10-K

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                   FORM 10-K

        
(MARK ONE)

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

              FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                  OR

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

                     COMMISSION FILE NO. 000-23087



                   STARTEC GLOBAL COMMUNICATIONS CORPORATION
             (Exact name of registrant as specified in its charter)

                                                 
                     DELAWARE                                           52-2099559
         (State or Other Jurisdiction of                             (I.R.S. Employer
          Incorporation or Organization)                           Identification No.)



                             10411 MOTOR CITY DRIVE
                               BETHESDA, MD 20817
                    (Address of principal executive offices)

                                 (301) 365-8959

              (Registrant's telephone number, including area code)

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

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

                    COMMON STOCK, PAR VALUE $0.01 PER SHARE
                                (Title of class)

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

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

    Non-affiliates of the Registrant held approximately 8,123,119 shares of
Common Stock as of March 22, 2000. The fair market value of the stock held by
non-affiliates is approximately $218,816,518 based on the sale price of the
shares on March 22, 2000.

    As of March 22, 2000, 12,109,410 shares of Common Stock, par value $0.01,
were outstanding.

                   DOCUMENTS INCORPORATED BY REFERENCE: None.

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                                     PART I

NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements are statements other than historical information or statements of
current condition. Some forward-looking statements may be identified by use of
terms such as "believes", "anticipates", "intends", or "expects". These
forward-looking statements relate to the plans, objectives and expectations of
Startec Global Communications Corporation (the "Company" or "Startec") for
future operations. In light of the risks and uncertainties inherent in all
forward-looking statements, the inclusion of such statements in this Form 10-K
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved or that any of the
Company's operating expectations will be realized. The Company's revenues and
results of operations are difficult to forecast and could differ materially from
those projected in the forward-looking statements contained herein as a result
of certain factors including, but not limited to, dependence on operating
agreements with foreign partners, significant foreign and U.S.-based customers
and suppliers, availability of transmission facilities, U.S. and foreign
regulations, international economic and political instability, dependence on
effective billing and information systems, customer attrition, significant
industry competition and rapid technological change. These factors should not be
considered exhaustive; the Company undertakes no obligation to release publicly
the results of any future revisions it may make to forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

ITEM 1. BUSINESS

OVERVIEW

    We are a rapidly growing, facilities-based provider of integrated
communications services, including voice, data and Internet access services.
Founded in 1989, we market our services to select ethnic residential communities
located in major metropolitan areas, and to leading international long distance
carriers. We provide our services through a flexible network of owned and leased
facilities, operating and termination agreements and resale arrangements.
Additionally in 1999, we embarked upon three Internet initiatives: (i) Internet
access for residential customers; (ii) global ethnic Web communities; and
(iii) the deployment of a world-class Internet Protocol (IP) network to offer
our customers toll-quality voice services, as well as high speed transmission of
data and Internet traffic.

    Our mission is to become the leading provider of voice, data and Internet
services to select ethnic communities, located in major metropolitan areas in
North America, Europe and the Asia Pacific Rim. Our targeted ethnic markets,
comprised of ethnic communities from the Asia Pacific Rim, the Middle East and
North Africa, Russia and Central Europe and Latin and South America, have a
strong demand for communication services to the emerging economies. To achieve
our mission, we have developed three core competencies: (i) targeted ethnic
marketing and in-language customer service; (ii) deployment of advanced
technologies into the emerging economies; and (iii) deployment of IP
transaction-based technology to provide voice, data and Internet services on a
seamless network. In 1999, we transmitted approximately one billion minutes of
voice traffic into the emerging economies.

1999 KEY ACCOMPLISHMENTS

    During 1999, we began to capitalize on our strong presence in ethnic
communities by expanding the services we offer. Our strategy is to facilitate
our continued expansion into emerging economies by expanding telecommunications
and Internet services for our residential customers. The following are our six
key accomplishments in 1999:

    1.  We replaced and converted all of our internal support systems, including
       customer service and billing and office automation processes, to IP
       transaction-based technology. We replaced all of

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       our personal computer-based systems with new systems, using IBM Thin
       Client Servers for our customer service centers and Oracle databases for
       our billing and reporting systems. We now have back-office systems that
       are scalable to accommodate increased traffic volume, additional
       telecommunications services and enhanced Internet services.

    2.  To complement our Internet access services, we began launching a series
       of global ethnic Web (virtual) communities through our online brand,
       eStart. In 1999, we launched the Arab and Iranian communities. We have
       since added Turkish and Indian communities for a total of four Web
       communities on eStart. Each Web community is distinct with localized
       content and services, but all are linked by a single, global eStart
       gateway page. The communities feature news, entertainment, weather and
       sports that are culturally tailored, as well as online discussion forums,
       topic-based chat rooms and communication tools. All the communities are
       linked by a single-entry gateway page that allows users to customize the
       content according to their preferences. By the end of 2000, we expect to
       have a total of nine ethnic Web communities, including Chinese, Russian,
       Polish, Israeli and Latin American communities.

    3.  We began offering our customers bundled dial-1 and Internet access
       services. Our ethnic residential customers access our network by either
       selecting us as their primary long-distance carrier (dial-1 services), by
       dialing a carrier identification code prior to dialing the number they
       are calling (dial-around), or by using a toll free or 800 access number.
       For our U.S., dial-1 customers who bill $60 or more per month, we now
       offer free, unlimited Internet access.

    4.  We deployed 50 IP gateways, predominantly in the emerging economies. IP
       technology provides several advantages for us: (i) it reduces traffic
       termination costs; (ii) it increases bandwidth utilization on long-haul
       circuits; (iii) it enables us to offer enhanced services, such as
       Internet access, for select residential customers in North America,
       Europe and Asia Pacific Rim, data and high-speed Internet services for
       corporate customers, as well as video services and other broadband
       applications; and (iv) it reduces our reliance on the network facilities
       of other carriers.

    5.  We completed three Web hosting/data centers in New York, Los Angeles and
       Miami. These data centers will allow us to offer Web hosting, collocation
       facilities and high-speed Internet connectivity to commercial business
       customers, foreign-based Internet Service Providers and other
       telecommunications providers.

    6.  Our North American operations achieved positive EBITDA (Earnings Before
       Interest, Taxes, Depreciation and Amortization) in the fourth quarter of
       1999, six quarters after initiating the build out of our North American
       network. EBITDA for our North American operations was approximately
       $200,000 in the fourth quarter of 1999.

GLOBAL NETWORK

    We are building a state-of-the-art network using a combination of Internet
Protocol, Asynchronous Transfer Mode (ATM) and circuit-switched technologies to
provide connectivity to the emerging economies of the world, allowing us to
integrate voice, data, Internet and video services on a seamless network,
supported by a backbone of scalable, IP transaction-based technology.

    Our network currently consists of eight domestic and international switches,
60 IP gateways, 20 Points of Presence (installations of scalable
telecommunications equipment, commonly known as POPs) and ownership interests on
15 undersea fiber optic cable systems linking North America with Europe, the
Pacific Rim, Asia and Latin America, as well as linking the East and West Coasts
of the United States. Our network includes major switching centers in New York,
Los Angeles, Miami, Paris, London, Dusseldorf and Guam. To facilitate the
termination of calls overseas, we are a party to interconnection agreements with
50 incumbent local carriers in foreign countries, commonly known as PTTs, and
other competitive carriers covering 44 countries, primarily in the emerging
economies.

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MARKETING STRATEGY

    Our marketing model consists of a highly-focused niche marketing approach to
the international communications market. We identify and target ethnic
communities concentrated in major metropolitan areas by conducting extensive
demographic and competitive analysis. We employ sophisticated database marketing
techniques and a variety of media to reach our targeted ethnic residential
customers, including print advertising in ethnic newspapers, advertising on
ethnic radio and television stations, direct mail, sponsorship of ethnic events
and customer referrals.

    Our strategy is to provide overall value to our customers by combining
competitive pricing and high levels of service, rather than to compete on the
basis of price alone. We operate three customer service centers in Maryland,
Guam and France, which are staffed by trained, multilingual customer service
representatives, and operate 24 hours a day, seven days a week. We believe that
our focused marketing programs and our dedication to customer service enhance
our ability to attract and retain customers in a low-cost, efficient manner.

    To achieve economies of scale in our network operations and to balance our
residential traffic flow, we market our excess network capacity to international
carriers seeking competitive rates and high-quality transmission capacity. Since
initiating our international wholesale services in 1995, we have expanded the
number of wholesale carrier customers to 105 at December 31, 1999. For the year
ended December 31, 1999, carrier customers accounted for approximately 71.2% of
Startec's net revenues.

BUSINESS STRATEGY

    Our mission is to become the leading provider of voice, data and Internet
services to select ethnic communities, located in major metropolitan areas in
North America, Europe and the Asia Pacific Rim. Our targeted ethnic markets,
comprised of ethnic communities from the Asia Pacific Rim, the Middle East and
North Africa, Russia and Central Europe and Latin and South America, have a
strong demand for communication services to the emerging economies. To achieve
our mission, we have developed three core competencies: (i) targeted ethnic
marketing and in-language customer service; (ii) deployment of advanced
technologies into the emerging economies; and (iii) deployment of IP
transaction-based technology to provide voice, data and Internet services on a
seamless network. In 1999, we transmitted approximately one billion minutes of
voice traffic into the emerging economies.

    Our telecommunications and Internet-driven initiatives capitalize on our
contacts in the different ethnic communities and enable us to provide a distinct
lineup of strategic partners who can deliver content, traffic and an array of
e-commerce opportunities. Our strategy relies on the following initiatives:

    - INCREASE SERVICE OFFERINGS TO ETHNIC COMMUNITIES. In 1999, we began
      offering bundled long distance and Internet access services to ethnic
      residential customers in 20 major metropolitan areas in the United States.
      We seek to increase our penetration of our existing and prospective
      markets and to increase our average revenue per customer by:
      (i) marketing our bundled long distance and Internet access services to
      our existing long distance customer base; (ii) migrating our dial-around
      customers to dial-1 services; and (iii) offering additional communications
      services through our global Web communities on eStart.

    - EXPAND OUR ADDRESSABLE MARKET. Our geographic target markets consist of
      ethnic communities located in major urban areas in North America, Europe
      and the Asia Pacific Rim. We currently provide bundled long distance and
      Internet access services to ethnic residential customers in 20 major
      metropolitan areas in the United States. Additionally, we provide long
      distance services to customers in ten Canadian and European cities and in
      Guam. We have also identified 40 major markets outside of the United
      States, primarily in Europe and the Asia Pacific Rim, which we believe are
      attractive for entry based on the demographic characteristics, traffic
      patterns, regulatory environment and availability of appropriate
      advertising channels. We anticipate expanding our

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      services to additional European cities and to Hong Kong, India and other
      Asia Pacific Rim locations in 2000.

    - ACHIEVE "FIRST-TO-MARKET" ENTRY OF SELECT ETHNIC RESIDENTIAL MARKETS. We
      believe that we possess significant competitive advantages by establishing
      a customer base and brand name in select ethnic residential communities
      ahead of our competitors. We intend to capitalize on our proven marketing
      strategy to further penetrate ethnic communities in North America, Europe
      and the Asia Pacific Rim ahead of our competitors. We select our target
      markets based on favorable demographics with respect to long distance
      telephone usage, level of personal computer (PC) penetration, level of
      Internet usage, availability of alternative Internet access devices,
      immigration patterns, population growth and income levels. Targeting
      select ethnic communities also enables us to aggregate traffic along
      certain routes, which reduces our network costs, and allows us to focus on
      rapidly expanding and deregulating telecommunications markets. Our target
      residential customer base is comprised of immigrants from the emerging
      markets in the Asia Pacific Rim, the Middle East and North Africa, Central
      Europe and Russia and Latin and South America.

    - BUILD CUSTOMER LOYALTY THROUGH THE CREATION OF A GLOBAL ETHNIC BRAND. We
      seek to build long-term customer loyalty through tailored, in-language
      marketing efforts focusing on each target ethnic community's specific
      needs and cultural background. We market our residential services under
      two brands, "Startec" and "10-10-719" to capture both dial-1 and
      dial-around customers. Additionally, we have created the "eStart" brand
      for our global ethnic Web communities. We intend to build strong brand
      recognition and loyalty among ethnic communities in cities worldwide and
      to introduce new communication services and products under these brand
      names. We maintain a detailed database of information on our customers,
      which we use to monitor their usage, track their level of satisfaction and
      to analyze a variety of customer behaviors, including retention and
      frequency of usage.

    - ESTABLISH A STRONG INTERNET PRESENCE THROUGH THE LAUNCH OF GLOBAL ETHNIC
      WEB COMMUNITIES. In 1999, we began launching a series of nine global
      ethnic Web (virtual) communities through our online brand, eStart. Each
      Web community encompasses a specific culture that may be comprised of one
      or more nation states. To date, we have launched Arab, Iranian, Turkish
      and Indian virtual communities. During 2000, we expect to launch Web
      communities targeting the Chinese, Russian, Polish, Israeli and Latin
      American communities. These Web communities feature culture-specific
      content, including news, entertainment, sports and weather; interactive
      applications, such as on-line discussion forums on family, religious and
      political issues; and communication tools. In 2000, features to be added
      include expanded in-language content, universal messaging, an e-commerce
      retail marketplace and business-to-business exchange within emerging
      markets and broadband applications.

    - MARKET ENHANCED VOICE, DATA AND INTERNET SERVICES TO COMMERCIAL BUSINESS
      CUSTOMERS. We will begin targeting two types of commercial business
      customers in 2000 with our voice, data and high-speed Internet services:
      (i) ethnic small and medium-sized enterprises, and (ii) mid-sized business
      customers with telecommunications expenditures ranging from $2,500 to
      $25,000 per month. For the ethnic corporate customer market, we will
      leverage our ethnic media channels, community relationships and ethnic
      brand to market our long distance, dial-up Internet access and digital
      subscriber line (DSL) services. We will utilize our in-language call
      centers to provide full-service customer support and technical assistance.
      For mid-sized business customers, we seek to provide a full range of
      communications services, including long distance, dial-up Internet access,
      DSL, domestic and international private line services, virtual private
      networks, Web hosting, collocation, ATM and frame relay services.

    - EXPAND INTERNATIONAL NETWORK FACILITIES. In 1999, we expanded our
      international network facilities by deploying additional switches, POPs
      and ATM/IP technology, and we will continue this expansion in 2000. We
      operate a network consisting of domestic and international switches, POPs,
      IP gateways

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      and ownership interests in undersea fiber optic cables. Our network spans
      over 35 countries and includes major switching centers in New York, Los
      Angeles, Miami, Paris, London, Dusseldorf and Guam. The POPs aggregate
      traffic from a surrounding region and route it to one of our main
      switching centers. We have significantly improved the quality of our
      network by upgrading our monitoring and routing systems and by replacing
      and converting all of our supporting technology, including customer
      service, billing and office automation processes to Web-enabled
      technology. In 1999, we replaced all of our PC-based systems with new
      systems, using IBM Thin Client Servers for our customer service centers
      and Oracle databases for our billing and reporting systems. We also opened
      two new call centers in Guam and Paris and greatly expanded our existing
      call center in Maryland.

    - DEPLOY IP CAPABILITIES THROUGHOUT OUR NETWORK. To seize the new
      opportunities available through the convergence of voice and data traffic,
      we have begun deploying a world-class ATM/IP network, primarily accessing
      emerging economies. In 1999, we deployed a network consisting of
      approximately 50 IP gateways with access to 20 countries and in 2000, we
      integrated another network of ten IP gateways into our existing IP
      network. The IP gateways facilitate the transmission of voice and data
      traffic on our network through packet switching. We will continue to
      enhance our network with ATM/IP capabilities in 2000. Installing IP
      technology throughout our international network facilities provides us
      with several advantages: (i) it reduces traffic termination costs;
      (ii) it increases bandwidth utilization on long-haul circuits; (iii) it
      enables us to offer enhanced services, such as Internet access for select
      ethnic residential customers in North America, Europe and the Asia Pacific
      Rim, data and high-speed Internet services for corporate customers and
      video services and other broadband applications; and (iv) it reduces our
      reliance on the network facilities of other carriers.

    - EXPAND WEB HOSTING/DATA CENTERS. In 1999, we completed the construction of
      three data centers located in New York, Los Angeles and Miami. In 2000, we
      intend to open additional data centers in the emerging economies,
      initially in Hong Kong and India. These data centers will allow us to
      offer three primary services: (i) Web hosting; (ii) collocation; and
      (iii) high-speed Internet connectivity. Our objective is to provide
      Internet system management solutions for ethnic and mid-sized corporate
      customers, other telecommunications carriers and foreign-based ISPs,
      particularly those from the emerging economies. Our services will include
      our three U.S. data centers, network management, technical assistance,
      public and private network interconnections and scalability to accommodate
      increases in traffic volume. Our services will enable our target customers
      to outsource the monitoring, administration and optimization of their data
      and Internet equipment, while obtaining high-speed Internet connectivity.

    - PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. In order to accelerate our
      business plan and take advantage of the rapidly changing
      telecommunications and Internet environments, we are carefully evaluating
      and pursuing strategic acquisitions, alliances and investments.

    We are devoting substantial resources to the buildout of our network and the
development and expansion of our marketing programs. As part of our network
deployment and marketing strategies, we are pursuing various acquisitions and
alliances. In 1999 and early 2000, we completed ten acquisitions and
investments, which have accelerated our entry into global markets and have
provided us with important licensing and network capabilities:

    - During the first quarter of 2000, Startec acquired Vancouver Telephone
      Company. Vancouver Telephone Company provides domestic and international
      long distance services in Canada to over 50,000 residential customers.
      Vancouver Telephone Company markets its telephone services to ethnic
      communities in Canada, including Taiwanese, Chinese, Romanian and Serbian
      communities.

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    - During the first quarter of 2000, we acquired 19.9% of the issued and
      outstanding shares of DataLink Telecommunications Ltd. DataLink provides
      us with access to several additional IP gateway facilities in the emerging
      economies.

    - During the first quarter of 2000, we acquired several IP termination
      facilities from various vendors. We have integrated these facilities into
      our IP network and have launched Voice over IP services as a new line of
      business in the first quarter of 2000.

    - During the first quarter of 2000, we acquired DLC Enterprises Inc., a New
      York-based telecommunications company, which offers dial-1, debit card and
      ISP services. DLC provides Startec with a strong management and sales
      force, proprietary billing and customer provisioning software and small
      business revenue. The acquisition of DLC facilitates the introduction of
      commercial services for ethnic and mid-sized business customers.

    - During the first quarter of 2000, we acquired Global Villager Inc., the
      owner of a leading bilingual Chinese/English Web community,
      DragonSurf.com. DragonSurf.com provides a vast range of content and
      services on its Web site for the Greater Chinese community.

    - In December 1999, we acquired the balance of the outstanding stock (100%
      of all common stock) of SigmaNet Network Corporation, a company that
      provides Internet services under the name of IAOL, including Internet
      access and a Web portal for the Asian Indian community.

    - In July 1999, we acquired the fixed assets and customers of Worldwide
      Telecommunications Company Limited, Infinity Telecommunications Limited
      and Pacific Direct, Inc. Worldwide Group provides voice and data services
      to businesses and individuals in the Hong Kong, China region.

    - In May 1999, we entered into an agreement to acquire up to a 49% ownership
      interest in Dialnet Communications Limited. This company provides
      value-added voice, data and Internet services in India.

    - In February 1999, we acquired 64.6% of the issued and outstanding shares
      of Phone Systems and Network, Inc. of France, a French switch-based
      reseller of long distance services. We acquired an additional 20.4%
      ownership interest through a cash tender offer for a total ownership
      interest of approximately 85%. Phone Systems and Network is a facilities
      based provider in France and operates switches in Paris and Switzerland
      with additional capacity on a switch located in the United Kingdom. Phone
      Systems and Network also provides services on a switchless reseller basis
      in Belgium. Its shares are traded on the Nouveau Marche Exchange in
      France.

