enhanced broadband data services in selected cities
nationwide. While our chief operating decision-maker monitors the revenue
streams of the various products and geographic locations, we manage
operations and evaluate financial performance based on the delivery of
multiple services to customers over a single fiber-optic network. This
practice allows us to leverage our network costs to maximize profitability.
As a result, there are many shared and indistinguishable expenses generated
by the various revenue streams. Our management believes that any allocation
of the expenses incurred on a single network to multiple revenue streams
would be impractical, arbitrary and inconsistent with the way the business
is currently evaluated by management. As a result, management does not
currently make such allocations internally.

PRODUCTS AND SERVICES

We group our products and services into Network Services, Local Telephone
Services, Long Distance Services and Data Services. The revenue generated
by these products and services for the three and six months ended June 30
were:

For the six months For the six months
ended June 30, ended June 30,
------------------------ ------------------------
($ In thousands 2000 1999 2000 1999
- --------------- ------- ------- -------- -------

Network services ....... $17,173 $12,983 $ 33,177 $23,407
Local telephone services 25,951 18,600 50,225 32,908
Long distance services . 4,265 9,245 8,862 17,775
Data services .......... 13,231 5,267 25,134 10,221
------- ------- -------- -------
Total ............. $60,620 $46,095 $117,398 $84,311
======= ======= ======== =======

We do not currently provide products or services outside the United States.

-8-

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------

We caution you that this quarterly report on Form 10-Q contains
forward-looking statements within the meaning of the Securities and
Exchange Act of 1934. Forward-looking statements (including oral
representations) are only predictions or statements of our current plans,
which we review on a continual basis, and are based on our beliefs,
expectations and assumptions and on information currently available to us.
The words "may", "should", "expect", "anticipate", "intend", "plan",
"continue", "believe", "estimate" or similar expressions used in this
report are intended to identify forward-looking statements.

The forward-looking statements in this quarterly report on Form 10-Q
involve certain risks, uncertainties and assumptions. They are not
guarantees of future performance. Factors that may cause actual results to
differ materially from those expressed or implied in any forward-looking
statements include, but are not limited to, any of the following
possibilities:

* if the local and overall economic conditions of our markets are less
favorable than we expected;

* if there are changes in the nature and pace of technological advances in
our industry;

* if competitive pressure in the telecommunications industry increases in
any of our markets because of the entrance of new competitors, the
combination of existing competitors and/or the more effective provision
of products and services from our competitors, including ILECs, or other
public utilities;

* if our business strategy or its execution, including financial
performance goals, is not as successful as we anticipate;

* if state or federal regulatory changes are implemented that assist our
competitors, impair our competitive position, threaten our costs or
impact our rate structures, including the ability to bill reciprocal
compensation for calls terminated to Internet Service Providers (ISPs);

* if we do not receive the services and support which we require from the
regional ILECs or cannot maintain our current relationships with ILECs;

* if we are not able to effectively manage rapid growth, including
integrating any businesses acquired;

* if we are not able to correctly identify future markets, successfully
expand existing ones, or successfully expand through acquisitions;

* if the mix of products and services we are able to offer in our target
markets is not appropriate to the demands of our customers;

* if we are not able to obtain additional financing; or

* if our stock price is volatile.

You should consider these important factors in evaluating any statement
contained in this report and/or made by us or on our behalf. We have no
obligation to update or revise forward-looking statements.

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

The following information has not been audited. You should read this
information in conjunction with the condensed financial statements and
related notes to financial statements included in this report. In addition,
please see our Management's Discussion and Analysis of Financial Condition
and Results of Operations, audited financial statements and related notes
included in our Annual Report on Form 10-K for the year ended December 31,
1999. Electric Lightwave, Inc. is referred to as "we", "us", or "our" in
this report.

-9-

OVERVIEW

We have built an extensive fiber-optic network in the western United
States, which includes expansive local networks in seven major cities and
their surrounding areas, connected by our long-haul routes. In addition, we
provide data services in certain strategic markets across the nation. Our
product offerings include:

* Network services - includes dedicated service between two points for a
customer's exclusive use. We offer this in both local and long-haul
applications and collocation facilities to meet us directly in our hub.

* Local telephone services - consists of the delivery of local dial tone
and related services, and related carrier and local access revenue.

* Long distance services - includes retail and wholesale long distance
phone services.

* Data services - includes a wide range of products to deliver large
quantities of data from one location to another through Asynchronous
Transfer Mode (ATM), Frame Relay and Internet Protocol packet technologies.
These technologies group data (voice, video, images and character-based
data) into small packets of information and transmit the packets over a
network.

Refer to Note 4 in Part I, Item 1, for a discussion concerning our
relationship with Citizens, which owns approximately 83% of our common
stock.

a. LIQUIDITY AND CAPITAL RESOURCES

We drew $94 million from our revolving bank credit facility (Credit
Facility) to fund operating and capital expenditures during the first half
of 2000. At June 30, 2000, we have approximately $46 million available
under our $400 million Credit Facility to fund future operating and capital
expenditures. No principal payment is due until the expiration date of the
Credit Facility in November 2002. Additionally, we have $325 million of
five-year senior unsecured notes outstanding with maturity on May 14, 2004.
The current portion of our long-term obligations is $28.9 million and
consists solely of capital lease obligations. Citizens has guaranteed both
the Credit Facility and our 6.05% five-year senior unsecured notes for fees
of 3.25% and 4.0%, respectively, based on the respective outstanding
balances.

We anticipate that the remaining funds available for draw on our Credit
Facility will be inadequate to fund operating leases, working capital
deficiencies, capital expenditures and debt service beyond the third
quarter 2000. Citizens will continue to finance our cash requirements at
market terms and conditions until the earlier of the completion of a public
or private financing which would provide the funds necessary to support our
cash requirements.

In order to continue the growth of our customer base and revenue stream, we
must continue to invest in the installation, development and expansion of
our existing communications networks. A significant portion of these
expenditures is incurred before any revenue is realized. Our capital
additions were approximately $167.5 million in the first half of 2000,
including $96.5 million in capital lease additions. These expenditures,
combined with our operating expenses, have resulted in operating losses and
negative cash flows. We expect to continue incurring operating losses and
negative cash flows until we can establish an adequate customer base
necessary to generate a revenue stream sufficient to support our
operations, capital requirements and debt service. We cannot provide
assurances that we will achieve or sustain profitability or generate
sufficient positive cash flow to fund our operating, capital expenditures
and debt service requirements.

We continue to evaluate opportunities to generate revenue growth through
making substantial investments in the continued development of our existing
networks, new long-haul routes and entry into new markets. These
opportunities may include acquisitions and/or joint ventures that are
consistent with our business plan of generating revenue growth through
expansion of our network and customer base. Any such acquisitions,
investments and/or strategic arrangements, if available, could require
additional financial resources and/or reallocation of our financial
resources.

-10-

OTHER MATTERS

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This statement establishes accounting and reporting standards for
derivative instruments and hedging activities and, as amended, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. The
statement requires balance sheet recognition of derivatives as assets or
liabilities measured at fair value. Accounting for gains and losses
resulting from changes in the values of derivatives is dependent on the use
of the derivative and whether it qualifies for hedge accounting. Management
has not yet assessed the impact SFAS No. 133 will have on our financial
statements.

RECIPROCAL COMPENSATION

On February 25, 1999, the FCC issued a Declaratory Ruling and Notice of
Proposed Rulemaking that categorized calls terminated to ISPs as "largely"
interstate in nature, which could have had the effect of precluding these
calls from reciprocal compensation charges. However, the ruling stated that
ILECs are bound by the existing interconnection agreements and the state
decisions that have defined them. The FCC gave the states authority to
interpret existing interconnection agreements. Since the FCC order, Oregon,
Washington, California, Utah and Arizona have ruled that calls terminated
to ISPs should be included in the calculation to determine reciprocal
compensation.

On March 24, 2000, the DC Circuit Court changed certain provisions of the
FCC's 1999 Declaratory Ruling. The DC Circuit Court is requiring the FCC to
again review the definitions of traffic that require inter-carrier
compensation. The FCC has been asked to specifically review the
compensation mechanisms for ISP-bound traffic. A decision regarding
inter-carrier compensation is expected in the fourth quarter 2000. We are
not currently able to determine the potential impact of that decision.