    - In February 1999, we acquired a 20% equity ownership interest in BCH
      Holdings, Inc, a reseller of international voice and a licensed Internet
      service provider in Poland.

KEY MANAGEMENT EXECUTIVES

    To execute our business strategy, we have an extensive management team of
highly-experienced professionals.

    OFFICE OF THE PRESIDENT--

    Ram Mukunda--Founder, Chairman and Chief Executive Officer. Prior to
founding Startec, Mr. Mukunda was an advisor in strategic planning at Intelsat,
an international consortium responsible for global satellite services. While at
INTELSAT, he was responsible for issues relating to corporate, business,
financial and strategic planning. Mr. Mukunda earned an M.S. in electrical
engineering from the University of Maryland.

    ACCOUNTING AND FINANCE, MERGERS AND ACQUISITIONS, CORPORATE DEVELOPMENT--

    Prabhav Maniyar--Chief Financial Officer. Mr. Maniyar joined Startec in
January 1997. From June 1993 until 1997, he was the chief financial officer of
Eldyne, Inc., Unidyne Corporation and

                                       6

Diversified Control systems, LLC, collectively known as the Witt Group of
Companies. The Witt Group of Companies was acquired by the Titan Corporation in
May 1996. From June 1985 to May 1993, he held progressively more responsible
positions with NationsBank, now Bank of America.

    Subhash Pai--Vice President and Controller. Mr. Pai has been with Startec
since January 1992. Prior to joining Startec, he held various positions with a
multinational shipping company in India.

    Bela Daruwala--Assistant Vice President and Assistant Controller.
Ms. Daruwala has worked at Startec since April 1998. Prior to joining Startec,
she was a manager of financial reporting with Snyder Communications and Nortel
Networks.

    Francois Caron--Controller, European Operations. Mr. Caron joined Startec in
January 2000. Prior to joining Startec, he was the corporate director of cost
control at Global One, a joint venture with France Telecom, Deutsche Telekom and
Sprint, and the European controller for BULL, a French-based, worldwide IT
organization.

    Vijay Rao--Vice President, Finance. Mr. Rao joined Startec in January 2000.
Prior to joining Startec, he was vice president, strategic planning at Sony
Music Entertainment.

    LEGAL AFFAIRS--

    Yolanda Stefanou Faerber--Associate General Counsel and Corporate Secretary.
Ms. Faerber has been with Startec since January 1999. Previously, she was
associated with Piper & Marbury, LLP and with Shulman, Rogers, Gandal, Pordy &
Ecker, PA, where Ms. Faerber was counsel to Startec during its initial public
offering.

    GLOBAL CONSUMER AND CORPORATE MARKETING--

    John H. Wolaver--Chief Operating Officer, North American Operations.
Mr. Wolaver joined Startec in January 2000. Prior to joining Startec, he was
executive vice president and chief operating officer of United Telesis.
Mr. Wolaver has worked for leading U.S. telecommunications companies, including
MCI and Sprint, where he directed corporate sales and marketing programs.

    Martin Hudock--Senior Vice President, Customer Care. Mr. Hudock has worked
at Startec since June 1999. Prior to joining Startec, Mr. Hudock was the
president and chief operating officer of Ax Telecommunications and MetroComm.

    T.J. Master--Vice President, Global Consumer Marketing. Mr. Master joined
Startec in April 1999 and had previously directed Startec's marketing department
from 1993 to 1998. Prior to rejoining Startec, he was a group manager of global
marketing and product development at Teleglobe.

    Mark Saccente--Vice President, Commercial Services. Mr. Saccente joined
Startec in July 1999. Prior to joining Startec, he was an executive vice
president of sales and marketing at American International Telephone and has
held various corporate sales and marketing positions at WorldCom, Sprint and
Cable and Wireless.

    Joe Ferrara--Assistant Vice President, Global Consumer Marketing.
Mr. Ferrara has worked at Startec since June 1998. Prior to joining Startec, he
was a manager of operator services at MCI.

    NETWORK ENGINEERING AND OPERATIONS--

    Gustavo Pereira--Chief Technology Officer. Mr. Pereira has worked at Startec
since August 1995. Previously, he served as the director of switching systems
for Marconi, an affiliate of Blue Carol Enterprises and Portugal Telecom.

    Dewey Yen--Assistant Vice President, Engineering and Planning. Mr. Yen has
worked at Startec since July 1998. Prior to joining Startec, he was the vice
president of operations at US LEC and the director of engineering at ACSI, now
Espire.

                                       7

    Akbar Merchant--Assistant Vice President, Operations. Mr. Merchant has
worked at Startec since December 1996. Prior to joining Startec, he was a
project engineer in environmental consulting at Apex Environmental.

    Ramesh Seshadri--Vice President, Information Systems. Mr. Seshadri has
worked at Startec since October 1998 and has over 20 years of experience in
information technology, of which 19 were spent at IBM. While at IBM, he served
as a project manager and architect working in development labs in the U.S. and
Germany and as an advisory system engineer on the FAA Air Traffic Control System
Development Project.

    GLOBAL STRATEGY AND TECHNOLOGY PLANNING--

    Laith Zalzalah--Assistant Vice President, Global Strategy and Technology
Planning. Mr. Zalzalah joined Startec in August 1999. Prior to joining Startec,
he was a manager of emerging technologies at Telus Communications in Canada,
with responsibilities for packet-switched technology and expansion of Telus' IP
network across Canada.

    ONLINE SERVICES--

    Anthony A. Das--Chief Operating Officer, Online Services. Mr. Das has worked
at Startec since February 1997. Prior to joining Startec, Mr. Das was a senior
consultant at Armitage Associates. Prior to joining Armitage Associates, he
served as a senior career executive in the Office of the Secretary, Department
of Commerce from 1993 to 1995. From 1990 to 1993, Mr. Das was the Director of
Public Communication at the State Department.

    Ashok Saxena--Vice President, Online Services. Mr. Saxena joined Startec in
January 2000. Prior to joining Startec, he was the president and founder of
SigmaNet Network Corporation, the owner of Indians Abroad Online, an Indian Web
portal acquired by Startec in December 1999.

    Donna Woolf--Assistant Vice President, Online Services. Ms. Woolf joined
Startec in January 2000. Prior to joining Startec, she was the director of media
services at the U.S. Agency for International Development.

    EUROPEAN OPERATIONS--

    David Venn--Chief Operating Officer, European Operations. Mr. Venn joined
Startec in December 1999. Prior to joining Startec, Mr. Venn was a senior vice
president and then the chief operating officer of International Wireless
Communications, Inc. in London, England overseeing wireless investments in
Southeast Asia. Mr. Venn has extensive experience in product development and
engineering, having held senior level positions with British Telecom, Mercury
Communications and Hong Kong Telecom Co. Ltd.

    Bulent Bicer--Vice President and Managing Director, German Operations.
Mr. Bicer joined Startec in January 2000. Prior to joining Startec, Mr. Bicer
held various international sales, marketing and management positions in
telecommunications and IT companies including Deutsche Telekom, Motorola,
Digital Equipment and Nixdorf Computer. Most recently, he was a director of
sales and marketing management and IP channel management at Global One in
Belgium and Germany.

    Eric Saiz--Managing Director, French Operations. Mr. Saiz joined Startec in
February 1999 when Startec first acquired a majority interest in Phone Systems
and Network, Inc. of France, of which Mr. Saiz was the founder and managing
director. Prior to that time, Mr. Saiz was the chairman and chief executive
officer of LAMARTHE, a French manufacturer of leather goods and the development
manager of CAROL INTERNATIONALe, a fashion retail chain in Europe.

    ASIAN OPERATIONS--

    Robert Maloney--Managing Director, Asian Operations. Mr. Maloney joined
Startec in December 1998 when Startec acquired PCI Communications, Inc., a
provider of voice and data services in Guam.

                                       8

Mr. Maloney was the president of PCI and has over 20 years of telecommunications
experience in the Asia Pacific Rim.

    John Day--Managing Director, Asian Operations. Mr. Day joined Startec in
December 1998 when Startec acquired PCI Communications, Inc., a provider of
voice and data services in Guam. Mr. Day has extensive experience in providing
voice and data services in the Asia Pacific Rim.

    CORPORATE DEVELOPMENT--

    Joe Kanka--Vice President, Integration, responsible for integration,
strategic investments and international business development. Mr. Kanka joined
Startec in August 1999. Prior to joining Startec, he was the president of
Business Growth Strategies, a consulting firm specializing in international
strategic planning and marketing for small- and medium-size high-tech firms.
From 1987 to 1992, Mr. Kanka served as the director of business development and
marketing for Bell Atlantic International.

    HUMAN RESOURCES AND ADMINISTRATION--

    Tracy Behzad--Vice President, Human Resources. Ms. Behzad has worked at
Startec since January 1998. Prior to joining Startec, she was the director of
human resources at United Linen Services in Landover, Maryland and the director
of human resources and administration for a large hospitality group based in San
Francisco, California.

MARKET OPPORTUNITY

    Through our telecommunications and Internet initiatives, we believe that we
can capitalize on several emerging growth opportunities through the following
service offerings:

    - BUNDLED LONG DISTANCE AND ISP SERVICES. We expect to derive additional
      revenue from bundled services by using Internet access as a tool to
      convert high volume dial around customers to dial 1, thereby capturing
      domestic long distance calls at no additional incremental cost. In
      addition, we expect to experience lower turnover and derive greater EBITDA
      contribution from bundled customers on a long-term basis. Bundled voice
      and Internet access services (especially soon to be introduced broadband
      access) combined with Web hosting and design services also provide
      excellent up-selling opportunities to corporate customers.

    - ISP SERVICES IN EMERGING ECONOMIES. According to THE INDUSTRY STANDARD,
      there were 33 million Internet users outside of North America and Western
      Europe in 1998. This number is predicted to grow twelve-fold to
      412 million by the year 2005. More specifically, in the Middle East, one
      of our major Virtual Community markets, industry sources predict that
      there were approximately one million Internet users who spent an estimated
      $95 million online in 1999. Moreover, Internet usage in dominant Middle
      Eastern markets is expected to grow between 30% and 140% on a compounded
      annual growth basis. By 2002, the number of Internet users in India is
      projected to reach 4.5 million with revenue from e-commerce generated from
      India predicted to grow to over half a billion US dollars.

    - IP-BASED ENHANCED SERVICES. Besides lowering transport and termination
      costs, our IP network will allow us to generate new revenue streams from
      next-generation enhanced services like universal messaging, global
      roaming, e-commerce etc. According to International Data Corp. (IDC),
      global voice revenue generated utilizing IP technology is expected to
      reach $1.89 billion in 1999. By 2002, this amount is projected to grow to
      $24.2 billion due to expected improvements in voice quality, reaching the
      toll-quality standards of circuit-switched transmissions. IDC estimates
      that the "voice-enabled Web" is expected to grow from nearly zero revenues
      in 1999 to $5.6 billion in 2004, representing a compounded annual growth
      rate of 462%.

    - VIRTUAL COMMUNITIES AND E-COMMERCE. The market for language-specific
      Virtual Communities is expected to exceed that of North America and
      Western Europe combined. Our ethnic Virtual

                                       9

      Communities are expected to generate new revenue streams such as
      advertising, enhanced IP services and e-commerce. According to IDC,
      worldwide e-commerce in 1998 totaled approximately $50 billion. This
      amount is expected to increase to $1.317 trillion in 2003. Moreover, a
      higher proportion of this growth is expected to come from outside of the
      United States. In 1998, e-commerce revenue generated in the U.S. accounted
      for approximately 62% of worldwide e-commerce revenue. That percentage is
      expected to decline to 50% of the worldwide total in 2003.

    - INTERNATIONAL LONG DISTANCE (ILD): According to industry sources and our
      market research, the international telecommunications industry generated
      approximately $67 billion in revenues and 81 billion minutes of use during
      1997. The international telecommunications market is recognized as one of
      the fastest growing and most profitable segments of the global
      telecommunications industry. According to industry estimates,
      international long distance minutes are projected to grow at approximately
      17% per year through the year 2001. Based on publicly-available
      information, the U.S.-originated international telecommunications market
      is expected to grow at approximately 14% per year through 2001.

CUSTOMERS

    Currently, we market our communication services primarily to two customer
groups: (i) residential ethnic communities with significant demand for telephone
and Internet connectivity to the emerging economies; and (ii) international long
distance carriers. Our residential customers generally are members of ethnic
groups that tend to be concentrated in major U.S. metropolitan areas, including
Asian Pacific Rim, Middle Eastern and North African, Russian and Central
European communities. The number of such customers has grown significantly over
the past three years, from 27,797 as of December 31, 1996 to 303,118 as of
December 31, 1999. Net revenues from residential customers accounted for
approximately 29%, 33% and 33% of our net revenues in the years ended
December 31, 1999, 1998 and 1997, respectively. As part of our strategy, we
intend to increase the proportion of our net revenues derived from residential
customers.

    We offer wholesale telecommunications services to other international long
distance carriers, which allows us to balance our residential customer base and
efficiently use our network capacity. These carrier customers include first- and
second-tier international long distance carriers seeking competitive rates and
high-quality transmission capacity. The number of our carrier customers has
grown significantly since we first began marketing our services to this segment
in late 1995. As of December 31, 1999, we had 105 carrier customers. Revenues
from carrier customers accounted for 71%, 67% and 67% of our net revenues in the
years ended December 31, 1999, 1998 and 1997, respectively. During the year
ended December 31, 1999, our five largest carrier customers accounted for 64% of
net revenues, with MCI/WorldCom accounting for 22% of net revenues. No other
customer accounted for 10% or more of our net revenues during 1999. In a number
of cases, we provide services to carriers that are also our suppliers.

SERVICES AND MARKETING

    Residential Customers

    We provide our ethnic residential customers with the following services:
(i) dial-around domestic and international long distance; (ii) dial-1 domestic
and international long distance; (iii) bundled dial-1 long distance and Internet
access; (iv) stand-alone Internet access services; and (v) ethnic Web
communities.

    - LONG DISTANCE

     We provide our residential customers with dial-around and dial-1 long
     distance service for the U.S. and to all international destinations.
     Dial-around residential customers access our network by dialing our CIC
     code ("10-10-719") before dialing the number they are calling, enabling
     them to use our services at any time without changing their existing long
     distance carrier.

                                       10

     Dial-1 residential customers pre-select us as their primary long distance
     carrier by calling one of our customer service centers. After we obtain a
     third-party verification of the customer's desire to switch to our long
     distance service, we notify the local exchange carrier (LEC) who assigns
     the customer's home number to our service. We then become the primary
     carrier for all of their domestic and international long distance calls.

     We invest substantial resources in identifying and evaluating potential
     markets for our services. In particular, we seek to identify ethnic groups
     with demographic profiles that suggest significant potential for
     high-volume international telecommunications usage. Once a market has been
     identified, we evaluate the opportunity presented by that market based upon
     factors that include the credit characteristics of the target group,
     switching requirements, network access and vendor diversity. Assuming that
     the target market meets our criteria, we implement marketing programs
     targeted specifically at that ethnic group, with the goal of generating
     region-specific international long distance traffic. We market our
     residential services under the "Startec" and "10-10-719" brand names
     through a variety of media, including focused print advertising in ethnic
     newspapers, advertising on ethnic radio and television stations, direct
     mail, sponsorship of ethnic events and customer referrals. We also sponsor
     and attend community and cultural events.

     Potential customers call a toll-free number that appears in our advertising
     and are connected to one of our in-language customer service
     representatives. We use this opportunity to obtain detailed information
     regarding, among other things, customers' anticipated calling patterns. The
     customer service representative then sends out a welcome pack explaining
     how to use our services and a list of our rates. Once the customer begins
     to use the services, we routinely monitor usage and periodically
     communicate with the customer to gauge service satisfaction. We also use
     proprietary software to assist us in tracking customer satisfaction and a
     variety of customer behaviors, including turnover ("churn"), retention and
     frequency of usage. Our customer service center, which services our
     residential customer base, is staffed by trained, in-language customer
     service representatives, and operates 24 hours a day, seven days a week. We
     currently employ approximately 304 customer service representatives.
     Additionally, customers may obtain information on all of our long distance
     rates and details about our services at our corporate Web site,
     www.startec.com.

     Although we are sensitive to the role that the price of long distance
     service plays in consumer decision making, we generally do not attempt to
     be the low-price leader. Instead, we focus on: (i) providing overall value
     to our customers; (ii) combining competitive pricing with high levels of
     service; (iii) providing customer representatives fluent in the customers'
     native languages; (iv) utilizing focused marketing campaigns directed at
     our customers' ethnic groups; and (v) being involved in our customers'
     communities through sponsorship of local events and other activities. We
     believe that this strategy increases usage of our services and enhances
     customer loyalty and retention.

    - BUNDLED LONG DISTANCE AND INTERNET ACCESS

     In addition to offering long distance services, we continually evaluate
     potential new service offerings in order to increase traffic and enhance
     customer loyalty and retention. In 1999, we introduced a bundled long
     distance/Internet access service. For our dial-1 residential customers who
     bill $60 a month or more, we provide free, unlimited Internet access. This
     service allows our customers to conveniently pay for both their long
     distance and Internet access with one bill and to communicate with friends
     and relatives through the Internet.

                                       11

    - STAND-ALONE INTERNET ACCESS

     We also offer free, ad-sponsored Internet access to all of our residential
     customers through an agreement with 1stUp.com, a majority-owned company of
     CMGI, Inc. This service allows any customer to receive free, unlimited
     Internet access in exchange for keeping a small, sponsor-oriented
     navigation bar open on their screen for the duration of their online
     session. This service is free for our dial-around and dial-1 customers and
     does not require a minimum monthly usage; it may also be used as a
     stand-alone service, separate from our long distance services.

    - ETHNIC WEB COMMUNITIES

     To complement our Internet access services, we launched a global ethnic Web
     community through our online brand, eStart in October 1999. Through eStart,
     Startec is creating a single online destination for ethnic Internet users
     to access features and services that are tailored to their cultural
     interests. In 1999 and early 2000, eStart launched Web communities for the
     Arab, Iranian, Turkish and Indian ethnic segments. In 2000, eStart expects
     to launch five additional Web communities, including the Chinese, Russian,
     Polish, Israeli and Latin American communities.

     Each of these communities is connected by a gateway page that allows users
     to customize eStart according to their preferences for news, sports,
     entertainment, weather, chat rooms and discussion forums. Each community
     contains content that is tailored to the interests of a particular ethnic
     group and communications tools that allow users to stay in touch with
     friends and family through the Internet.

     In addition to launching five new ethnic communities in 2000, we will also
     be adding expanded in-language content, universal messaging, an e-commerce
     retail marketplace and business-to-business exchange within emerging
     markets and further broadband applications such as video services. Through
     the launch of eStart, we seek to create a robust Internet presence to
     strengthen our brand recognition among various ethnic communities and to
     generate revenue through e-commerce and advertising sales.

Carrier Customers

    To maximize the efficiency of our network capacity, we sell our
international long distance services to other telecommunications carriers. We
have been actively marketing our services to carrier customers since late 1995,
and we believe that we have established a high degree of credibility and
valuable relationships with the leading carriers. We have a dedicated marketing
team serving the carrier market, including approximately 30 carrier service
representatives. In addition, we participate in international carrier membership
organizations, trade shows, seminars and other events that provide our carrier
marketing staff with additional opportunities to establish and maintain
relationships with other carriers that are potential customers. We primarily
focus our marketing efforts on first- and second-tier international long
distance carriers. We generally avoid providing services to lower-tiered
carriers because of potential difficulties in collecting accounts receivable.
Because carrier customers generally are extremely price sensitive, we closely
track the prices of competitors serving the carrier market and monitor our own
network costs to ensure optimal pricing for our carrier customers.

FUTURE SERVICE OFFERINGS

    We intend to capitalize on the first-market advantage and strong brand we
have created in ethnic communities to increase the amount of residential and
corporate customer voice, data and Internet traffic on our network by increasing
our range of communications services.

                                       12

BUNDLED SERVICES

    For residential customers, we will expand the marketing of our bundled
dial-1 and Internet access services to more geographic markets in North America,
Europe, Asia Pacific Rim and offer post-paid calling cards as part of our
bundled services. Additionally, we will market prepaid telecommunications
services to North American consumers through our "InstaPin" e-commerce
initiative. InstaPin allows consumers to obtain a pin number to make calls on
the Startec network by prepayment through a credit card.

CORPORATE SERVICES

    We will begin marketing enhanced voice, data and Internet services to
business customers. We intend to target two types of business customers in 2000
with our voice, data and high-speed Internet services: (i) ethnic small and
medium-sized enterprises, and (ii) mid-sized business customers with
telecommunications expenditures ranging from $2,500 to $25,000 per month. For
the ethnic corporate customer market, we will leverage our ethnic media
channels, community relationships and ethnic brand to market our long distance,
dial-up Internet access and digital subscriber line (DSL) services. We will
utilize our in-language call centers to provide full-service customer support
and technical assistance. For mid-sized business customers, we seek to provide a
full range of communications services, including long distance, dial-up Internet
access, DSL, domestic and international private line services, virtual private
networks, Web hosting, collocation, ATM and frame relay services.

    To support these services, we are evaluating a number of strategic
partnerships with DSL providers, cable companies and broadband wireless
providers who offer high-speed connections to the Internet, so that we may
provide corporate customers with a variety of price and speed alternatives for
Internet connectivity. These customers will be serviced by a dedicated
nationwide sales team to ensure that they receive a high level of customer
service, quality and responsiveness.

DATA CENTERS

    We have hired a number of key executives to launch our corporate customer
services, in particular, John Wolaver and Mark Saccente. John Wolaver is the
Chief Operating Officer of North American Operations. Mr. Wolaver was most
recently an Executive Vice President and Chief Operating Officer of United
Telesis, LLC in Washington, D.C. Mr. Wolaver has almost 20 years of
telecommunications experience, particularly in the areas of sales and marketing,
with companies such as Sprint and MCI. At Sprint, he was a Director in the
Partnership Marketing/Consumer Services Group where he supervised partnership
marketing projects with major airline and credit card companies. At MCI, he was
a Director in Corporate Marketing, where he developed new products for Fortune
1000 companies.

    Mark Saccente is the vice president of commercial services. Mr. Saccente was
most recently an executive vice president of sales and marketing at American
International Telephone, where he began the commercial marketing division. Prior
to that, he spent seven years at WorldCom overseeing corporate services to
Fortune 1000 and other large corporate customers. He has also held positions
with Sprint and Cable and Wireless.

    We will also begin marketing communications services through our data
centers, located in New York, Los Angeles and Miami. These data centers will
allow us to offer three primary services: (i) Web hosting; (ii) collocation; and
(iii) high-speed Internet connectivity. Our objective is to provide Internet
system management solutions for ethnic and mid-sized corporate customers, other
telecommunications carriers and foreign-based ISPs, particularly those from the
emerging economies. Our services will include our three U.S. data centers,
network management, technical assistance, public and private network
interconnections and scalability to accommodate increases in traffic volume. Our
services will enable our target customers to outsource the monitoring,
administration and optimization of their data and Internet

                                       13

equipment, while obtaining high-speed Internet connectivity. In 2000, we intend
to open additional data centers in the emerging economies, initially in Hong
Kong and India.

THE STARTEC GLOBAL NETWORK

    We provide services through a flexible network of owned and leased
transmission facilities, resale arrangements and a variety of operating
agreements and termination arrangements, all of which allow us to terminate
voice traffic in the over 200 countries that have telecommunications
capabilities. We have been expanding our network to match increases in our long
distance traffic volume and to support the needs of our customers. Our network
employs advanced switching technologies and is supported by monitoring
facilities and our technical support personnel.

    CUSTOMER CALL CENTERS.  As part of our dedication to customer service, we
operate three customer service centers in Maryland, Guam and France. Each center
operates 24 hours a day, seven days a week and accommodates approximately 300
customer service representatives. The Bethesda center supports the languages of
the Middle East and Central Europe; the Guam center supports Asian languages,
while the French center supports the languages of Western Europe. In total, our
customer service centers support over 20 different languages and are supported
by the Lucent Definity G3r in a multi-language environment.

    SUPPORTING TECHNOLOGY.  In 1999, we began replacing and converting all of
our supporting technology, including customer service, billing and office
automation processes, to IP transaction-based technology. Upgrading our
technology has enabled us to have scalable systems that seamlessly connect to
the Internet. We replaced all of our PC-based systems with new systems, using
IBM Thin Client Servers for our customer service centers and Oracle databases
for our billing and reporting systems. By making these changes in our internal
support systems, we created a scalable network and were then able to
economically begin offering additional services to our retail customer base in
the fall of 1999, such as bundled long distance and Internet access services.

    SWITCHING AND TRANSMISSION FACILITIES.  We are building a state-of-the-art
network using a combination of Internet Protocol (IP), Asynchronous Transfer
Mode (ATM) and circuit-switched technologies to provide connectivity to the
emerging economies of the world, allowing us to integrate voice, data, Internet
and video services on a seamless network.

    Our network currently consists of eight domestic and international switches
located in New York (2), Los Angeles, Miami, London, Paris, Dusseldorf and Guam.
Our network also includes approximately 20 Points of Presence (POPs) in the
U.S., Canada, Europe and Asia. POPs aggregate traffic originating from the
region around the city in which it is located and route the traffic to our
international gateway switches. Each POP contains telecommunications equipment
that is scalable to accommodate the traffic volume demands of each region.

    To seize the new opportunities available through the convergence of voice
and data traffic, we have begun deploying a world-class ATM/IP network,
primarily accessing emerging economies. In 1999, we deployed approximately 50 IP
gateways with access to 20 countries. We acquired and integrated a second IP
network in early 2000 with ten additional IP gateways into our existing IP
network. The IP gateways facilitate the transmission of voice and data traffic
on our network through packet switching. We will continue to enhance our network
with ATM/IP capabilities in 2000. Installing IP technology throughout our
international network facilities provides us with several advantages: (i) it
reduces traffic termination costs; (ii) it increases bandwidth utilization on
long-haul circuits; (iii) it enables us to offer enhanced services, such as
Internet access for select ethnic residential customers in North America, Europe
and the Asia Pacific Rim, data and high-speed Internet services for corporate
customers and video services and other broadband applications; and (iv) it
reduces our reliance on the network facilities of other carriers.

                                       14

    We generally install switches, POPs and IP gateways in regions where we
believe we can achieve one or more of the following goals: (i) originate voice,
data and Internet connections from our own customer base; (ii) transmit voice,
data and Internet traffic originated elsewhere on our network to the final
destination of the traffic on a more cost-efficient basis; or (iii) terminate
voice, data and Internet traffic originated and carried on our own network. We
intend to use the switches, POPs and IP gateways to be installed in the U.S.,
Canada and Europe primarily to carry traffic originated in those areas by our
ethnic customer base. Equipment installed in the Asia Pacific Rim, the Middle
East and in Latin and South America will be used both as "hubbing" or transit
sites and to terminate traffic originated in other locations.

    In 1999, we completed construction of three data centers located in New
York, Los Angeles and Miami. These data centers will allow us to offer Web
hosting services, collocation facilities and high-speed Internet connectivity
for domestic and international telecommunications carriers and corporate
customers in 2000. We will be opening two new data centers in Hong Kong and
India in 2000.

    We currently have ownership interests through Indefeasible Rights of Usage
(IRUs) on 15 cable systems, including the Canus-1, Cantat-3, Columbus II,
EurAfrica, Gemini, TAT 12, 13 and 14, Atlantic Crossing, TPC-5,
Guam-Philippines, China-US, and FLAG cables, and we are a signatory owner on the
Columbus III and Se-Me-We 3 cables. We access additional cables and satellite
facilities through arrangements with other carriers. In 1999, we invested in
domestic land-based fiber optic cable facilities linking the East and West
Coasts of the United States. Having an ownership interest rather than a lease
interest in cable systems enables us to increase capacity without a significant
increase in cost, by utilizing digital compression equipment, which we cannot do
under leasing or similar access arrangements. Digital compression equipment
enhances the traffic capacity of the undersea cable, which permits us to
maximize cable utilization while reducing our need to acquire additional
capacity.

    We enter into lease arrangements and resale agreements with other
telecommunications carriers when it is cost effective to do so. We purchase
switched-minute capacity from various carriers and depend on such agreements for
termination of our traffic. We currently purchase capacity from approximately 75
carriers. Our efforts to build additional switching and transmission capacity
are intended to decrease our reliance on leased facilities and resale
agreements. We anticipate realizing operational efficiencies and improving
margins as traffic across our owned facilities increases.

    We intend to incorporate additional ATM/IP capabilities in our network
architecture. We are evaluating a number of existing products for implementation
into our network. We anticipate realizing lower overall transmission costs and
an increase in the types of data and Internet services we can offer to both
residential and business customers. We are evaluating a number of strategic
partnerships with DSL providers and cable companies who offer high-speed
connections to the Internet, so that we may provide our residential customers
with a variety of price and speed alternatives for Internet connectivity.

    OPERATING AGREEMENTS AND OTHER TERMINATION ARRANGEMENTS.  We attempt to
retain flexibility and maximize our termination options by using a mixture of
operating agreements, transit and refile arrangements, resale agreements and
other arrangements to terminate our traffic in the destination country. Our
approach is designed to enable us to take advantage of the rapidly evolving
international telecommunications and Internet markets in order to provide low
cost international long distance services and Internet access to our customers.
We also intend to leverage our relationships with international Postal,
Telephone and Telegraphs (PTTs) and other foreign-based carriers as we begin
offering Internet access to customers based in emerging economies.

    Our strategy is based on our ability to enter into and maintain:
(i) operating agreements with PTTs in countries whose telecommunication markets
have yet to become liberalized; (ii) operating agreements with PTTs and emerging
carriers in foreign countries whose telecommunications markets have liberalized;
(iii) resale agreements and transit and refile arrangements to terminate our
traffic in countries with which we do not have operating agreements so as to
provide us with multiple options for routing traffic; and

                                       15

(iv) interconnection agreements with PTTs in each of the countries where we plan
to have operating facilities. As of December 31, 1999, we had approximately 50
operating agreements, of which 34 were fully activated. These operating
agreements enable us to terminate traffic at lower rates than by resale in
markets where we cannot establish an on-net connection due to the current
regulatory environment. We believe that we would not be able to serve our
customers at competitive prices without such operating or interconnection
agreements. In addition, these operating agreements provide a source of
profitable return traffic for us. Termination of such operating agreements by
certain foreign carriers or PTTs could have a material adverse effect on our
business.

    NETWORK OPERATIONS AND TECHNICAL SUPPORT.  We use proprietary routing
software to maximize routing efficiency. Network operations personnel
continually monitor pricing changes by our carrier-suppliers and adjust call
routing to make cost efficient use of available capacity. In addition, we
provide 24-hour network monitoring, trouble reporting and response procedures,
service implementation coordination and problem resolution, and have developed
and implemented proprietary software that enables us to monitor, on a minute by
minute basis, all key aspects of our services. Recent software upgrades and
additional network monitoring equipment have been installed to enhance our
ability to handle increased traffic and monitor network operations. While we
perform the majority of the maintenance of our network, we also have service and
support agreements with Nortel and Siemens covering our primary switches in New
York, Los Angeles, Miami, London, Paris and Dusseldorf. We depend upon third
parties with respect to the maintenance of facilities which we lease and fiber
optic cable lines in which we have an IRU or other use arrangements.

    We utilize highly automated state-of-the-art telecommunications equipment in
our network and have diverse alternate routes available in cases of component or
facility failure, or in the event that cable transmission wires are
inadvertently cut. Back-up power systems and automatic traffic re-routing
enables us to provide a high level of reliability for our customers.
Computerized automatic network monitoring equipment allows fast and accurate
analysis and resolution of network problems. In general, we rely upon the
utilization of other carriers' networks to provide redundancy in the event of
technical difficulties in the network. We believe that this is a more cost
effective strategy than purchasing or leasing our own redundancy systems.

MANAGEMENT INFORMATION AND BILLING SYSTEMS

    Our operations use advanced information systems including call data
collection and call data storage linked to a proprietary reporting system. We
also maintain redundant billing systems for rapid and accurate customer billing.
Our systems enable us, on a real time basis, to determine cost effective
termination alternatives, monitor customer usage and manage profit margins. Our
systems also enable us to ensure accurate and timely billing and reduce routing
errors.

    Our proprietary reporting software compiles call, price and cost data into a
variety of reports, which we use to re-program our routes on a real time basis.
Our reporting software can generate additional reports, as needed, including
customer usage, country usage, vendor rates, vendor usage by minute, dollarized
vendor usage and loss reports.

    We have built multiple redundancies into our billing and call data
collection systems. Two call collector computers receive redundant call
information simultaneously, one of which produces a file every 24 hours for
filing purposes while the other immediately forwards the call data to corporate
headquarters for use in customer service and traffic analysis. We maintain these
independent and redundant billing systems in order to verify billing internally
and to ensure that bills are sent out on a timely basis. All of the call data,
and resulting billing data, are continuously backed up on tape drive and
redundant storage devices.

                                       16

    Residential customers are billed for our services through the LEC, with our
charges appearing directly on the bill each residential customer receives from
the customer's LEC. We utilize a third party billing company which has
arrangements with the LECs to facilitate collections of amounts due to us from
the LECs. The third party billing company receives collections from the LEC and
transfers the sums to us, after withholding processing fees, applicable taxes,
and provisions for credits and uncollectible accounts. As part of our strategy,
we also plan to enter into our own billing and collection agreements directly
with certain LECs, direct bill customers in certain locations and offer
Web-based billing. We expect that these alternative billing arrangements will
provide us with opportunities to reduce the costs currently associated with
billing and collection practices. We bill our carrier customers directly.

COMPETITION

    As a provider of both long distance and Internet access services, as well as
offering global ethnic Web communities, we compete with companies in three
primary areas: (i) the international telecommunications industry; (ii) the
global ISP industry; and (iii) the ethnic/cultural Web portal arena. Our success
depends upon our ability to compete with a variety of service providers within
each area in the United States and in each of our international markets.

    In the telecommunications industry, we must compete with large,
facilities-based multinational carriers in North America and Europe, such as
AT&T, MCI WorldCom, British Telecom, France Telecom and Deutsche Telecom. We
must also compete with smaller facilities-based wholesale long distance service
providers in the United States and overseas that have emerged as a result of
deregulation, switch-based resellers of international long distance and the
respective PTT in each country in which we operate or plan to operate in the
future. If local exchange carriers are allowed to offer long distance services
under the Telecommunications Act of 1996, we may experience additional
competition from carriers such as Bell Atlantic and SBC Communications.
International telecommunications providers compete on the basis of price,
customer service, transmission quality, breadth of service offerings and
value-added services. Residential customers frequently change long distance
carriers in response to competitors' offerings of lower rates or promotional
incentives. Our carrier customers generally use the services of a number of
international long distance companies, and are especially price sensitive. In
addition, many of our competitors enjoy economies of scale that can result in a
lower cost structure for termination and network costs, which could cause
significant pricing pressures within the international communications industry.
Several long distance carriers in the United States have introduced pricing
strategies that provide for fixed, low rates for both international and domestic
calls originating in the United States. Such a strategy, if widely adopted,
could have an adverse effect on our business, financial condition and results of
operations if increases in telecommunications usage do not result or are
insufficient to offset the effects of such price decreases. In recent years,
competition has intensified causing prices for international long distance
services to decrease substantially. Prices are expected to continue to decrease
in most of the markets in which we currently compete. We believe, however, that
these reductions in prices have been and will continue to be more than offset by
reductions in our cost of providing such services.

    The global ISP industry is also extremely competitive and includes numerous
pure-play Internet service providers such as Earthlink/MindSpring, Erol's,
RoadRunner and Satyam Infoway Online; free Internet service providers such as
NetZero and Freeserve; and telecommunications companies that offer both
telephone and Internet access services, such as AT&T, Deutsche Telecom and VSNL
in India. Additionally, numerous companies are offering high-speed connections
to the Internet through the deployment of DSL, T1 and fiber optic technology,
including NorthPoint Communications and Rhythms NetConnections. We anticipate
that prices for Internet access will continue to diminish, and we intend to
offer Internet access as an incentive to reduce customer churn and increase the
total long distance bill per customer through our bundled, minimum volume
service. Additionally, through our IP network, we intend to offer Internet
access to customers in emerging market countries, first beginning in India and
Hong Kong.

                                       17

    With our establishment of a series of global ethnic Web communities through
our online brand, eStart, we seek to create a robust Internet presence to
strengthen our brand recognition among various ethnic communities and to
generate revenue through e-commerce and advertising sales. Thus, we compete with
numerous Web portals and other sites for e-commerce and advertising dollars. In
terms of direct competition from ethnic cultural sites, we compete with
single-country portals such as Satyam Infoway Online, an Indian Web portal and
ISP and chinadotcom, a Chinese Web portal. We also compete with ethnic portals
that feature broad regional content, such as Star Media, a Latin American
portal, Planet Arabia, an Arab community and Orientation.com, a broad-based
ethnic portal. We intend to differentiate the eStart Web Communities by
obtaining international, regional and local content that will appeal to ethnic
communities based in numerous cities around the world. We will offer enhanced
communication tools on eStart through our advanced IP network. As a
telecommunications company, we have a tremendous advantage in our ability to
market eStart to our long distance customer base, thereby providing our
advertisers and vendors with a highly-targeted customer base. With over ten
years of experience in ethnic marketing, we will utilize our knowledge of ethnic
media and our in-language advertising skills to market eStart to a large and
diverse group of ethnic communities based in cities in North America and Europe
and gradually in cities in emerging market economies. As Internet usage
continues to grow and as the technology for delivering Internet services
evolves, competition among Internet service providers and ethnic cultural Web
communities will continue to increase. There can be no assurance that we will be
able to compete successfully in the future.

THE INTERNATIONAL TELECOMMUNICATIONS INDUSTRY

    The international telecommunications industry consists of transmissions of
voice and data that originate in one country and terminate in another. The
significant growth in the usage of international telecommunications services has
resulted in the industry undergoing a period of fundamental change. The
international market can be divided into two major segments:

    The U.S.-originated market, which consists of all international calls that
either originate or are billed in the United States, and the overseas market,
which consists of all calls billed outside the United States.

    According to industry sources and our market research, the international
telecommunications industry generated approximately $67 billion in revenues and
81 billion minutes of use during 1997. The international telecommunications
market is recognized as one of the fastest growing and most profitable segments
of the global telecommunications industry. According to industry estimates,
international long distance minutes are projected to grow at approximately 17%
per year through the year 2001. Based on publicly-available information, the
U.S.-originated international telecommunications market is expected to grow at
approximately 14% per year through 2001.

    We believe that the international telecommunications market will continue to
experience strong growth for the foreseeable future as a result of the following
developments and trends:

    - GLOBAL ECONOMIC DEVELOPMENT AND INCREASED ACCESS TO TELECOMMUNICATIONS AND
      INTERNET SERVICES. The dramatic increase in the number of telephone lines,
      personal computers and alternative Internet access devices around the
      world, stimulated by economic growth and development, government
      initiatives and technological advancements, is expected to lead to
      increased demand for international telecommunications services in those
      markets.