We have various interconnection agreements with Qwest (formerly U S West),
GTE and PacBell, the ILECs in the states in which we operate. We recognized
reciprocal compensation revenues of $10.4 million and $8.1 million for the
three months ended June 30, 2000 and 1999, respectively and $20.0 and $14.7
million for the six months ended June 30, 2000 and 1999, respectively. Net
trade accounts receivable relating to reciprocal compensation totaled $6.2
million and $14.9 million at June 30, 2000 and December 31, 1999,
respectively. These agreements are scheduled to expire between June 30 and
December 31, 2001. We cannot provide assurance that renewal of the
interconnection agreements will be in the same form, or at rates comparable
to the current interconnection agreements.

EXIT COSTS

In the third quarter 1999, we announced that we were eliminating our
prepaid calling card and videoconferencing products, effective November 1,
1999, and that we were consolidating our national retail sales efforts in
Dallas and closing six retail sales offices in the eastern United States by
October 8, 1999. As a result of both of these decisions, we eliminated 63
sales and sales support positions, and incurred charges relating to
employee severance and facility shutdown costs of $0.7 million and $0.8
million, respectively for the year ended December 31, 1999. In the first
half of 2000, we have incurred additional costs of $0.4 million related to
these decisions due to sublease and lease termination costs and additional
costs for terminated employees. The balance of the exit cost accrual at
June 30, 2000 of $0.2 million is included in Accounts Payable and Accrued
Liabilities on our balance sheet.

-11-

b. RESULTS OF OPERATIONS

REVENUE

Revenue increased $14.5 million, or 32% and $33 million, or 39%, for the
three and six months ended June 30, 2000, respectively, over the same
periods in 1999.

For the six months For the six months
ended June 30, ended June 30,
------------------------------ ------------------------------
% %
($ In thousands) 2000 1999 Change 2000 1999 Change
- ---------------- ------- ------- ------ -------- ------- ------

Network services ....... $17,173 $12,983 32% $ 33,177 $23,407 42%
Local telephone services 25,951 18,600 40% 50,225 32,908 53%
Long distance services . 4,265 9,245 (54%) 8,862 17,775 (50%)
Data services .......... 13,231 5,267 151% 25,134 10,221 146%
------- ------- -------- -------
Total ............. $60,620 $46,095 32% $117,398 $84,311 39%
======= ======= ======== =======

Network Services

Network Services revenue increased $4.2 million, or 32% and $9.8 million,
or 42% for the three and six months ended June 30, 2000, respectively, over
the same periods in 1999. The increase is due to continued growth in our
network and sales of additional circuits to new and existing customers.

Local Telephone Services

Local telephone services revenue increased $7.3 million, or 40% and $17.3
million, or 53%, for the three and six months ended June 30, 2000,
respectively, over the same periods in 1999. Local telephone services
include dial tone, ISDN PRI, Carrier Access Billings and reciprocal
compensation.

ISDN PRI revenue increased $3.0 million, or 55% and $7.1 million, or 77%,
for the three and six months ended June 30, 2000, respectively, over the
same periods in 1999. Dial tone revenue increased $1.0 million or 33% and
$3.0 million, or 52%, for the three and six months ended June 30, 2000,
respectively, over the same periods in 1999. Increases in revenue for both
ISDN PRI and dial tone is the result of an increase in the average access
line equivalents of 74,742, or 62% and 78,336, or 71%, for the three and
six months ended June 30, 2000, respectively.

Carrier Access Billings revenue increased $0.9 million, or 43% and $1.7
million, or 50%, for the three and six months ended June 30, 2000,
respectively, over the same periods in 1999. The increase is due to an
increase in average monthly minutes processed of 15.3 million, or 77% and
12.6 million, or 70% for the three and six months ended June 30, 2000,
respectively, offset by lower average rates per minute due to competitive
pressures in the markets in which we operate.

Reciprocal compensation revenue increased $2.4 million, or 29% and $5.5
million, or 38%, for the three and six months ended June 30, 2000,
respectively, over the same periods in 1999. The increase is due to
interconnection agreements being in place with GTE and PacBell during the
three and six months ended June 30, 2000 to record reciprocal compensation
revenue that were not in place for the same periods in 1999. The increase
was offset by decreased revenue from Qwest due to lower rates applicable to
new interconnection agreements effective January 1, 2000. See "Part I.,
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Other Matters - Reciprocal
Compensation" for further discussion of reciprocal compensation.