    - LIBERALIZATION OF TELECOMMUNICATIONS MARKETS AND REGULATION. The
      continuing liberalization and privatization of telecommunications markets
      and the movement toward deregulation has provided, and continues to
      provide, opportunities for new carriers who desire to penetrate those
      markets.

    - REDUCED RATES CREATING HIGHER TRAFFIC VOLUMES. The reduction of outbound
      international long distance rates, resulting from increased competition
      and technological advancements, has made, and

                                       18

      continues to make, international calling available to a much larger
      customer base thereby creating an increase in traffic volumes.

    - INCREASED CAPACITY. The increased availability of higher-quality digital
      undersea fiber optic cable has enabled international long distance
      carriers and Internet Service Providers to improve service quality while
      reducing costs.

    - POPULARITY AND ACCEPTANCE OF TECHNOLOGY. The widespread use of
      communications devices, including cellular telephones, and facsimile
      machines, as well as the increased level of Internet usage has led to a
      general increase in the use of communications services and stimulated
      demand for faster transmission of data.

    - BANDWIDTH NEEDS. The demand for bandwidth-intensive data transmission
      services, including Internet-based demand, has increased rapidly and is
      expected to continue to increase in the future.

    Liberalization of communications markets and deregulation has encouraged
competition, which in turn has prompted carriers to offer a wider selection of
products and services at lower prices. Today, there are over 600 U.S.-based long
distance companies, most of which are small or medium sized companies, serving
residential and business customers and other carriers. Liberalization of
telecommunications markets and deregulation has occurred and is occurring
elsewhere around the world, including in most EU nations, several Latin American
nations and certain Asian nations. In recent years, prices for international
long distance services have decreased substantially and are expected to continue
to decrease in many of the markets in which the Company currently competes.
Several long distance carriers in the United States have introduced pricing
strategies that provide for fixed, low rates for both domestic and international
calls originating in the United States. We believe that revenue losses resulting
from competition- induced price decreases have been more than offset by cost
decreases, as well as an increase in telecommunications usage. We believe that
as settlement rates and costs for leased capacity continue to decline,
international long distance will continue to provide high revenues and gross
margin per minute.

    International Switched Long Distance Services

    International switched long distance services are provided through switching
and transmission facilities that automatically route calls to circuits based
upon a predetermined set of routing criteria. In the United States, an
international long distance call typically originates on a local exchange
carrier's network and is transported to the caller's domestic long distance
carrier. The domestic long distance carrier picks up the call and carries the
call to its own or another carrier's international gateway switch, where an
international long distance provider picks it up and sends it directly or
through one or more other long distance providers to a corresponding gateway
switch in the destination country. Once the traffic reaches the destination
country, it is routed to the party being called through that country's domestic
telephone network.

    International long distance carriers are often categorized according to
ownership and use of transmission facilities and switches. No carrier utilizes
exclusively-owned facilities for transmission of all of its long distance
traffic. Carriers vary from being primarily facilities-based, meaning that they
own and operate their own land-based and/or undersea cable, satellite-based
facilities and switches, to those that are purely resellers of other carrier's
transmission facilities. The largest U.S.-based carriers, such as AT&T, Sprint
and MCI/WorldCom, are primarily facilities-based and may transmit some of their
overflow traffic through other long distance providers, such as Startec. Only
very large carriers have the transmission facilities and operating agreements
necessary to cover the over 200 countries to which major long distance providers
generally offer service. A significantly larger group of long distance providers
own and operate their own switches but use a combination of resale agreements
with other long distance providers and leased and owned facilities to transmit
and terminate traffic, or rely solely on resale agreements with other long
distance providers.

                                       19

    Under Accounting Rate Mechanisms, which has been the traditional model for
handling traffic between international carriers, traffic is exchanged under
bilateral carrier agreements, or operating agreements, between carriers in two
countries. Operating agreements generally are three to five years in length and
provide for the termination of traffic in, and return of traffic to, the
carriers' respective countries at a negotiated accounting rate, known as the
Total Accounting Rate ("TAR"). In addition, operating agreements provide for
network coordination and accounting and settlement procedures between the
carriers.

    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 an operating
agreement at a negotiated rate (which must be the same for all U.S.-based
carriers, unless the Federal Communications Commission (FCC) approves an
exception). 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.

    Under a typical operating agreement, each carrier owns or leases its portion
of the transmission facilities between two countries. A carrier gains ownership
rights in digital undersea fiber optic cables by: (i) purchasing direct
ownership in a particular cable (usually prior to the time the cable is placed
into service); (ii) acquiring an IRU in a previously installed cable; or
(iii) by leasing or otherwise obtaining capacity from another long distance
provider that has either direct ownership or IRUs in a cable. In situations in
which a long distance provider has sufficiently high traffic volume, routing
calls across cable that is directly owned by a carrier or in which a carrier has
an IRU is generally more cost-effective than the use of short-term variable
capacity arrangements with other long distance providers or leased cable. Direct
ownership and IRUs, however, requires a carrier to make an initial capital
commitment based on anticipated usage.

    In addition to using traditional operating agreements, an international long
distance provider may use transit arrangements, resale arrangements and
alternative transit/termination arrangements.

    - TRANSIT ARRANGEMENTS. Transit arrangements involve a long distance
      provider in an intermediate country carrying the long distance traffic
      originating in a second country to the destination third country. These
      arrangements require an agreement among the carriers in each of the
      countries involved in the transmission and termination of the traffic, and
      are generally used for overflow traffic or in cases in which a direct
      circuit is unavailable or not volume justified.

    - RESALE ARRANGEMENTS. Resale arrangements typically involve the wholesale
      purchase and sale of transmission and termination services between two
      long distance providers on a variable, per minute basis. The sale of
      capacity was first permitted as a result of the deregulation of the U.S.
      telecommunications market, and has fostered the emergence of alternative
      international long distance providers that rely, at least in part, on
      transmission capacity acquired on a wholesale basis from other long
      distance providers. A single international call may pass through the
      facilities of multiple resellers before it reaches the foreign
      facilities-based carrier that ultimately terminates the call. Resale
      arrangements set per minute prices for different routes, which may be
      guaranteed for a set period of time or may be subject to fluctuation
      following notice. The international long distance resale market is
      continually changing as new long distance resellers emerge and existing
      providers respond to changing costs and competitive pressures.

    - ALTERNATIVE TRANSIT/TERMINATION ARRANGEMENTS. As the international long
      distance market has become increasingly competitive as a result of
      deregulation and other factors, long distance providers have developed
      alternative transit/termination arrangements in an effort to decrease
      their costs of terminating international traffic. Some of the more
      significant of these arrangements include international simple resale
      (ISR), refiling and ownership of transmission and switching facilities in
      foreign countries, which enables a provider to terminate its traffic on
      its own facilities.

                                       20

      Under ISR, a long distance provider completely bypasses the accounting
      rates system by connecting an international leased private line to the
      public switched telephone network of a foreign country or directly to the
      premises of a customer or foreign partner. Although ISR is currently
      sanctioned by United States and other applicable regulatory authorities
      only on some routes, ISR services are increasing and are expected to
      expand significantly as liberalization continues in the international
      telecommunications industry. As with transit arrangements, refiling
      involves the use of an intermediate country to carry the long-distance
      traffic originating in a second country to the destination third country.
      However, the key difference between transit and refiling arrangements is
      that under a transit arrangement the operator in the destination country
      has a direct relationship with the originating operator and is aware of
      the transit arrangement, while with refiling, the operator in the
      destination country typically is not aware that the received traffic
      originated in another country with another carrier. Refiling of traffic
      takes advantage of disparities in settlement rates between different
      countries by allowing traffic to a destination country to be treated as if
      it originated in another country which enjoys lower settlement rates with
      the destination country, thereby resulting in a lower overall termination
      cost. In addition, new market access agreements, such as the World Trade
      Organization (WTO) Agreement, have made it possible for many international
      long distance providers to establish their own switching facilities in
      certain foreign countries, allowing them to directly terminate traffic,
      including traffic which they have originated.

    - DEVELOPMENTS IN THE INTERNET INDUSTRY. The Internet is an interconnected
      global computer network of tens of thousands of packet-switched networks
      using Internet Protocol. Technology trends over the past decade have
      removed the distinction between voice and data segments. Traditionally,
      voice conversations have been routed on analog lines. Today, voice
      conversations are routinely converted into digital signals and sent
      together with other data over high-speed lines. In order to satisfy the
      high demand for low-cost communication, software and hardware developers
      began to develop technologies capable of allowing the Internet to be
      utilized for voice communications. Several companies now offer services
      that provide real-time voice conversations over the Internet (Internet
      Telephony). Current Internet Telephony does not provide comparable sound
      quality to traditional long distance service. The sound quality of
      Internet Telephony, however, has improved over the past few years and is
      expected to reach toll-quality standards in the near future.

    The FCC and most foreign regulators have not yet attempted to regulate the
companies that provide the software and hardware for Internet Telephony, the
access providers that transmit their data, or the service providers, as common
carriers or telecommunications services providers. Therefore, the existing
systems of access charges and international accounting rates, to which
traditional long distance carriers are subject, are not imposed on providers of
Internet Telephony services. As a result, such providers may offer calls at a
significant discount to standard international calls.

GOVERNMENT REGULATION

    OVERVIEW

    Our business is subject to varying degrees of regulation by United States
regulatory authorities at the federal and state level, as well as by foreign
regulatory authorities. In recent years, the regulation of the
telecommunications industry has been in a state of flux as a result of the
passage of new laws seeking to foster greater competition in telecommunications
markets. In particular, comprehensive amendments to the Communications Act of
1934, as amended were made by the Telecommunications Act of 1996. The purpose of
the 1996 Act is to promote competition in all areas of telecommunications by
reducing unnecessary regulation at both the federal and state levels to the
greatest extent possible. State legislatures also have passed new laws
increasing competition. The FCC and state public service commissions (PSCs) have
adopted many rules to implement new legislation and encourage competition. These
changes, which are still incomplete, have created new opportunities for us and
our competitors.

                                       21

    U.S. federal laws, including common carriage requirements under the 1934 Act
and the FCC's rules, apply to our international and interstate facilities-based
and resale telecommunications services. Applicable PSCs have jurisdiction under
separate state statutes over telecommunications services originating and
terminating within the same state. The FCC and the PSCs generally have the
authority to condition, modify, cancel, terminate or revoke our operating
authority for failure to comply with federal and state laws and applicable
rules, regulations and policies. Fines or other penalties also may be imposed
for such violations. In addition, the FCC and one or more states possesses the
ability to regulate our rates and the terms and conditions under which we offer
service. Any such action by the FCC and/or the PSCs could have a material
adverse effect on our business, financial condition and results of operations.

    In addition, the laws of other countries directly apply only to carriers
doing business in those countries. We are affected indirectly by such laws
insofar as it is doing business in foreign countries, and indirectly to the
extent that such laws affect foreign carriers with which we do business.

    The following summary of regulatory developments and legislation does not
purport to describe all present and proposed U.S. or foreign regulations and
legislation affecting the telecommunications industry. Other existing
regulations are currently the subject of judicial proceedings, legislative
hearings or administrative proposals which could change, in varying degrees, the
manner in which this industry operates. Neither the outcome of these
proceedings, nor their impact upon the telecommunications industry or us can be
predicted at this time. There can be no assurance that future regulatory
judicial and legislative changes will not have a material adverse effect on us,
that U.S. or foreign regulators or third parties will not raise material issues
with regard to our compliance or noncompliance with applicable laws and
regulations, or that regulatory activities will not have a material adverse
effect on our business, financial condition and results of operations.

    BILATERAL AGREEMENTS

    On February 15, 1997, the United States and 68 other countries signed the
WTO Agreement and agreed to open their telecommunications markets to competition
and foreign ownership starting January 1, 1998. These 69 countries represent
approximately 90% of worldwide telecommunications traffic. We believe that the
WTO Agreement will provide us with significant opportunities to compete in
markets we could not previously access and provide facilities-based services.

                                       22

    Set forth below is a timetable summarizing when each WTO signatory, other
than the U.S., has agreed to implement its respective commitments:



                 1998-1999                                2000 AND THEREAFTER
- --------------------------------------------  --------------------------------------------
                                                            
EUROPE
Austria                Luxembourg             Bulgaria               Romania
Belgium                Netherlands            Czech Republic         Slovak Republic
Denmark                Norway                 Greece                 Turkey
Finland                Portugal               Poland
France                 Spain
Germany                Sweden
Iceland                Switzerland
Italy                  United Kingdom

AMERICAS
Brazil                 El Salvador            Antigua                Jamaica
Canada                 Guatemala              Argentina              Peru
Chile                  Mexico                 Bolivia                Trinidad
Dominican Republic                            Grenada                Venezuela

ASIA/PACIFIC RIM
Australia              Malaysia               Brunei                 Thailand
Hong Kong              New Zealand            Pakistan
Japan                  Philippines            Singapore
Korea

AFRICA/MIDDLE EAST
Ivory Coast                                   Israel                 Mauritius
                                              Senegal


    The following countries allow foreign entities to own a majority interest in
facilities used to provide international service, including voice and data:

    EUROPE

    Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Italy,
    Ireland, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden,
    Switzerland and the United Kingdom.

    ASIA PACIFIC RIM

    Japan, Australia and New Zealand.

    LATIN AMERICA

    Chile, Colombia, El Salvador, Guatemala and Peru.

U.S. FEDERAL REGULATION

    INTERNATIONAL COMMON CARRIER SERVICE

    The FCC's new rules implementing the WTO Agreement, which took effect on
February 9,1998 generally ease restrictions on entry by foreign
telecommunications carriers from WTO member countries into the U.S. and
streamline FCC regulation of such carriers. Foreign entry restrictions and full
FCC regulation remain in effect for foreign telecommunications carriers from
non-WTO countries. The FCC's new policies implementing the WTO Agreement also
address the applicability to companies from WTO

                                       23

member and non-member countries of equivalency and other reciprocity principles
regarding international facilities-based and resale services, foreign ownership
limitations and foreign carrier entry into the U.S. market. At the same time,
telecommunications markets in many foreign countries are expected to be
significantly liberalized, creating additional competitive market opportunities
for U.S. telecommunications businesses such as us. Although many countries have
agreed to make certain changes to increase competition in their respective
markets, there can be no assurance that countries will enact or implement the
legislation required to effect the changes to which they have committed in a
timely manner or at all. Failure by a country to meet commitments made under the
WTO Agreement may give rise to a cause of action for the injured foreign
countries to file a complaint with the WTO.

    International telecommunications carriers are required to obtain authority
from the FCC under Section 214 of the Communications Act in order to provide
international service that originates or terminates in the United States. U.S.
international common carriers also are required to file and maintain tariffs
with the FCC specifying the rates, terms, and conditions of their services. In
1989, we received Section 214 authority from the FCC to acquire and operate
satellite facilities for the provision of direct international service to Italy,
Israel, Kenya, India, Iran, Saudi Arabia, Pakistan, Sri Lanka, South Korea and
the United Arab Emirates. We are also authorized to resell services of other
common carriers for the provision of switched voice, telex, facsimile and other
data services, and for the provision of INTELSAT business services and
international television services to various overseas points.

    On August 27, 1997, we were granted global facilities-based Section 214
authority under new FCC streamlined processing rules adopted in 1996 for
international carriers. We are classified by the FCC as a non-dominant carrier
on its international and domestic routes. A facilities-based global Section 214
authorization enables us to provide international basic switched, private line,
data, television and business services using authorized facilities to virtually
all countries in the world. In March 1999, the FCC once again streamlined its
rules for licensing and regulating international carriers. Among other things,
under the most recent rules a carrier with global Section 214 authorization for
facilities-based services will be allowed to utilize any foreign submarine cable
system in its provision of facilities-based international services without
additional authorization.

    Under FCC rules which took effect on February 9, 1998, upon entry into force
of the WTO Agreement of February 5, 1998, the FCC replaced the "equivalency"
test with a rebuttable presumption in favor of the provision of switched
services over interconnected private lines (international simple resale or ISR)
to WTO member countries. The FCC will authorize the provision of ISR between the
U.S. and a WTO member country if either the settlement rates for at least
50 percent of the settled U.S.-billed traffic between the U.S. and that country
are at or below the FCC's benchmark settlement rate for that country, or the
country satisfies the FCC's test for equivalent ISR policies. The FCC will
authorize ISR between the U.S. and a non-WTO member country only if both the
settlement rates for at least 50 percent of the settled U.S.-billed traffic
between the U.S. and that country are at or below the FCC's benchmark settlement
rate for that country, and the country satisfies the FCC's equivalency test.
Pursuant to FCC rules and policies, our authorization to provide service via ISR
will be expanded automatically to include countries subsequently approved by the
FCC for ISR.

    We must also conduct our international business in compliance with the FCC's
international settlements policy (IS Policy). The IS Policy establishes the
parameters by which U.S.-based carriers and their foreign correspondents settle
the cost of terminating each other's traffic over their respective networks. The
precise terms of settlement are established in a correspondent agreement (also
referred to as an "operating agreement"), which also sets forth the term of the
agreement, the types of service covered by the agreement, the division of
revenues between the carrier that bills for the call and the carrier that
terminates the call at the other end, the frequency of settlements, the currency
in which payments will be made, the formula for calculating traffic flows
between countries, technical standards, and procedures for the settlement of
disputes. The amount of payments (the settlement rate) is determined by the
negotiated accounting rate specified in the operating agreement. Under the IS
Policy, the settlement rate generally

                                       24

must be one-half of the accounting rate. Carriers must obtain waivers of the
FCC's rules if they wish to use an accounting rate that differs from the
prevailing rate or vary the settlement rate from one-half of the accounting
rate.

    The IS Policy is designed to eliminate foreign carriers' incentives and
opportunities to discriminate in their operating agreements among different
U.S.-based carriers through a practice referred to as "whipsawing." Whipsawing
involves a foreign carrier varying the accounting and/or settlement rate offered
to different U.S.-based carriers for the benefit of the foreign carrier, which
could secure various incentives by favoring one U.S.-based carrier over another.
Under the uniform settlements policy, U.S.-based carriers can only enter into
operating agreements that contain the same accounting rate and settlement terms
offered to all U.S.-based carriers in that country and provide for proportionate
return traffic. When a U.S.-based carrier negotiates an accounting rate with a
foreign carrier that is lower than the accounting rate offered to another
U.S.-based carrier for the same service, the U.S.-based carrier with the lower
rate must file a notification letter with the FCC. If a U.S.-based carrier does
not already have an operating agreement in effect, it must file a request with
the FCC to modify the accounting rate for that country to introduce service with
the foreign correspondent in that country. A U.S.-based carrier also must
request modification authority from the FCC for any proposal that is not
prospective, that is not a simple reduction in the accounting rate, or that
changes the terms and conditions of an existing operating agreement. The
notification and modification procedures are intended to provide all U.S.-based
carriers with an opportunity to compete in foreign markets on a
nondiscriminatory basis. Among other efforts to counter the practice of
whipsawing and inequitable treatment of similarly situated U.S.-based carriers,
the FCC adopted the principle of proportionate return--which requires that the
U.S. carrier terminate U.S.-inbound traffic in the same proportion as the
U.S.-outbound traffic that it sends to the foreign correspondent--to assure that
competing U.S.-based carriers have roughly equitable opportunities to receive
the return traffic that reduces the marginal cost of providing international
service.

    Consistent with its pro-competition policies, the FCC has prohibited
U.S.-based carriers from agreeing to accept special concessions from any foreign
carrier or administration with market power. A special concession is any
arrangement that affects traffic flow to or from the U.S. that is offered
exclusively by a foreign carrier or administration to a particular U.S. carrier
that is not offered to similarly situated U.S. carriers authorized to serve a
particular route.