-12-

Long Distance Services

Long distance services revenue decreased $5.0 million, or 54% and $8.9
million, or 50%, for the three and six months ended June 30, 2000,
respectively, over the same periods in 1999. Long distance services include
retail long distance, wholesale long distance and prepaid services.

Retail long distance revenue increased $0.6 million, or 37% and $1.6
million, or 57%, for the three and six months ended June 30, 2000,
respectively, over the same periods in 1999. The increase is due to an
increase in average monthly minutes processed of 4.5 million, or 81% and
4.4 million, or 82% for the three and six months ended June 30, 2000,
respectively, offset by lower average rates per minute.

Wholesale long distance revenue decreased $0.5 million, or 24% and
increased $0.6 million, or 19%, for the three and six months ended June 30,
2000, respectively, over the same periods in 1999. The increase is due to
an increase in average monthly minutes processed of 0.2 million, or 1% and
3.0 million, or 20% for the three and six months ended June 30, 2000,
respectively, offset by lower average rates per minute.

Prepaid services revenue decreased $5.1 million, or 92% and $11.1 million,
or 95%, for the three and six months ended June 30, 2000, respectively,
over the same periods in 1999, due to our decision to exit the prepaid
services market in the third quarter of 1999.

Data Services

Data services revenue increased $8.0 million, or 151% and $14.9 million, or
146%, for the three and six months ended June 30, 2000, respectively, over
the same periods in 1999. Data services include Internet, RSVP and other
services.

Revenue from our Internet services product increased $1.9 million, or 71%
and $3.5 million, or 74%, for the three and six months ended June 30, 2000,
respectively, over the same periods in 1999, as a result of an increase in
Internet routers installed from 42 to 63, or 50%. Revenue from our RSVP
products increased $0.6 million, or 294% and $1.1 million, or 330%, for the
three and six months ended June 30, 2000, respectively, over the same
periods in 1999.

Data services revenue also includes $5.0 million and $9.9 million in
revenue for the three and six months ended June 30, 2000, respectively,
from an 18-month take-or-pay contract with a significant customer that
expires on February 28, 2001. The take-or-pay contract will provide $20
million in revenue for 2000. There is no assurance this take-or-pay
contract will be renewed in 2001.

OPERATING EXPENSES

Operating expenses increased $5.8 million, or 8% and $14.0 million, or 10%,
for the three and six months ended June 30, 2000, respectively, over the
same periods in 1999. This was due to growth in our network and customer
base, as well as the expansion of our sales force and increased
plant-in-service. However, the increase was partially offset by lower
access costs.

Network access ..... $18,294 $23,702 (23%) $ 38,990 $ 48,926 (20%)
Operations ......... 13,446 9,633 40% 25,021 18,667 34%
Selling, general and
administrative .. 30,315 29,447 3% 61,487 56,214 9%
Depreciation and
amortization .... 14,721 8,150 81% 27,476 15,144 81%
------- ------- -------- --------
Total ......... $76,776 $70,932 8% $152,974 $138,951 10%
======= ======= ======== ========

-13-

Network Access

Network access expenses include resold product expenses. The primary
components are usage-based charges for carrying and terminating traffic on
another carrier's network.

Network access expenses for the three and six months ended June 30, 2000
decreased $5.4 million, or 23% and $9.9 million, or 20%, respectively,
compared to the same periods in 1999. This net decrease is the result of
reductions in prepaid phone card expenses and favorable resolution of prior
year disputes with vendors of approximately $1.5 million, partially offset
by increased costs related to increased revenue growth.

We exited the prepaid phone card business during third quarter 1999 and as
a result related costs decreased $5.5 million and $14.0 million for the
three and six months ended June 30, 2000, respectively. The termination of
this program has resulted in a significant decrease in the minutes
purchased.