    In 1996, the FCC amended the IS Policy to provide carriers with flexibility
to introduce alternative payment arrangements that deviate from the IS Policy.
As a result of the WTO Agreement, the FCC created a rebuttable presumption in
favor of alternative payment arrangements with WTO member countries. On
August 7, 1997, the FCC adopted revisions to reduce the level and increase
enforcement of its international accounting "benchmark" rates, which are the
FCC's target ceilings for prices that U.S. carriers should pay to foreign
carriers for terminating U.S. calls overseas. In May 1999, the FCC further
reformed its IS Policy by (1) eliminating the IS Policy and contract filing
requirements for arrangements with foreign carriers that lack market power;
(2) eliminating the IS Policy for arrangements with all carriers on routes where
rates to terminate U.S. calls are at least 25 percent lower than the relevant
settlement rate benchmark previously adopted by the FCC; (3) adopting changes to
contract filing requirements to permit U.S. carriers to file arrangements on a
confidential basis with foreign carriers with market power on routes where the
international settlements policy is removed; (4) adopting procedural changes to
simplify accounting rate filing requirements; and (5) eliminating the
flexibility policy in recognition that the reforms to the international
settlements policy render the flexibility policy largely superfluous. While
these rule changes may provide more flexibility to us to respond more rapidly to
changes in the global telecommunications market, it will also provide similar
flexibility to our competitors. We intend, where possible, to take advantage of
lowered accounting rates and more flexible settlement arrangements.

                                       25

    As of December 31, 1999, we had operating agreements and interconnection
arrangements with carriers in approximately 50 countries, primarily in emerging
economies. FCC regulations require that U.S. international telecommunications
carriers file copies of their contracts with dominant foreign carriers,
including operating agreements, with the FCC within 30 days of execution. We
have filed, or will file, operating agreements with the FCC as required. The
FCC's rules also require us to file periodically a variety of reports regarding
its international traffic flows and use of international facilities. We have on
file, and maintain with the FCC, annual circuit status reports and traffic data
reports. An FCC rulemaking proceeding is pending in which it has proposed to
reduce certain reporting requirements of common carriers. We are unable to
predict the outcome of this proceeding or its effect on us.

    The FCC is currently considering whether to limit or prohibit the practice
whereby a carrier routes, through its facilities in a third country, traffic
originating from one country and destined for another country. The FCC has
permitted third country calling where all countries involved consent to this
type of routing arrangements, referred to as "transiting." Under certain
arrangements referred to as "refiling," the carrier in the destination country
does not consent to receiving traffic from the originating country and does not
realize the traffic it receives from the third country is actually originating
from a different country. The FCC to date has made no pronouncement as to
whether refile arrangements comport either with U.S. or ITU regulations. It is
possible that the FCC may determine that refiling, as defined, violates U.S.
and/or international law. To the extent that our traffic is routed through a
third country to reach a destination country, such an FCC determination with
respect to transiting and refiling could have a material adverse effect on our
business, financial condition and results of operations.

    The FCC also regulates the ability of U.S.-based international carriers
affiliated with foreign carriers to serve markets where the foreign affiliate is
dominant. Previously, U.S. carriers were required to report any investment by a
foreign carrier of 10% or greater, and we reported the only foreign carrier
investment in us at the time, an affiliate of Portugal Telecom. Under the FCC's
new rules implementing the WTO Agreement, which took effect on February 9, 1998
the threshold for notification of affiliations with foreign carriers has been
increased to 25%. Under the new rules, we are affiliated with Global
Communications GmbH, a licensed carrier in Germany, and Phone Systems and
Network, S.A., a licensed carrier in France. The FCC considers a
foreign-affiliated U.S. carrier to be dominant on foreign routes where the
foreign affiliate is a monopoly or has more than 50 percent market share in
international or local telecommunications. None of the carriers with which we
are affiliated are considered dominant in their foreign markets, and we are not
regulated as dominant on any international route.

    In September 1999, the FCC adopted a policy allowing United States users of
International Telecommunications Satellite Organization (INTELSAT) satellite
services to have direct access to the INTELSAT system. The policy is designed to
promote competition in international satellite communications and strengthens
the competitiveness of U.S. carriers and service providers in the global
communications market. Previously, U.S. users had to go through Comsat
Corporation (Comsat) exclusively to gain access to INTELSAT. Interexchange
carriers, broadcast networks, and earth station operators will now be able to
order, receive, and pay INTELSAT for use of satellite services at the same rates
that INTELSAT charges its Signatories. As a result, U.S. companies will be able
to compete on a level playing field with foreign companies that already have
direct access to the INTELSAT system. The new policy may also put competitive
pressure on Comsat rates and the rates of competing satellite operators, and
enhance the ability of U.S. carriers to compete globally with their counterparts
that obtain capacity directly from INTELSAT.

    The FCC may condition, modify or revoke any of the Section 214
authorizations granted to us for violations of the Communications Act, the FCC's
rules and policies or the conditions of those authorizations or may impose
monetary forfeitures for such violations. Any such action on the part of the FCC
may have a material adverse effect on our business, financial condition and
results of operations.

                                       26

    INTERNET SERVICES, INTERNET TELEPHONY AND ADVANCED SERVICES

    In the U.S., Internet services, including voice communications over the
Internet or Internet telephony, currently are treated as information services
and may be provided on an unregulated basis. In December 1996, the FCC initiated
a Notice of Inquiry (the "Internet NOI") regarding whether to impose regulations
or surcharges upon providers of Internet access and information services. The
Internet NOI specifically identifies Internet Telephony as a subject for FCC
consideration. This proceeding remains pending. In April 1998, the FCC filed a
report with Congress stating that Internet access falls into the category of
information services, and should not be subject to common carrier regulation,
including the obligation to pay access charges, but that the record suggests
that some forms of Internet services may be more like telecommunications
services than information services, and possibly should be subject to common
carrier regulation. To our knowledge, there are no domestic and only a few
foreign laws that prohibit voice communications over the Internet.

    In addition, several efforts have been made to enact federal legislation
that would either regulate or exempt from regulation services provided over the
Internet. State PUCs may also retain jurisdiction to regulate the provision of
intrastate Internet telephone services. If Congress, the FCC, or a state utility
commission begins to regulate Internet Telephony, there can be no assurances
that any such regulation will not materially adversely affect our business,
financial condition or results of operations. Similarly, certain foreign
governments have begun to consider more closely the regulatory status of
Internet services, especially Internet Telephony. We cannot predict the
likelihood that U.S. federal or state authorities or foreign governments will
impose additional regulation on our Internet-related services, nor can we
predict the impact that future regulation will have on our operations.

    In September 1999, the FCC initiated a notice of inquiry regarding voice
over Internet telephony (both computer to computer and phone to phone Internet
telephony) seeking comment on the availability of Internet telephony, the extent
it has begun to replace traditional telecommunications services, the percentage
of disabled persons who utilize Internet telephony, and whether it falls under
the purview of Section 255 of the Telecommunications Act. Section 255 of the
Telecommunications Act requires a provider of telecommunications service to
ensure that its service is accessible and usable by persons with disabilities,
if readily achievable. Our operations could be materially impacted if the FCC
decides to adopt rules subjecting Internet Telephony to the requirements of
Section 255 since it would require us to ensure that our Internet telephony
services are compatible with telecommunications devices used by the disabled.

    The FCC also has initiated proceedings addressing the availability of
advanced communications services to all Americans.

    The FCC has developed new rules on a wide variety of issues associated with
the provision of advanced services by wireline carriers. For example, the FCC
clarified that the interconnection, unbundling and resale obligations of
incumbent local exchange carriers (ILECs) under Section 251 of the 1996 Act
extend to their provision of advanced services, and proposed measures to promote
the deployment of advanced services by both ILECs and competitive local exchange
carriers (CLECs). In rules adopted in March 1999, the FCC required expanded
physical collocation rights for CLECs and strengthened the rights of CLECs to
order unbundled network elements required to provide advanced services. However,
the FCC also interpreted the 1996 Act as permitting ILECs to deploy advanced
services through separate affiliates which would not be regulated as an ILEC. In
October 1999, the FCC issued a Notice of Proposed Rulemaking in which it sought
comment on its proposed data gathering requirements that will be used by the FCC
to assess the deployment of broadband facilities. Also in October 1999, the FCC
convened a Joint Conference for state regulatory commissions and the FCC to
facilitate the cooperative development of policies to promote the widespread
deployment of advanced services.

    In February 2000, the FCC released a Notice of Inquiry, which begins its
second inquiry into whether advanced telecommunications capability is being
deployed to all Americans in a reasonable and timely fashion. The FCC was
encouraged by the ongoing level of investment in high-speed services by many

                                       27

companies, but was concerned that only a small percentage of Americans actually
subscribe to high-speed services. The FCC sought comment from the
telecommunications industry to determine the extent to which broadband
infrastructure is being deployed, who has access to it and who does not. The FCC
will utilize this information to determine if any regulatory action is
necessary. These new rules should enhance the flexibility of our options for
providing advanced services, but we cannot predict the final outcome of these
proceedings or any court appeals that might ensue.

    INTERSTATE INTEREXCHANGE SERVICES

    Our provision of domestic long distance service in the United States is
subject to regulation by the FCC and certain state PSCs, who regulate to varying
degrees interstate and intrastate rates, respectively, ownership of transmission
facilities, and the terms and conditions under which our domestic services are
provided. We must comply with the requirements of common carriage under the
Communications Act. Pursuant to the Communications Act, we are subject to the
general requirement that our charges and regulations for communications services
must be "just and reasonable" and that we may not make any "unjust or
unreasonable discrimination" in our charges or regulations. Carriers like us
also are subject to a variety of miscellaneous regulations that, for instance,
govern the documentation and verifications necessary to change a consumer's long
distance carrier, require the filing of periodic reports, and restrict
interlocking directors and management. We have also filed domestic long distance
tariffs with the FCC. The FCC also has jurisdiction to act upon complaints
against any common carrier for failure to comply with its statutory obligations.

    The FCC has established different levels of regulation for dominant and
non-dominant carriers. Among domestic common carrier service providers, only
GTE, the RBOCs and other ILECs are classified as dominant carriers, and all
other providers of domestic common carrier services, including us, are
classified as non-dominant carriers. The 1996 Act provides the FCC with the
authority to forebear from imposing any regulations it deems unnecessary,
including requiring non-dominant carriers to file tariffs. In November 1996, in
its first major exercise of regulatory forbearance authority granted by the 1996
Act, the FCC issued an order detariffing domestic interexchange services. The
order required mandatory detariffing and gave carriers like us nine months to
withdraw federal tariffs and move to contractual relationships with its
customers. This order was to take effect as of December 1997. On February 13,
1997, however, the U.S. Court of Appeals for the District of Columbia Circuit
stayed the FCC's order pending judicial review. The appeal remains pending.

    Should the appeal fail and the FCC's order become effective, we may benefit
from the elimination of FCC tariffs by gaining more flexibility and speed in
dealing with marketplace changes. The absence of tariffs, however, will also
require that we secure contractual agreements with our customers regarding many
of the terms of the existing tariffs or face possible claims arising because the
rights of the parties are no longer clearly defined. To the extent that our
customer base involves "casual calling" customers, the potential absence of
tariffs could require us to establish contractual methods to limit potential
liability. On August 20, 1997, the FCC partially reconsidered its order by
allowing dial-around carriers like us to maintain tariffs on file with the FCC.

    The 1996 Act directs the FCC, in cooperation with state regulators, to
establish a Universal Service Fund ("USF") that will provide subsidies to
carriers that provide service to under-served individuals and in high cost
areas. A portion of carriers' contributions to the USF also will be used to
provide telecommunications related facilities for schools, libraries and certain
rural health care providers. The FCC released its order in June 1997. For the
first quarter of 2000, the FCC established a contribution factor for all
interexchange carriers of nearly 6% of eligible interstate, and international
long distance service revenues. Any increase in the universal service
contribution factor may increase our contribution to the USF and negatively
impact our performance.

                                       28

    In November 1999, the FCC released two Orders in which it (1) established a
new federal high-cost support mechanism that is designed to enable non-rural
carriers' rates for services supported by universal service to remain affordable
and reasonably comparable in all regions of the country, and (2) adopted final
input values for the cost model used to determine the forward-looking costs of
providing supported services, respectively. The new high cost support mechanism
will provide support to non-rural carriers to the extent their estimated
intrastate forward-looking costs of providing supported services in high-cost
areas exceed the national benchmark, which is set at 135% of the national per
line average. The FCC's new forward-looking high-cost support mechanism for
non-rural carriers began providing support effective January 1, 2000.
Implementation of the subsidy will increase burdens on interexchange carriers
that must contribute to the USF. The FCC, however, allows interexchange carriers
to pass these charges through to their customers. The FCC's implementation of
universal service requirements remains subject to judicial and additional FCC
review. We are unable to predict the potential impact of these universal service
funding reforms. Based upon our domestic interexchange revenues, we have applied
to the FCC for a waiver of USF contribution requirements. We cannot predict the
likelihood that its request will be granted.

    In July 1999, the FCC issued a Notice of Inquiry (NOI) into the effect of
certain charges imposed on low-volume users of interstate long-distance service.
The inquiry addresses a variety of flat-rated charges that appear on consumers'
bills, such as charges to recover the presubscribed interexchange carrier
charges long distance carriers' monthly minimum-usage charges, and charges to
recover USF contributions. The FCC generally seeks to determine whether
low-volume consumers are paying their fair share of the costs of interstate
access, universal service, and carriers' costs of maintaining accounts or more
than their fair share. If low-volume users are determined to be paying more than
there fair share, the FCC may explore what corrective actions might be taken by
the FCC, by state commissions, by the carriers, or by consumers themselves to
rectify this problem. While the FCC stated the NOI was not designed to increase
regulation, the proceeding may result in changes in the manner in which
interexchange carriers may recover such charges from consumers.

    CASUAL CALLING ISSUES

    The FCC has adopted new rules that expand the number of codes available for
casual calling services. An increase in the number of codes available for casual
calling allows for increased competition in the casual calling industry. In
addition, the FCC is considering rules to require dominant local exchange
carriers and competitive local exchange carriers to make billing arrangements
available on a nondiscriminatory basis to casual calling service providers. We
already have LEC billing arrangements in place but may wish to take advantage of
rules the FCC may adopt to develop new billing arrangements with competing LECs.
Competing casual calling providers without billing arrangements also would
benefit from such a nondiscriminatory billing obligation.

    OTHER LEGISLATIVE AND REGULATORY INITIATIVES

    The 1996 Act is designed to promote local competition through state and
federal deregulation. As part of its pro-competitive policies, the 1996 Act
frees the Regional Bell Operating Companies (RBOCs) from the judicial orders
that prohibited their provision of long distance services outside of their
operating territories (LATAs). The 1996 Act provides specific guidelines that
allow the RBOCs to provide long distance inter-LATA service to customers inside
its region, subject to a demonstration to the FCC and state regulators that the
RBOC has opened up its local network to competition and met a "competitive
checklist" of requirements designed to provide competing network providers with
nondiscriminatory access to the RBOC's local network.

    Some RBOCs have filed applications with various state public utility
commissions and the FCC seeking approval to offer in-region interLATA service.
Some states have denied these applications while others have approved them. In
December 1999, the FCC for the first time approved an RBOC's Section 271
application to provide long distance telephone service. The FCC authorized Bell
Atlantic to

                                       29

provide long distance service in New York State. AT&T Corp. and other carriers
have appealed the FCC decision, which is being considered by the Court of
Appeals for the District of Columbia Circuit. The grant of such authority to
Bell Atlantic and other RBOC's will increase competition in the provision of
domestic and international long distance services.

    To originate and terminate calls in connection with providing their
services, long distance carriers like us must purchase "access services" from
ILECs or CLECs. Access charges represent a significant portion of our cost of
U.S. domestic long distance services and, generally, such access charges are
regulated by the FCC for interstate services and by PSCs for intrastate
services. In May 1997, the FCC released an order that fundamentally restructured
the "access charges" that ILECs charge to interexchange carriers and end user
customers. Appeals by numerous parties were denied by the Eighth Circuit Court
of Appeals on August 19, 1998. Subsequently, the FCC proposed various measures
to accelerate reductions in ILEC access charges and to give ILECs increased
flexibility to set prices in response to competition. Together, these actions
could significantly reduce the prices of ILEC access services to us, as well as
to our competitors.

    In August 1999, the FCC revised its rules that govern the provision of
interstate access services by those local exchange carriers (LECs) subject to
price cap regulation. The FCC implemented a market-based approach, pursuant to
which price cap LECs would receive pricing flexibility in the provision of
interstate access services as competition for those services develops. The Order
granted immediate pricing flexibility to price cap LECs in the form of
streamlined introduction of new services, geographic deaveraging of rates for
services in the trunking basket, and removal, upon implementation of
toll-dialing parity, of certain interstate interexchange services from price cap
regulation. It also established a framework for granting price cap LECs greater
flexibility in the pricing of all interstate access services once they satisfy
certain competitive criteria. Pursuant to a two-phase introduction, the FCC will
(1) allow price cap LECs to offer contract tariffs and volume and term discounts
for those services for which they make a specific competitive showing, and
(2) permit price cap LECs to offer dedicated transport and special access
services free rate structure and price cap rules, provided that the LECs can
demonstrate a significantly higher level of competition for those services. The
FCC also issued a Notice of Proposed Rulemaking seeking comment on proposals for
geographic deaveraging of the rates for services in the common line and
traffic-sensitive baskets. The FCC denied a petition for declaratory ruling
filed by AT&T requesting that the FCC confirm that interexchange carriers may
elect not to purchase switched access services offered under tariff by
competitive local exchange carriers. While the FCC declined to address AT&T's
concerns in a declaratory ruling it did find that AT&T's petition and supporting
comments suggest a need for the FCC to revisit the issue of CLEC access rates.
Therefore, it initiated a rulemaking regarding the reasonableness of these
charges and whether the FCC might adopt rules to address, by the least intrusive
means, any failure of market forces to constrain CLEC access charges.

    In implementing the local competition provisions of the 1996 Act, the FCC
has promulgated a series of rules regarding interconnection between ILECs and
CLECs. The issues addressed by the FCC have included requirements for
non-discriminatory interconnection, access to unbundled network elements,
physical collocation of equipment, transport and termination charges, pricing
methodologies, resale requirements and access to rights of way. Most provisions
of the FCC's orders adopting these interconnection rules were appealed, and
numerous appeals were consolidated for consideration by the Eighth Circuit. In a
decision released in July 1997 and modified in August 1997, the Court of Appeals
upheld in part and reversed in part the FCC's orders. In addition, in
August 1998, the Eighth Circuit issued a ruling in a related appeal upholding
the FCC's regulations that "shared transport" be made available as an unbundled
network element.

    On January 25, 1999, the U.S. Supreme Court reversed important portions of
the Eighth Circuit's holding, ruling that the FCC properly exercised its
authority under the 1996 Act in many respects. The Eighth Circuit Court of
Appeals has not yet reinstated the FCC rules that the Supreme Court affirmed.
Several ILECs have asked the Eighth Circuit not to reinstate those rules until
it considers their argument

                                       30

that the FCC's pricing rules for network elements represent an unconstitutional
taking of property without just compensation. Even if the Eighth Circuit recalls
its prior mandate, it remains to be seen how soon or how vigorously the FCC will
enforce its pricing rules for unbundled network elements.

    Certain other aspects of the FCC's interconnection orders were vacated by
the Eighth Circuit but were not appealed to the Supreme Court; thus, they remain
vacated. These include FCC rules that had directed ILECs to combine network
elements requested by competitors whether or not those elements had previously
been combined, and a provision requiring ILECs to provide interconnection
superior in quality to those provided by the ILECs to themselves, when requested
to do so by competitors. A trade association representing competitive long
distance carriers has petitioned the Eighth Circuit to interpret the Supreme
Court's decision as implying that the new combinations rule should be
reinstated, even though it was not directly addressed by the Supreme Court.

    The ultimate resolution of local interconnection issues could enhance our
flexibility in terminating customer traffic. Certain additional provisions of
the 1996 Act, and the rules that have been proposed to be adopted pursuant
thereto, could materially affect the growth and operation of the
telecommunications industry and the services provided by us. Further, certain of
the 1996 Act's provisions have been, and likely will continue to be, judicially
challenged. We are unable to predict the outcome of such rulemakings or
litigation or the substantive effect of the new legislation and the rulemakings
on our business, financial condition and results of operations.

    The Telecommunications Act of 1996 contains provisions imposing criminal
liability on: (1) persons sending or displaying indecent material on an
interactive computer service such as the Internet in a manner available to
minors and (2) entities knowingly permitting facilities under their control to
be used for such activities. The U.S. Supreme court held these provisions to be
unconstitutional in 1997. In 1998, Congress passed the Child Online Protection
Act ("COPA") imposing criminal liability and civil liability on any person who
by means of the World Wide Web, makes any communication for commercial purposes
available to minors that includes material that is harmful to minors. COPA is
geared towards preventing minors from accessing indecent material on the
Internet by criminalizing certain communications to minors and imposing a
"filtering" requirement on ISPs. The sections of COPA that impose criminal and
civil liability for the dissemination of harmful material to minors have been
stayed by the U.S. District Court for the Eastern District of Pennsylvania
pending a trial on their constitutionality. However, the "filtering" requirement
in COPA has not been stayed, and ISPs must notify users of existing measures
(e.g. hardware, software, and filtering devices) that may assist the users in
limiting minors' access to harmful material. Subsequent enforcement of the
liability provisions of COPA restricting minors' access to harmful material may
chill the development of Internet content or have other adverse effects on ISPs
like us. In addition, in light of the uncertainty attached to the enforcement of
the law, there can be no assurances that we would not have to modify our
operations to comply with COPA, including, among other things, prohibiting users
from maintaining home pages on the Web that contain material deemed harmful to
minors.

    In October 1999, the Federal Trade Commission completed its rulemaking
implementing the Children's Online Privacy Protection Act of 1998 (COPPA). COPPA
goes into effect on April 21, 2000, after which online services and Web site
operators who have actual knowledge that they are collecting personally
identifiable information online from children or who target their Web sites or
services or portions thereof to children under 13 years of age without complying
with its requirements will face the risk of prosecution by the FTC and State
Attorneys General. Collecting information includes providing a child with the
ability to have an e-mail account or the ability to post to a chat room,
bulletin board or other online forum. COPPA's primary goal is to require
parental consent before a child can make personal information publicly available
through chat rooms or e-mail. In addition, COPPA, subject to several exceptions,
limits what a commercial site can collect without prior parental consent even
though there is no evidence of harm to children resulting from data collection
from children. We cannot predict the impact of this Act on our business.

                                       31

    The Digital Millennium Copyright Act, which was signed by the President on
October 24, 1998, includes a variety of copyright measures and creates new rules
governing the liability of ISPs and sites for the copyright infringements of
users. The Act provides protection to ISPs and site operators for violations by
third parties on their systems. The Act also provides copyright owners remedies
to obtain rapid take downs of infringing material online, as well as a method of
obtaining the identity of individuals who infringe on their copyrights.

    Congress has recently adopted legislation that regulates certain aspects of
the Internet, including on-line content, user privacy and taxation. For example,
the Internet Tax Freedom Act prohibits certain taxes on Internet uses through
October 21, 2001. We cannot predict whether substantial new taxes will be
imposed on our services after that date. In addition, Congress and other federal
entities are considering other legislative and regulatory proposals that would
further regulate the Internet. Congress is, for example, currently considering
legislation on a wide range of issues including Internet spamming, database
privacy, gambling, Internet fraud, and privacy. Various states have adopted and
are considering Internet-related legislation. Increased United States regulation
of the Internet may slow its growth, particularly if other governments follow
suit. If this were to occur, our business may be negatively impacted.

    On March 1, 2000, the FCC and the Federal Trade Commission issued a joint
policy statement on deceptive advertising of long distance telephone services,
including dial-around services. The Policy Statement offers guidance to carriers
to ensure that their advertising is truthful, complete and non-misleading. It
also describes the kind of factors the FCC will consider in determining whether
to bring enforcement action against carriers for deceptive advertising
practices. The principles of truth and accuracy apply to advertisements conveyed
via television, radio, magazines, newspapers, direct mail, telemarketing, the
Internet, or oral representations made by customer service operators. The Policy
Statement expressly states that it does not preempt existing state law.

    CONSUMER INFORMATION

    In May 1999, the FCC adopted principles and guidelines to make it easier for
consumers to read and understand their telephone bills. The FCC enacted broad
guidelines that implement three basic principles--consumers should know:
(1) who is asking them to pay for service, (2) what services they are being
asked to pay for, and (3) where they can call to get more information about the
charges appearing on their bill.

    In March 1999, the FCC adopted rules which will require long distance
carriers publicly disclose their rates to the public in an easy-to-understand,
clear format, once these services are detariffed. Specifically, the order
requires long distance carriers to make the rates, terms, and conditions of
their interstate, domestic, long distance services available to the public in at
least one location during regular business hours. Carriers that have an Internet
Web site must also post this information on-line in a timely and easily
accessible manner. The FCC initially established a public disclosure requirement
in its SECOND REPORT AND ORDER in October 1996 that ordered complete detariffing
pursuant to the forbearance provisions of section 10 of the Communications Act.
The Court of Appeals for the District of Columbia Circuit subsequently stayed
the rules adopted in the DETARIFFING ORDER pending a decision on appeal. The
court also held its proceedings in the appeal of the SECOND REPORT AND ORDER in
abeyance to allow the FCC to act on petitions for reconsideration of the SECOND
REPORT AND ORDER and the subsequent ORDER ON RECONSIDERATION. The public
disclosure requirement, therefore, will not be effective until the court's
ruling on the merits of the SECOND REPORT AND ORDER.

STATE REGULATION

    INTERSTATE SERVICES

    Section 253 of the 1996 Act prohibits states and localities from adopting or
imposing any legal requirement that may prohibit, or have the effect of
prohibiting, the ability of any entity to provide any

                                       32

interstate or intrastate telecommunications services. The FCC has the authority
to preempt any such state or local requirements to the extent necessary to
enforce the open market entry requirements of the 1996 Act. States and
localities may, however, continue to regulate the provision of intrastate
telecommunications services, and, presumably, require carriers to obtain
certificates or licenses before providing service.

    Generally we are required to obtain certification from the relevant state
PSC prior to the initiation of intrastate service and to file tariffs with such
states. Through our subsidiary, Startec Global Licensing Company, we are
currently authorized (or certification is not required) to provide service in 40
states and the District of Columbia. Additional applications for approval are
pending in three states. In some states where we are already certified, we are
seeking or may seek modification of our certification to provide
facilities-based, in addition to resale, services. Although we intend and expect
to obtain operating authority in each jurisdiction in which operating authority
is required, there can be no assurance that one or more of these jurisdictions
will not deny our request for operating authority. Any failure to maintain
proper federal and state certification or tariffs, or any difficulties or delays
in obtaining required certifications could have a material adverse effect on our
business, financial condition and results of operations.

    Many states also impose various reporting requirements and/or require prior
approval for transfers of control of certified carriers, corporate
reorganizations, acquisitions of telecommunications operations, assignments of
carrier assets, carrier stock offerings, and incurrence by carriers of
significant debt obligations. 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 PSCs. Fines and other penalties also may be imposed for such
violations. Any such action by the PSCs could have a material adverse effect on
our business, financial condition and results of operations. As we expand our
operations into other states, we may become subject to the jurisdiction of their
respective PSCs for certain services offered by us. We monitor regulatory
developments in all 50 states to ensure regulatory compliance.

FOREIGN REGULATION

    EUROPEAN UNION

    As we have expanded our operations into Europe, it has become subject to the
regulations established by various European governments. These regulations, in
turn, are evolving within the context of a European-wide telecommunications
framework established by the European Commission (EC) for the entire European
Union (EU). The EU consists of the following fifteen member states: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden and the United Kingdom. Our expansion
into any EU country may be directly or indirectly affected by the EC regulatory
framework.

    EU member states are required to implement directives issued by the EC
authorities (the EU Commission and the Council of the European Union) by passing
national legislation. If an EU member state fails to effect such directives with
national (or, as the case may be, regional, community or local) legislation
and/or fails to render the provisions of such directives effective within its
territory, the EC may take action against the EU member state, including
proceedings before the European Court of Justice, to enforce the directives.

    The EC and Council of the EU have issued a number of key regulations and
directives establishing basic principles for the liberalization of the EU
telecommunications market. The general framework for this liberalized
environment has been set out in the EC's Services Directive. The Services
Directive sets out principles relating to restrictions on the number of licenses
permitted and to procedures, fees, essential requirements and appeals. The
Services Directive directs EU member states to permit the competitive provision
of all telecommunications services with the exception of voice telephony (which
does not include value-added services and voice services within closed user
groups) and certain other services that have been gradually liberalized through
subsequent amendments to the Services Directive.

                                       33

    The Full Competition Directive, adopted in March 1996, amended the Services
Directive to set January 1, 1998 as the date by which all EU member states were
required to remove all remaining restrictions on the provision of
telecommunications services and telecommunications infrastructure, including
voice telephony. Certain derogations from compliance with this timetable have
been granted. The derogations granted by the EC are as follows: Luxembourg
(July 1, 1998), Spain (November 30, 1998), Ireland (January 1, 2000), Portugal
(January 1, 2000) and Greece (January 1, 2001).

    This basic framework has been advanced by a series of harmonization
directives, which include the so-called Open Network Provision directive (ONP),
which established the basic rules for access to the public network, the Leased
Lines Directive, which required the incumbent carriers to lease lines to
competitors and end-users and to establish cost accounting systems for those
products by the end of 1993, the Licensing Directive of April 1997, which set
out framework rules for the procedures associated with the granting of national
authorizations for the provision of telecommunications services and for the
establishment or operation of any infrastructure for the provision of
telecommunications services, and the Interconnection Directive of June 1997,
which sets out the regulatory framework for securing in the EU the
interconnection of telecommunications networks.

    The EU has also enacted a directive on data protection that imposes
restrictions on the processing of personal data which are more restrictive than
current United States privacy standards. Under the directive, personal data
about EU residents may not be transferred outside the EU unless certain
specified conditions are met. In addition, persons whose personal data is
collected, processed or transferred within the EU are guaranteed a number of
rights, including the right to access and obtain information about their data,
the right to have inaccurate data rectified, and the right to object to the
processing of their data for direct marketing purposes. The directive affects
all companies that collect, process or transfer personal data in the EU or
receive personal data from the EU. It may also affect companies that collect or
transmit information over the Internet from individuals in the EU. For example,
companies that do business in the EU may not be permitted to transfer personal
data to countries that do not maintain adequate levels of data protection. The
EU also has a separate directive on the privacy and processing of personal data
in the telecommunications sector. Although we do not engage in the collection of
data for purposes other than the routing of calls and billing, the data
protection directives are quite broad and the EU privacy standards are
stringent. The potential effect of these directives on the development of our
business is uncertain.

    A 1998 amendment to the Interconnection Directive calls for the introduction
of operator number portability by January 1, 2000 and extended the requirement
of number portability to the entire fixed network. The amended Directive further
requires the introduction of carrier preselection for at least all fixed network
operators by January 1, 2000. Each EU member state in which we currently conduct
business has a different regulatory regime, and we expect such differences to
continue. Accordingly, we must obtain different approvals, where required, from
country to country. As part of the EC commitment, all EU member states are also
signatories to the WTO Agreement.

    In November 1999, the EC released a report setting forth principles for the
development of a new framework for the regulation of EU communications
infrastructure and associated services. Based on comments submitted by
interested parties in February 2000, the EC expects to produce proposals to
amend the existing regulatory framework in the first half of 2000. Among others,
new regulatory measures will be adopted in the following areas: (i) licensing
and authorizations; (ii) access and interconnection; (iii) management of radio
spectrum; (iv) universal service; (v) number portability; (vi) consumer
protection; and (vi) competition. The EC indicated that it did not support the
creation of Internet-specific rules, instead the EC expressed its desire to
treat Internet transmission services in the same way as other transmission
services.

    A proposal for a directive to establish a coherent legal framework for the
development of electronic commerce was put forth by the EC in November 1998. The
directive would cover all information services, both business to business and
business to consumer services, including services provided free of charge to

                                       34

the recipient (e.g. funded by advertising or sponsorship revenue and services
allowing for on-line electronic transactions such as interactive teleshopping of
goods and services and on-line shopping malls). The proposed Directive would
establish specific harmonized rules only in those areas strictly necessary to
ensure that businesses and citizens could supply and receive information society
services through the EU, irrespective of frontiers. These areas include
definition of where operators are established, electronic contracts, liability
of intermediaries, dispute settlement and role of national authorities. In other
areas the Directive would build on existing EU instruments which provide for
harmonization or on mutual recognition of national laws. The Directive would
apply only to service providers established within the EU and not those
established outside.

    OUR MAJOR INTERNATIONAL MARKETS

    AUSTRIA.  Austria joined the EU in January 1995 and, consequently, became
subject to the telecommunications directives of the EC, including the agreement
for total market liberalization by January 1998. In compliance with the EU
directives, in particular in response to an official EU directive warning
Austria of the consequences of delaying deregulation, a new telecommunications
law (TKG 97) was passed by Parliament on August 1, 1997. The TKG 97 introduced
full competition to the Austrian telecommunications market and established a new
independent regulatory body, the Telekom Control Commission, to issue licenses
and monitor compliance with telecom regulations.

    Under the TKG 97, an individual license is required only for the provision
of public voice telephony services, leased lines offered to the public by means
of a fixed telecommunications network, public mobile telephony services and
other mobile communications provided using a mobile communications network. All
other services, public or non-public, may be provided upon notification to the
Telekom Control Commission. Currently, Internet telephony is not covered by the
legal provisions for "public voice telephony service." Any operator or service
provider can offer Internet services.

    Startec Global Communications U.K. Ltd. (Startec UK), a wholly owned
subsidiary of Startec Global Communications Corporation, was incorporated on
April 27, 1998. Startec UK holds various telecommunications licenses and/or
authorizations that allow it to offer services both in the United Kingdom and
other European countries. In Austria, Startec UK holds a license for the
provision of voice telephone by self-operated telecommunications network in
Austria. This license allows for interconnection to Telekom Austria AG, the
former monopoly PTT, and for the provision of retail and wholesale services in
Austria.

    CANADA.  The Canadian market has been significantly liberalized over the
past year. As of October 1, 1998, international voice service, previously
provided exclusively by Teleglobe, was opened to full competition. The domestic
long distance market also has become more competitive as a result of the break
up of the Stentor Alliance, comprised of nine provincial incumbent local
exchange carriers, and the announcement by other companies of their intent to
offer nationwide long distance service. Additionally, the Canadian government
has relaxed long distance routing restrictions so that carriers may now route
domestic and international traffic according to the most economical route, even
by transiting or hubbing through the United States. These market and regulatory
changes will provide increased opportunity for competitive entry in both
domestic and international long distance services markets. Section 16 of the
Telecommunications Act restricts Canadian facilities based carriers to a maximum
total of 46.7% of direct and indirect foreign ownership of voting shares.

    Startec Global Communications Company Canada (Startec Canada), was
incorporated on July 29, 1998. Startec Canada has obtained a Class A License,
enabling it to provide commercial and wholesale telecommunication services in
Canada. Startec Canada has also obtained extra-provincial registrations in Nova
Scotia, Ontario, Manitoba, Alberta and British Columbia. Startec Canada
currently offers retail prepaid services in British Columbia, Quebec and Ontario
and wholesale carrier services nationwide.

    CHINA.  China's regulatory regime remains one of the strictest in the world.
Some analysts predict that foreign participation in the Chinese
telecommunications industry will be relatively slow. These

                                       35

analysts believe that local, domestic long distance, and international gateway
facilities services will remain under Chinese government control for several
years. China has some government-affiliated ISPs and some small independent ISPs
that are not linked to the Internet. Access to the Chinese market remains
uncertain.

    EGYPT.  Telecom Egypt has a monopoly on national long distance and
international long distance telephony. There does not appear to be plans to
introduce competition in these segments of the market in the near future. The
Telecommunication Regulatory Authority (TRA) regulates the telecommunications
industry in Egypt. Among other things, the role of TRA is to issue licenses,
consent to changes to tariffs, and ensure adequate quality of services. Both
Egypt Telecom and TRA operate under the Ministry of Transportation and
Communication. It is possible that a portion of the Egyptian telecommunication
industry may be privatized in the future.

    FRANCE.  In July 1996, legislation was enacted providing for the immediate
liberalization of all telecommunications activities in France, but maintaining a
partial exception for the provision of voice telephony. Voice telephony was
subsequently fully liberalized on January 1, 1998. The establishment and
operation of public telecommunications networks and the provision of voice
telephony are subject to individual licenses, which are granted by the minister
in charge of telecommunications upon recommendation of France's independent
regulatory authority, the Autorite de Regulation des Telecommunications (ART).

    GERMANY.  The German Telecommunications Act of July 25, 1996 liberalized all
telecommunications activities, but postponed effective liberalization of voice
telephony until January 1, 1998. The German Telecommunications Act has been
complemented by several Ordinances. The most significant Ordinances concern
license fees, rate regulation, interconnection, universal service, frequencies
and customer protection.

    Under the German regulatory scheme, licenses can be granted within four
license classes. A license is required for operation of transmission lines that
extend beyond the limits of a property and that are used to provide
telecommunications services for the general public. The licenses required for
the operation of transmission lines are divided into three infrastructure
license classes: mobile telecommunications (license class 1), satellite (license
class 2), and telecommunications services for the general public (license
class 3). In addition to the infrastructure licenses, a license is required for
operation of voice telephony services over self-operated telecommunications
networks (license class 4). A class 4 license does not include the right to
operate transmission lines.

    Startec Global Communications (Germany) GmbH (Startec Germany), is a wholly
owned subsidiary of Startec. In December 1998, Startec Germany purchased Global
Communications GmbH, a German carrier with Siemens EWSD switch located in
Dusseldorf. Global Communications GmbH holds a Class 4 (Nationwide) license, and
an interconnection agreement with Deutsche Telekom which allows us to provide a
full range of telecommunication services and to obtain interconnection with
Deutsche Telekom. An interconnection agreement with Deutsche Telekom has been
signed with final physical interconnect pending. Currently also, Startec Germany
has installed a POP site in Frankfurt which is being upgraded to a Siemens EWSD
switch. We offer wholesale and retail prepaid services in Germany.

    HONG KONG.  The international telecommunications services market is open for
competition. As of September 30, 1999, 33 companies have filed for licenses to
provide international fixed telecommunications network services in Hong Kong. We
expect to face stiff competition in this market.

    INDIA.  In 1999, the Government of India announced a series of regulatory
initiatives designed to change the telecommunications market in India. The
primary initiatives include: (1) Indian commitment to creating a strong and
independent regulator; (2) privatizing the Department of Telecommunications (by
2001); (3) changing its licensing regime for new licenses (from fixed fee to
entry fee plus revenue share); (4) opening its domestic long distance market;
(5) reviewing its international service monopoly;

                                       36

(6) allowing more carriers to provide fixed line services; and (7) monitoring
and reviewing the merits of allowing Internet telephony (which is currently
prohibited).

    IRELAND.  Ireland has recently accelerated the liberalization of its
telecommunications market, implementing full competition a year ahead of
schedule. On December 1, 1998 Ireland granted 29 new telecommunications licenses
of which 21 were general licenses for public voice telephony. The Office of the
Director of Telecommunications Regulation (ODTR), created by the
Telecommunications (Miscellaneous Provisions) Act of 1996 is currently working
on a broad range of regulatory initiatives to bring Ireland up to par with other
European countries with more advanced liberalization regimes.