Our revenue growth was 32% and 39% for the three and six months ended June
30, 2000, respectively, over the same periods in 1999. Network access
expense did not increase as quickly as revenue as a result of our
completion of portions of our long-haul route and utilizing our route to
transport traffic instead of leasing from vendors, the fact that there are
minimal costs associated with the take-or-pay contract discussed in Data
revenue, the favorable resolution of prior year disputes with vendors
as discussed above, as well as renegotiated agreements with vendors to
minimize our off-net costs.

Operations

Operations expenses consist of costs related to providing facilities based
network and enhanced communications services other than network access
costs. The primary components of these expenses are right-of-way and
telecommunications equipment leases as well as operations and engineering
personnel costs.

Operations expenses for the three and six months ended June 30, 2000
increased $3.8 million, or 40% and $6.4 million, or 34%, respectively, over
the same periods in 1999. This was primarily due to increases in payroll,
operating rents and related expenses to support the expanded delivery of
services.

Selling, General and Administrative

Selling, general and administrative expenses include all direct and
indirect sales channel expenses and commissions, as well as all general and
administrative expenses.

Selling, general and administrative expenses for the three and six months
ended June 30, 2000 increased $0.9 million, or 3% and $5.3 million, or 9%,
respectively, over the same period in 1999. This was primarily due to
increases in property taxes, maintenance and related expenses to support
the delivery of services in existing and new markets.

Depreciation and Amortization

Depreciation and amortization expenses include depreciation of
communications network assets including fiber-optic cable, network
electronics, network switching and network data equipment.

Depreciation and amortization expense for the three and six months ended
June 30, 2000 increased $6.6 million, or 81% and $12.3 million, or 81%,
respectively, over the same periods in 1999. This was primarily due to
higher plant in service balances for newly completed communications network
facilities and electronics.

-14-

INTEREST EXPENSE AND INTEREST INCOME AND OTHER

For the three months ended June 30, For the six months ended June 30,
----------------------------------- ---------------------------------
% %
($ In thousands) 2000 1999 Change 2000 1999 Change
- ---------------- -------- ------- ------ -------- -------- ------

Gross interest expense $ 19,899 $ 11,015 81% $ 37,128 $ 19,334 92%
Capitalized interest . (1,237) (2,949) (58%) (3,270) (6,167) (47%)
-------- ------- -------- --------
Interest expense, net ..... $ 18,662 $ 8,066 131% $ 33,858 $ 13,167 157%

Loss on disposal
of assets ............ $ 209 $ 195 7% $ 775 $ 195 297%
Interest income
and other ............ (315) (193) 63% (593) (515) 15%

Gross interest expense increased $10.6 million, or 131% and $20.7 million,
or 157%, for the three and six months ended June 30, 2000, respectively,
over the same periods in 1999, primarily due to higher levels of
outstanding long-term debt and higher interest rates. As of June 30, 2000,
we had long-term debt outstanding of $679 million compared to $455 million
at June 30, 1999. The higher balance led to increased interest and
guarantee fees.

Capitalized interest decreased $1.7 million, or 58% and $2.9 million, or
47%, for the three and six months ended June 30, 2000, respectively, over
the same periods in 1999. The decreases are due to reductions in average
Construction Work In Process of $91.9 million, or 64% and $73.0 million, or
52%, for the three and six months ended June 30, 2000, respectively, over
the same periods in 1999, partially offset by higher interest rates.

Loss on disposal of assets is primarily due to equipment turnover and
technical upgrades. Interest income and other is primarily comprised of
interest earned on cash balances.

INCOME TAX EXPENSE

Income tax expense........ $ 246 $ 300 (18%) $ 481 $ 670 (28%)

Income tax expense decreased $0.1 million, or 18% and $0.2 million, or 28%,
for the three and six months ended June 30, 2000, respectively, over the
same periods in 1999. In both 2000 and 1999, the benefit of our tax loss
carryforwards is not able to fully offset the deferred tax expense
associated with current year temporary differences.

-15-

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------

We are exposed to minimal market risks. Sensitivity of results of
operations to these risks is managed by maintaining a conservative
investment portfolio, which is comprised solely of money market funds, and
entering into long-term debt obligations with appropriate price and term
characteristics. We do not hold or issue derivative instruments, derivative
commodity instruments or other financial instruments for trading purposes.
Financial instruments held for other than trading purposes do not impose a
material market risk.