    In Ireland, Startec U.K. holds a General Telecommunications License, which
allows Startec to offer retail and wholesale telecommunication services in
Ireland and to interconnect to Telecom Eireann.

    THE NETHERLANDS.  The Dutch Telecommunications Act of 1998 (Dutch Telecom
Act), which became effective December 15, 1998, provides the current regulatory
framework for the provision of telecommunications services in the Netherlands.
The new regime closely parallels the EU Licensing Directive requiring individual
licenses only for the use of spectrum. All other services including the
installation and provision of public telecommunications networks, leased lines
and broadcasting networks may be provided pursuant to registration. The newly
enacted Dutch Telecom Act also facilitates the construction of
telecommunications networks by giving registered carriers access to
rights-of-way, subject to certain conditions.

    In the Netherlands, we hold a Special Network Access Registration, which
allows for retail and wholesale services and interconnection with Royal KPN
Netherlands, N.V. Startec has installed a POP in the Netherlands, and currently
offers carrier wholesale and prepaid retail services to customers in the
Netherlands.

    NEW ZEALAND.  The New Zealand market is fully liberalized. In New Zealand,
Startec UK holds a registration as an operator under the Telecommunications
(International Services) Regulations 1994. We have not yet commenced services in
New Zealand.

    SWITZERLAND.  Switzerland is not a member of the EU. Nonetheless, a new
Telecommunications Act was adopted by the Swiss Parliament in April 1997 and
took effect on January 1, 1998, together with Ordinances containing more
detailed regulations covering telecommunications services, frequency management,
numbering, terminal equipment and license fees. The new Telecommunications Act
liberalized the Swiss telecommunications market as of January 1, 1998.

    The newly enacted Swiss telecommunications regulatory framework facilitates
market entry by: (1) applying a notification procedure for resellers;
(2) applying a procedure for operators wishing to be granted a concession for
the establishment and operation of transmission facilities; and (3) providing
rights-of-way, subject to a procedure of authorization, over the public domain
to facilities-based carriers. Pro-competitive regulation is also applicable in
the area of numbering.

    Startec Global Communications (Switzerland) GmbH (Startec Switzerland), our
wholly owned subsidiary, was incorporated on August 5, 1998. Startec Switzerland
holds a Registration for the Supply of Telecommunications Services in
Switzerland, which allows for interconnection with Swisscom S.A. as well as for
the provision of wholesale and retail services. Startec Switzerland has
installed a POP site in Geneva through which retail prepaid and wholesale
carrier services are provided in Switzerland.

    SYRIA.  The Syrian Telecommunications Establishment (STE) is both the
regulator and telecommunications service provider in Syria. The STE has the
exclusive rights on all wireline and wireless services provided in the country.
The policy of the Syrian government continues to be against privatization of
telecommunications services. Recently, the STE has entered into build, operate,
and transfer agreements with several private sector companies for the provision
of certain telecommunications services. In September 1999, the STE issued a
request for proposal that would award a contract to establish a countrywide

                                       37

Internet backbone. The government will control the country's international
connection to the global Internet.

    THE UNITED KINGDOM.  The Telecommunications Act 1984 (the U.K. Act) provides
a licensing and regulatory framework for telecommunications activities in the
United Kingdom, which are fully competitive. The Secretary of State for Trade
and Industry at the Department of Trade and Industry (the Secretary of Trade) is
responsible for granting licenses under the U.K. Act and for overseeing
telecommunications policy, while the Director General of Telecommunications (the
"Director General") and his office are responsible, among other things, for
enforcing the terms of such licenses. The Director General will recommend the
grant of a license to operate a telecommunications network to any applicant that
the Director General believes has a reasonable business plan, the necessary
financial resources and where there are no other overriding considerations
against the grant of a license. In December 1996, the British Government
introduced the International Facilities License (IFL) which authorizes holders
to provide international telecommunications services over their own
international infrastructure and/or by making use of IRUs in undersea cables.

    Startec U.K. holds an IFL which enables us to own telecommunications
facilities entering the U.K. and gives Startec UK the rights and obligations to
interconnect with British Telecom Communications at wholesale interconnect
rates. Startec Global Communications Corporation also holds an International
Simple Voice Resale (ISVR) license in the U.K. Startec UK has a POP in London
and is in the process of upgrading to a Siemens EWSD switch. Currently, Startec
UK offers wholesale carrier and retail prepaid services in the U.K.

    TURKEY.  In February 2000, Turkey passed telecommunications laws designed to
establish an independent regulatory body, liberalize all non-basic services and
liberalize voice services and infrastructure by the end of 2003.

EMPLOYEES

    As of December 31, 1999, we had 711 full-time employees and 63 part-time
employees. Our employees are not represented by a collective bargaining
agreement. We believe that it has good relations with its employees.

REORGANIZATION

    On March 26, 1999, we completed a reorganization plan through which we
became a publicly-traded Delaware holding company. Our board of directors and
stockholders approved the reorganization plan in 1998. The reorganization did
not require our shareholders to exchange their share certificates. The
certificates representing the shares of our predecessor now represent our shares
after the reorganization.

                                       38

ITEM 2. PROPERTIES

    The following table sets forth certain information as of December 31, 1999,
relating to facilities used by the Company. All of the properties are leased.



                                  SQUARE                                         SQUARE    DATE PLACED
LEASED OFFICE SPACE              FOOTAGE       CALL CENTERS                     FOOTAGE    IN SERVICE
- -------------------              --------      ------------                     --------   -----------
                                                                               
Bethesda, MD (1)...............   46,454       Guam, United States............    1,760        1996
Bethesda, MD...................   43,700       Seven Locks MD.................   70,370        1999
France.........................    9,394       Paris, France..................    1,265        1998
Los Angeles, CA (2)............    7,260
Guam, United States............    8,000
Hong Kong......................    1,187
London, UK.....................    1,126
Frankfurt, Germany.............   11,066
Miami, Fl (2)..................   12,000
New York, NY (2)...............    2,110
New York, NY (2)...............   14,274
Saipan.........................    1,000


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

(1) Headquarters of Startec Global Communications Corporation.

(2) Facilities that house the switches. We also have a switch located in
    Dusseldorf, Germany.

ITEM 3. LEGAL PROCEEDINGS

    From time to time we are involved in litigation incidental to the conduct of
our business. We are not currently a party to any lawsuit or proceeding which,
in the opinion of management, is likely to have a material adverse effect on our
business, financial condition or results of operations.

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

    None.

                                       39

                                    PART II

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

    Shares of our common stock, par value $0.01 per share, were initially
offered to the public on October 9, 1997 at a price of $12.00 per share. Our
class of common stock is listed on the Nasdaq National Market under the ticker
symbol "STGC." We have not declared any cash dividends on the common stock. We
intend to retain future earnings, if any, for use in our business and do not
anticipate paying regular cash dividends on the common stock.

    The following table sets forth, on a per share basis, the range of the high
and low sale prices for our common stock as reported by the Nasdaq National
Market, for the periods indicated during the two fiscal years ended
December 31, 1999. Such prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and do not necessarily represent actual
transactions.



                                                                 HIGH       LOW
                                                               --------   --------
                                                                    
1998
1st Quarter.................................................    26.75      18.00
2nd Quarter.................................................    29.125      8.688
3rd Quarter.................................................    14.50       5.50
4th Quarter.................................................    12.50       3.375

1999
1st Quarter.................................................    10.188      7.625
2nd Quarter.................................................    12.625      5.875
3rd Quarter.................................................    15.25      12.25
4th Quarter.................................................    22.00      12.438

2000
1st Quarter (through 3/20/2000).............................    29.00      21.375


As of February 29, 2000, there were approximately 123 stockholders of record of
our common stock.

    In December 1999, we issued and sold 1,875,000 shares of our common stock
for an aggregate offering price of $30.9 million in a private transaction to
accredited investors exempt from registration under section 4(2) of the
Securities Act. The principal selling agent was Emerging Growth Equities Ltd.
who was paid $1,600,000 in discounts or commissions.

    In December 1999, we acquired SigmaNet Network Corporation ("SigmaNet") for
approximately $648,000 in cash and 223,786 shares of our common stock valued at
approximately $4.3 million. These shares were sold in a private transaction
exempt from registration under section 4(2) of the Securities Act and were
issued in January 2000. SigmaNet provides Internet services under the name of
IAOL, including Internet access and a Web portal for the Asian Indian community.
The purchase price was allocated to the net assets acquired based upon the
estimated fair value of such assets, which resulted in an allocation of
$4.9 million to goodwill. Purchase price allocations have been completed on a
preliminary basis and are subject to adjustment should new or additional facts
about the business become known.

    In July 1999, we acquired the fixed assets and customers of Worldwide
Telecommunications Company Limited, Infinity Telecommunications Limited and
Pacific Direct, Inc. (collectively "Worldwide Group") for approximately $200,000
in cash and $790,000 in shares of our common stock. At the close of the
transaction, 40,505 shares of our common stock were issued and sold in a private
transaction exempt from registration under section 4(2) of the Securities Act.
The remaining number of shares will be issued in accordance with the agreement
as an amount equal to approximately $200,000 divided by the fair value of the
common stock at the day of issuance. Worldwide Group provides voice and data
services to businesses

                                       40

and individuals in the Hong Kong, China region. The purchase price was allocated
to the net assets acquired based upon the estimated fair value of such assets,
which resulted in an allocation of $1.1 million to goodwill. Purchase price
allocations have been completed on a preliminary basis and are subject to
adjustment should new or additional facts about the business become known.

    In February 1999, we acquired a 64.6% ownership interest in Phone Systems
and Network, Inc. of France for approximately $3.8 million in cash and 425,000
shares of our common stock. We acquired an additional 20.4% ownership interest
through a cash tender offer and open market purchases for a total ownership
interest of approximately 85%. Total consideration amounted to approximately
$11.3 million, including acquisition costs. We recognized approximately
$10.5 million in intangible assets associated with the acquisition. PSN is a
facilities based provider in France, with switches in both Paris and Switzerland
with additional capacity on a switch located in the United Kingdom. PSN also
provides services on a switchless reseller basis in Belgium. Common shares of
PSN are traded on the Nouveau Marche Exchange in France.

                                       41

ITEM 6. SELECTED FINANCIAL DATA

    The following table presents selected historical financial data for Startec
which have been derived from our audited financial statements for the five most
recent years in the period ended December 31, 1999. The following information
should be read in conjunction with our consolidated financial statements and
notes thereto presented elsewhere herein. See "Consolidated Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein.



                                                                                  (IN THOUSANDS)
                                                                         FOR THE YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------------------
                                                                1999        1998        1997       1996       1995
                                                              ---------   ---------   --------   --------   --------
                                                                                             
STATEMENT OF OPERATIONS DATA:
Net revenues................................................  $ 276,471   $ 161,169   $ 85,857   $ 32,215   $ 10,508
Cost of services............................................    242,735     141,176     75,783     29,881      9,129
                                                              ---------   ---------   --------   --------   --------
  Gross Margin..............................................     33,736      19,993     10,074      2,334      1,379
General and administrative..................................     41,783      20,520      6,288      3,996      2,170
Selling and marketing expenses..............................     15,409       7,876      1,238        514        184
Depreciation and amortization...............................      7,753       2,253        451        333        137
                                                              ---------   ---------   --------   --------   --------
  Income (loss) from operations.............................    (31,209)    (10,656)     2,097     (2,509)    (1,112)
Interest income (expense), net..............................    (16,736)     (7,404)      (449)      (321)       (94)
                                                              ---------   ---------   --------   --------   --------
  Income (loss) before taxes and extraordinary items(4).....    (48,235)    (18,060)     1,648     (2,830)    (1,206)
                                                              ---------   ---------   --------   --------   --------
  Net income (loss)(1)......................................  $ (48,235)  $ (18,574)  $  1,619   $ (2,830)  $ (1,206)
                                                              =========   =========   ========   ========   ========
Basic earnings (loss) per common share(2):
  Income (loss) before extraordinary items..................  $   (5.13)  $   (2.02)  $   0.26   $  (0.52)  $  (0.23)
  Net income (loss)(1)......................................      (5.13)      (2.08)      0.26      (0.52)     (0.23)
  Weighted average common shares outstanding--basic.........      9,411       8,945      6,136      5,403      5,317
Diluted earnings (loss) per common share(2):
  Income (loss) before extraordinary items..................  $   (5.13)  $   (2.02)  $   0.25   $  (0.52)  $  (0.23)
  Net income (loss)(1)......................................      (5.13)      (2.08)      0.25      (0.52)     (0.23)
  Weighted average common and equivalent shares
    outstanding--diluted....................................      9,411       8,945      6,423      5,403      5,317

OTHER FINANCIAL DATA:
EBITDA(3)...................................................  $ (23,456)  $  (8,403)  $  2,548   $ (2,176)  $   (975)
Capital expenditures........................................     56,761      34,931      3,881        520        200

BALANCE SHEET DATA:
Cash and cash equivalents...................................  $  54,731   $  81,456   $ 26,114   $    148   $    528

Working capital (deficit)...................................     28,450      81,414     25,735     (6,999)    (3,744)
Total assets................................................    280,631     225,982     51,530      7,327      4,044

Long term obligations, net of current portion...............    177,903     165,490        461        646        361
Total stockholders' equity (deficit)........................      5,871      15,480     31,590     (6,089)    (3,259)


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

(1) In 1998, we recognized a $514,000 extraordinary loss on the early
    extinguishment of debt.

(2) Basic earnings (loss) per common share is computed by dividing net income
    (loss) by the weighted average number of shares of common stock outstanding.
    Diluted earnings (loss) per common share is computed by dividing net income
    (loss) by the weighted average number of shares of common stock outstanding
    plus other dilutive securities.

(3) EBITDA consists of earnings (loss) before interest, income taxes,
    depreciation and amortization. EBITDA should not be considered as a
    substitute for income from operations (loss), net income (loss), cash flow
    or other statement of income or cash flow data computed in accordance with
    GAAP or as a measure of a company's results of operations or liquidity.
    Although EBITDA is not a measure of performance or liquidity calculated in
    accordance with GAAP, we nevertheless believe that investors consider it a
    useful measure in assessing a company's ability to incur and service
    indebtedness.

(4) For the year ended December 31, 1999, the Company recognized $290,000 in
    equity loss from affiliates.

                                       42

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

    The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with the financial statements,
related notes, and other detailed information included elsewhere in this
Form 10-K. Certain information contained below and elsewhere in this Form 10-K,
including information regarding our plans and strategy for our business, are
forward-looking statements. See "Note Regarding Forward-Looking Statements."

OVERVIEW

    Startec Global Communications Corporation is a rapidly growing,
facilities-based provider of integrated communications services, including
voice, data and Internet access services. Founded in 1989, we market our
services to select ethnic residential communities located in major metropolitan
areas, and to leading international long distance carriers. We provide our
services through a flexible network of owned and leased facilities, operating
and termination agreements and resale arrangements. Additionally in 1999, we
embarked upon three Internet initiatives: (i) Internet access for residential
customers; (ii) global ethnic Web communities; and (iii) the deployment of a
world-class Internet Protocol (IP) network to offer our customers toll-quality
voice services, as well as high speed transmission of data and Internet traffic.

    Our mission is to become the leading provider of voice, data and Internet
services to select ethnic communities, located in major metropolitan areas in
North America, Europe and the Asia Pacific Rim. Our targeted ethnic markets,
comprised of ethnic communities from the Asia Pacific Rim, the Middle East and
North Africa, Russia and Central Europe and Latin and South America, have a
strong demand for communication services to the emerging economies. To achieve
our mission, we have developed three core competencies: (i) targeted ethnic
marketing and in-language customer service; (ii) deployment of advanced
technologies into the emerging economies; and (iii) deployment of IP
transaction-based technology to provide voice, data and Internet services on a
seamless network. In 1999, we transmitted approximately one billion minutes of
voice traffic into the emerging economies.

    Our annual revenues have increased more than twenty six-fold over the last
five years from approximately $10.5 million for the year ended December 31, 1995
to approximately $276.5 million for the year ended December 31, 1999. We
reported a 1999 net loss of $48.2 million, or $5.13 per common share compared to
a net loss of $18.6 million, or $2.08 per common share in 1998. The number of
our residential customers increased from 10,675 customers as of December 31,
1995 to 303,118 customers as of December 31, 1999. To achieve economies of scale
in our network operations and balance our residential international traffic, in
late 1995, we began marketing our excess network capacity to international
carriers seeking competitive rates and high quality capacity. Since initiating
our international wholesale services, we have expanded the number of our carrier
customers to 105 at December 31, 1999. For the year ended December 31, 1999,
carrier customers accounted for approximately 71% of our net revenues.

    During 1999, we began to capitalize on our strong presence in ethnic
communities by expanding the services we offer. Our strategy is to facilitate
our continued expansion into emerging economies by expanding our
telecommunications and Internet services for our residential customers. In 1999,
we introduced a bundled long distance / Internet access service for our dial-1
customers who bill $60 a month or more in long distance. To complement our
Internet access services, we began launching a series of global ethnic Web
communities through our online brand, eStart. To date, we have launched four
communities for the Arab, Iranian, Turkish and Indian ethnic segments. Each
community features news, entertainment, weather and sports that are culturally
tailored. Additionally, the communities feature online discussion forums,
topic-based chat rooms and communication tools. All the communities are linked
by a single-entry gateway page that allows user to customize the content
according to their preferences.

                                       43

    We are building a state-of-the-art network using a combination of Internet
Protocol, Asynchronous Transfer Mode (ATM) and circuit-switched technologies to
provide connectivity to the emerging economies of the world, allowing us to
integrate voice, data, Internet and video services on a seamless network
supported by a backbone of scalable, IP transaction-based technology. Our
network currently consists of eight domestic and international switches, 20
Points of Presence (installations of scalable telecommunications equipment,
commonly known as POPs), 60 IP gateways and ownership interests on 15 undersea
fiber optic cable systems linking North America with Europe, the Asian Pacific
Rim, Asia and Latin America, as well as linking the East and West Coasts of the
United States. Our network includes major switching centers in New York, Los
Angeles, Miami, Paris, London, Dusseldorf and Guam. To facilitate the
termination of calls overseas, we are a party to interconnection agreements with
50 incumbent local carriers in foreign countries, commonly known as PTTs, and
other competitive carriers covering 44 countries, primarily in the emerging
economies.

    A large majority of our revenues for the past three fiscal years have been
derived from calls originated within the United States and terminated outside
the United States. The percentages of net revenues attributable to traffic
terminating on a region-by-region basis are set forth in the table below.



                                                                  FOR THE YEAR ENDED
                                                                     DECEMBER 31,
                                                         ------------------------------------
                                                           1999          1998          1997
                                                         --------      --------      --------
                                                                            
Asia Pacific Rim...................................        37.2%         44.8%         49.0%
Middle East/North Africa...........................        15.7          18.8          24.7
Sub-Saharan Africa.................................         9.6           8.1           7.4
Eastern Europe.....................................         9.1           9.6           9.3
Western Europe.....................................         4.5           1.7           2.2
North America......................................         2.8           3.5           4.0
South America and Other............................        21.1          13.5           3.4
                                                          -----         -----         -----
Total..............................................       100.0%        100.0%        100.0%
                                                          =====         =====         =====


    Our cost of services consists of origination, transmission and termination
expenses. Origination costs include the amounts paid to LECs, and in areas where
we do not have our own network facilities, to other telecommunication network
providers for originating calls ultimately carried to our switches. Transmission
expenses are fixed month-to-month payments associated with capacity on domestic
and international leased lines, satellites and undersea fiber optic cables.
Leasing this capacity subjects us to price changes that are beyond our control
and to transmission costs that are higher than transmission costs on the
Company's own network. As we build our own transmission capacity, the risks
associated with price fluctuations and the relative costs of transmission are
expected to decrease, however, fixed costs will increase.