We are exposed to interest rate risk, as additional financing is
periodically needed due to the large operating losses and capital
expenditures associated with establishing and expanding our communications
networks. The interest rate that we will be able to obtain on debt
financing will depend on market conditions at that time, and may differ
from the rates we have secured on our current debt. Additionally, we are
exposed to interest rate risk on amounts borrowed against our credit
facility and construction agency agreement as of June 30, 2000. Our credit
facility and construction agency agreement are guaranteed by Citizens. The
construction agency agreement and advances against the credit facility
periodically renew, at which point the borrowings are subject to the then
current market interest rates, which may differ from the rates we are
currently paying on our borrowings.

We reduced our interest rate risk by issuing $325 million, five-year senior
unsecured notes in April 1999 that are guaranteed by Citizens. The notes
have a fixed interest rate of 6.05%, and we pay Citizens an annual
guarantee fee of 4.0%. We used the net proceeds from the issuance to repay
outstanding borrowings under our floating rate bank credit facility.

-16-

PART II: OTHER INFORMATION
--------------------------

ITEM 1. LEGAL PROCEEDINGS
- -------------------------

During the second quarter, we resolved our dispute with Bonneville Power
Administration (as discussed in Item 3 of our 1999 Form 10-K) regarding the
exclusive use of our long-haul facilities connecting Portland, Seattle and
Spokane, as well as a portion of our long-haul route from Portland to
Sacramento. We now have the exclusive use of certain fibers on these
facilities for 20 years. This right may be extended through the mutual
agreement of both parties.

We are party to routine litigation arising in the normal course of
business. We do not expect these matters, individually or in the aggregate,
to have a material adverse effect on our financial position, results of
operations or cash flows. We are also party to various proceedings before
state Public Utilities Commissions. These proceedings typically relate to
authority to operate in state and regulatory arbitration proceedings
concerning our interconnection agreements. See "Part I., Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Other Matters - Reciprocal Compensation".

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- -------------------------------------------------

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
- ----------------------------------------------------------

We held our 2000 Annual Meeting of the Stockholders on May 18, 2000 to
elect directors as discussed in the Company's proxy statement filed on
March 31, 2000.

The following persons were elected directors to hold office until the next
annual meeting and until their successors have been elected and qualified:

Votes
------------------------------------
For (*) Abstained
----------------- --------------
Rudy J. Graf 418,906,672 214,050
Guenther E. Greiner 419,087,809 32,918
Stanley Harfenist 419,087,809 32,918
Scott N. Schneider 418,906,722 214,005
David B. Sharkey 418,906,773 213,954
Robert A. Stanger 419,086,862 33,866
Leonard Tow 419,085,352 35,375
Maggie Wilderotter 419,087,662 33,065

(*) Includes votes from the 41,165,000 shares of Class B common stock.
Citizens owns all Class B Common Stock and each share is entitled to 10
votes on each matter to be voted upon by holders of the Common Stock.

-17-

ITEM 5. OTHER INFORMATION
- -------------------------

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------

a) The exhibits below are filed as part of this report:

Exhibit No. Description
----------- -----------
10.25 * Settlement Agreement between the United States of America
Department of Energy acting by and through the Bonneville
Power Administration and us dated May 15, 2000.
10.26 * License Agreement between the United States of America
Department of Energy acting by and through the Bonneville
Power Administration and us dated May 15, 2000.
10.27 Guaranty Agreement between the United States of America
Department of Energy acting by and through the Bonneville
Power Administration and Citizens Utilities Company dated
May 15, 2000.
27.1 Financial Data Schedule for the six months ended June 30, 2000.

* Confidential material has been omitted pursuant to a request for confidential
treatment. Such material has been filed separately with the Securities and
Exchange Commission.

b) Reports on Form 8-K

On May 16, 2000, we filed a current report on Form 8-K, under Item 5,
"Other Events", to make available a press release dated May 15, 2000,
regarding our first quarter 2000 financial results.

-18-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

ELECTRIC LIGHTWAVE, INC.
(Registrant)

By: /s/ Kerry D. Rea
--------------------------------------------
Kerry D. Rea
Vice President and Controller

By: /s/ Robert J. Larson
--------------------------------------------
Robert J. Larson
Vice President and Chief Accounting Officer

August 9, 2000

-19-