    Termination expenses consist of variable per minute charges paid to foreign
PTTs and alternative carriers to terminate our international long-distance
traffic. Among our various foreign termination arrangements, we have entered
into operating agreements with a number of foreign PTTs, under which
international long distance traffic is both delivered and received. Under these
agreements, the foreign carriers are contractually obligated to adhere to the
policy of the FCC, whereby traffic from the foreign country to the United States
is routed through U.S.-based international carriers such as the Company in the
same proportion as traffic carried into the foreign country from the United
States ("return traffic"). Mutually exchanged traffic between us and foreign
carriers is reconciled through a formal settlement arrangement at agreed upon
rates. We record the amount due to the foreign PTT as an expense in the period
the traffic is terminated. When we receive return traffic in a future period, we
generally realize a higher gross margin on the return traffic as compared to the
lower gross margin on the outbound traffic. Revenue recognized from return
traffic was approximately $824,000, $2.6 million, and $1.4 million, or .03%, 2%
and 2% of net revenues in 1999, 1998, 1997, respectively. There can be no
assurance that traffic will be delivered back to the United States or that
changes in future settlement rates, allocations among carriers or levels of
traffic will not adversely affect net payments received and revenues recorded by
us.

                                       44

    In addition to operating agreements, we utilize alternative termination
arrangements offered by third party vendors. We seek to maintain vendor
diversity for countries where traffic volume is high. These vendor arrangements
provide service on a variable cost basis subject to volume. These prices are
subject to changes, generally upon seven days notice.

    As the international telecommunications marketplace has been deregulated,
per-minute prices have fallen and, as a consequence, related per-minute costs
for these services have also fallen. As a result, we have not been adversely
affected by price reductions, although there can be no assurance that this will
continue. We expect selling, general and administrative costs to increase as we
develop our infrastructure to manage higher business volume.

    Although North American operations became EBITDA positive for the fourth
quarter of 1999 and are expected to remain EBITDA positive in 2000, our other
segments will remain EBITDA negative and incur significant operating and net
losses on an annual basis for the next several years. This will be the result of
additional costs associated with the development and expansion of our network,
the expansion of our marketing programs, as we enter new markets and introduce
new telecommunications and Internet services, and, in the case of net losses, as
a result of the interest expense associated with our financing activities.
Accordingly, we expect to continue to report net losses and negative EBITDA on a
consolidated basis for the foreseeable future.

RESULTS OF OPERATIONS

    The following table sets forth certain financial data as a percentage of net
revenues for the periods indicated.



                                                                  FOR THE YEAR ENDED
                                                                     DECEMBER 31,
                                                         ------------------------------------
                                                           1999          1998          1997
                                                         --------      --------      --------
                                                                            
Net Revenues.......................................       100.0 %       100.0 %       100.0 %
Cost of Services...................................        87.8          87.6          88.3
                                                          -----         -----         -----
  Gross Margin.....................................        12.2          12.4          11.7
Selling and Marketing expenses.....................         5.6           4.9           1.4

General and Administrative expenses................        15.1          12.7           7.3
Depreciation and amortization......................         2.8           1.4           0.5
                                                          -----         -----         -----
  Income(loss) from operations.....................       (11.3)         (6.6)          2.5

Interest expense...................................        (7.9)         (8.0)         (0.9)
Interest income and other expense..................         1.6           3.4           0.3
                                                          -----         -----         -----
  Income (loss) before taxes and extraordinary
    item...........................................       (17.5)%       (11.2)%         1.9 %
                                                          =====         =====         =====


    1999 COMPARED TO 1998

    NET REVENUES.  Net revenues for the year ended December 31, 1999 increased
approximately $115.3 million, or 71.5% to approximately $276.5 million from
$161.2 million for the year ended December 31, 1998. Revenues from North
American operations were $263.6 million or 95% of the total revenues in 1999
compared to $160.8 million in 1998. Residential revenue increased in comparative
periods by approximately $25.8 million or 48.1%, to approximately $79.5 million
for 1999 from approximately $53.7 million in 1998. The increase in residential
revenue is due to an increase in sales to ethnic residential customers.
Residential billers grew to over 303,000 for December 1999 from approximately
122,000 for December 1998. This represents a 148% increase in residential
customers over 1998. The number of carrier customers grew to 105 in 1999 from 53
in 1998. Carrier revenue for 1999 increased approximately $89.5 million, or 83%,
to approximately $197 million from approximately $107.5 million for 1998. The
increase in carrier revenues is due to the execution of our strategy to optimize
our capacity on

                                       45

our facilities, which has resulted in sales to additional carrier customers and
increased sales to existing carrier customers.

    GROSS MARGIN.  Gross margin increased approximately $13.7 million to
approximately $33.7 million for the year ended December 31, 1999 from
approximately $20 million for the year ended December 31, 1998. Gross margin was
$31.7 million or 12% for our North American operations in 1999. Gross margin is
impacted by several key factors: first, positively through the continued
implementation of our operating agreements for termination of our call traffic
volume. Second, due to increase in our on-net traffic by utilizing our expanded
capacity thereby reducing the origination and transport cost. Lastly, the lease
cost of the network for Europe to build customer and traffic volume has had
negative implications.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
year ended December 31, 1999 increased approximately $21.3 million or 104% to
approximately $41.8 million from $20.5 million for the year ended December 31,
1998. The increase was primarily due to an increase in personnel to 774 at
December 31, 1999 from 409 at December 31, 1998, and to a lesser extent, an
increase in billing processing fees as a result of the increased residential
customer base. The employee base of 774 at December 31, 1999 consists of
approximately 30% of the employees based outside of the US and are primarily
focused on business opportunities in Asia and Europe and approximately 10% of
the employees focused on our Internet or eStart activities. As a percentage of
net revenues, general and administrative expenses increased to 15.1% in 1999
from 12.7% in 1998 due to our continued worldwide development and expansion.

    SELLING AND MARKETING.  Selling and marketing expenses for the year ended
December 31, 1999 increased approximately $7.5 million or 96% to approximately
$15.4 million from approximately $7.9 million for the year ended December 31,
1998. As a percentage of net revenues, selling and marketing expenses increased
to 5.6% from 4.9% in the respective periods. The increase is primarily due to
our efforts to market to new customer groups in North America and developing new
regions in Europe and Asia.

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
the year ended December 31, 1999 increased to approximately $7.8 million from
approximately $2.3 million for the year ended December 31, 1998, primarily due
to increases in capital expenditures pursuant to our strategy of expanding our
network infrastructure.

    INTEREST EXPENSE.  Interest expense for the year ended December 31, 1999
increased to approximately $21.8 million from approximately $12.8 million for
the year ended December 31, 1998, as a result of the interest charged on the
proceeds from our bank and vendor financing facilities and interest on the high
yield debt.

    INTEREST INCOME.  Interest income for 1999 decreased to $5.1 million from
$5.4 million in 1998 as we redeemed the pledged securities to pay the interest
for the high yield debt.

    OTHER INCOME (EXPENSE).  Other expense was $290,000 for 1999 compared to
zero in 1998, primarily as a result of the operating losses incurred by
companies in which we own an equity interest.

    NET LOSS.  The net loss was approximately $48.2 million or $5.13 per diluted
share in 1999 as compared to a net loss of approximately $18.6 million or $2.08
per diluted share in 1998.

    1998 COMPARED TO 1997

    NET REVENUES.  Net revenues for the year ended December 31, 1998 increased
approximately $75.3 million, or 88%, to approximately $161.2 million from
$85.9 million for the year ended December 31, 1997. Residential revenue
increased in comparative periods by approximately $25.1 million, or 88%, to
approximately $53.7 million for 1998 from approximately $28.6 million in 1997.
The increase in residential

                                       46

revenue is due to an increase in residential customers to over 122,000 for
December 1998 from approximately 71,500 for December 1997. Carrier revenue for
1998 increased approximately $50.2 million, or 88%, to approximately
$107.5 million from approximately $57.3 million for 1997. The increase in
carrier revenues is due to the execution of our strategy to optimize our
capacity on our facilities, which has resulted in sales to additional carrier
customers and increased sales to existing carrier customers.

    GROSS MARGIN.  Gross margin increased approximately $9.9 million to
approximately $20 million for the year ended December 31, 1998 from
approximately $10.1 million for the year ended December 31, 1997. Gross margin
improved as a percentage of net revenues for the year ended December 31, 1998 to
12.4% from 11.7% for the year ended December 31, 1997. Gross margin for 1998 was
favorably impacted by rate adjustments which reduce termination costs. These
rate adjustments occur routinely in the normal course of business.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
year ended December 31, 1998 increased approximately $14.2 million or 225% to
approximately $20.5 million from $6.3 million for the year ended December 31,
1997. The increase was primarily due to an increase in personnel to 409 at
December 31, 1998 from 124 at December 31, 1997, and to a lesser extent, an
increase in billing processing fees as a result of the increased residential
customer base. As a percentage of net revenues, general and administrative
expenses increased to 12.7% in 1998 from 7.3% in 1997 due to our continued
worldwide development and expansion.

    SELLING AND MARKETING.  Selling and marketing expenses for the year ended
December 31, 1998 increased approximately $6.7 million or 558% to approximately
$7.9 million from approximately $1.2 million for the year ended December 31,
1997. As a percentage of net revenues, selling and marketing expenses increased
to 4.9% from 1.4% in the respective periods. The increase is primarily due to
our efforts to market to new customer groups.

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expenses for
the year ended December 31, 1998 increased to approximately $2.3 million from
approximately $451,000 for the year ended December 31, 1997, primarily due to
increases in capital expenditures pursuant to our strategy of expanding our
network infrastructure.

    INTEREST EXPENSE.  Interest expense for the year ended December 31, 1998
increased to approximately $12.8 million from approximately $762,000 for the
year ended December 31, 1997, as a result of the Senior Notes and Warrants
Offering consummated in 1998, the proceeds of which are being used to fund
expansion and working capital needs.

    INTEREST INCOME.  Interest income for 1998 increased to $5.4 million from
$313,000 in 1997. The increase is primarily due to the net proceeds from the
Senior Notes and Warrants Offering consummated in 1998.

    INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.  Loss before extraordinary item for
1998 was $18.1 million compared to income before extraordinary item of
$1.6 million in 1997 as a result of the items discussed above.

    EXTRAORDINARY LOSS.  In December 1998, we repaid and extinguished an
existing bank credit facility. In connection with the extinguishment, we
recognized an extraordinary loss of $514,000, which represents the write-off of
unamortized deferred financing fees.

    NET INCOME (LOSS).  Net loss was approximately $18.6 million in 1998 as
compared to net income of approximately $1.6 million in 1997.

                                       47

LIQUIDITY AND CAPITAL RESOURCES

    We reported a decrease in cash and cash equivalents of approximately
$26.7 million for the year ended December 31, 1999. This decrease is primarily
due to expanding capital and operating requirements, including the acquisitions
of full or partial owned equity ownerships in several entities. Cash used in
operations increased from $25.5 million to $30.5 million principally due to cash
requirements for the expansion of operations partially offset by changes in
operating accounts.

    We expect to incur negative EBITDA and significant operating losses and net
losses on an annual basis for the next several years, as we incur additional
costs associated with the development and expansion of our marketing programs,
the introduction of new telecommunications and Internet services, and as a
result of the interest expense associated with our financing activities. As of
December 31, 1999, we have pledged securities of approximately $28 million to
cover all scheduled cash interest payments on the Senior Notes through
May 2001. We may be required to obtain additional financing in order to pay
interest on the Senior Notes after May 2001 and to repay the Senior Notes at
their maturity.

    During 1998, we advanced an aggregate of approximately $1.4 million to
certain of our employees and officers. The secured loans bear interest at a rate
of 7.87% per year, and are due and payable on December 31, 1999. Approximately
$898,000 was repaid in January 2000 and the balance was refinanced through
December 31, 2000.

    CAPITAL ACQUISITIONS AND EXPENDITURES

    During 1999, we used approximately $74.1 million in investing activities for
continued expansion of our network including the deployment of multiple
switches, POPs and IP gateways, the purchase of capacity on fiber optic cables,
Indefeasible Rights of Usage ("IRUs"), acquisitions and the development of
Internet-related services. We capitalized approximately $2.1 million pursuant to
the Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". Capital expenditures for 1999 were
$56.8 million and included $6.3 million for our telecommunications
infrastructure in Europe and Asia, and approximately $12.2 million for our
eStart and Internet services business infrastructure. We also acquired strategic
minority ownership interests in several strategic entities for approximately
$750,000.

    In December 1999, we acquired SigmaNet Network Corporation ("SigmaNet") for
approximately $648,000 in cash and 223,786 shares in our common stock, valued at
$4.3 million. These shares were issued in January 2000. SigmaNet provides
Internet services under the name of IAOL, including Internet access and a Web
portal for the Asian Indian community.

    In July 1999, we acquired the fixed assets and customers of Worldwide
Telecommunications Company Limited, Infinity Telecommunications Limited and
Pacific Direct, Inc. (collectively "Worldwide Group") for approximately $200,000
in cash and $790,000 in our common stock or 54,482 shares. Worldwide Group
provides voice and data services to businesses and individuals in the Hong Kong,
China region.

    In May 1999, we entered into an agreement to acquire up to a 49% fully
diluted ownership interest in Dialnet Communications Limited ("Dialnet") for up
to $1.6 million. Dialnet provides value added voice and data services in India.
The agreement, which became effective July 1999 upon approval by the government
of India, provides for an investment of $1 million payable in equal installments
of $500,000 in July 1999 and March 2000 and a $600,000 convertible loan. The
loan, convertible into common shares of Dialnet through July 2002, extends
available credit of $300,000 immediately and an additional $300,000 in
March 2000. Per the agreement, the remaining $500,000 investment and $300,000
loan, are payable at our option. As of December 31, 1999, we have an equity
investment of $500,000 and $300,000 is outstanding under the convertible loan.
In January 2000, we loaned the remaining $300,000 under the convertible loan.

    In February 1999, we acquired a 64.6% ownership interest in Phone Systems
and Network, Inc. of France ("PSN") for approximately $3.8 million in cash and
425,000 shares of our common stock. We

                                       48

acquired an additional 20.4% ownership interest through a cash tender offer and
open market purchases for a total ownership interest of approximately 85%. Total
consideration amounted to approximately $11.3 million, including acquisition
costs. We recognized approximately $10.5 million in intangibles and other long
term assets associated with the acquisition. PSN is a facilities based provider
in France, with switches in both Paris and Switzerland with additional capacity
on a switch located in the United Kingdom. PSN also provides services on a
switchless reseller basis in Belgium. Common shares of PSN are traded on the
Nouveau Marche Exchange in France.

    In February 1999, we acquired a 20% equity ownership interest in BCH Holding
Company, Inc. ("BCH") with operations in Poland, for approximately
$1.2 million. Concurrent with the acquisition, Startec received a $2.5 million
note payable from BCH convertible at Startec's option into common shares
equivalent to an additional 28% fully diluted ownership interest of BCH. BCH is
a reseller of international voice and a licensed Internet service provider in
Poland. The investment in BCH and the note payable from BCH are included in
intangibles and other long-term assets in the accompanying condensed
consolidated balance sheet.

    Our business strategy contemplates aggregate capital expenditures (including
capital expenditures, working capital and other general corporate purposes) of
approximately $40 million through December 31, 2000 to be spent on our Internet
infrastructure. A substantial portion of these expenditures are funded by
existing vendor arrangements. We are also pursuing additional sources of
financing from the capital markets to raise between $22 and $49 million. We
intend to use any additional sources of financing to fund our acquisition
activities. These activities include, but are not limited to, integration
expenses, Internet infrastructure and other post acquisition-related
expenditures.

    We regularly review opportunities to further our business strategy through
strategic alliances with, investment in, or acquisitions of businesses that we
believe are complementary to our current and planned operations. Our ability to
consummate strategic alliances and acquisitions, and to make investments that
may be of strategic significance, may require us to obtain additional debt
and/or equity financing. There can be no assurance that we will be successful in
arranging such financing on terms we consider acceptable or at all.

    Although we intend to implement the capital spending plan described above,
it is possible that unanticipated business opportunities may arise which we may
conclude are more favorable to our long-term prospects than those contemplated
by the current capital spending plan.

    CAPITAL TRANSACTIONS

    In December 1999, we issued 1,875,000 shares of voting common stock for net
proceeds of $29.2 million through a private placement. The shares were
subsequently registered in January 2000.

    In July 1999, we entered into a three year vendor financing facility for up
to $5 million with IBM Credit Corp ("IBM Facility"). The IBM Facility may be
used to finance the purchase of IBM hardware and software under a capital lease
structure. The IBM Facility bears interest at a variable rate during the term of
the lease. As of December 31, 1999, approximately $1,500,000 bearing a weighted
average interest rate of 12.41% was outstanding under the facility.

    In June 1999, we entered into a three year Loan and Security Agreement with
Congress Financial Corporation ("CFC Facility"), a subsidiary of First Union
Bank for up to $30 million. The CFC Facility, secured by trade accounts
receivable may be used to finance equipment, undersea cables and the expansion
of our facilities. The CFC Facility bears interest at the prime rate effective
on the date of borrowing. Principal and interest on the CFC Facility are repaid
through collections from trade accounts receivable. There is an unused line fee
equal to .25% per annum calculated upon the amount the maximum credit exceeds
the average daily balance of borrowed amounts during the immediately preceding

                                       49

month payable monthly in arrears. As of December 31, 1999, approximately
$14.2 million bearing interest at 7.5% was outstanding under the facility.

    In May 1999, we entered into a vendor financing facility for up to
$20 million with Ascend Credit Corporation ("Ascend Facility"). The Ascend
Facility may be used to finance equipment purchased from Ascend under a capital
lease structure. As of December 31, 1999, approximately $2.3 million bearing
interest at 8.5% was outstanding under the facility.

    In December 1998, we entered into a credit facility for up to $35 million
with NTFC Capital Corporation ("NTFC Facility"), a financing arm of GE Capital.
The line of credit is flexible and may be used to finance switches, associated
telecommunications equipment, undersea fiber optic cables, and the expansion of
facilities of our targeted marketing areas. Each borrowing under the NTFC
Facility bears interest at a fixed rate equal to the average yield to maturity
of the five-year Treasury Note plus the Rate Adjustment (as defined in the
agreement). Individual borrowings under the NTFC Facility are amortized over
60 months from the date of advance with a final maturity of all outstanding
amounts of January 2004. As of December 31, 1999, approximately $21 million
bearing a weighted average interest rate of 9.51% was outstanding. Principal and
interest payments of approximately $528,000 are due monthly in arrears.

    After taking into account the net proceeds to Startec from the open vendor
financing agreements together with the cash on hand and anticipated cash from
operations, we expect that we will need additional financing to complete our
capital spending plan until early 2002. Although we believe that we should be
able to obtain this required financing from traditional sources, such as bank
lenders, asset-based financiers or equipment vendors, there can be no assurance
that we will be successful in arranging such financing on terms we consider
acceptable or at all. In the event that we are unable to obtain additional
financing, we will be required to limit or curtail our expansion plans. Even
with such reductions, management believes that new financing will be required by
no later than the end of 2001.

    The implementation of our strategic plans, including the development and
expansion of our network facilities, expansion of our marketing programs, and
funding of operating losses and working capital needs, will require significant
investment. There can be no assurance that we will not need additional financing
sooner than currently anticipated. The need for additional financing depends on
a variety of factors, including the rate and extent of our expansion and new
markets, the cost of an investment in additional switching and transmission
facilities and ownership rights in fiber optic cable, the incurrence of costs to
support the introduction of additional or enhanced services, and increased sales
and marketing expenses. In addition, we may need additional financing to fund
unanticipated working capital needs or to take advantage of unanticipated
business opportunities, including acquisitions, investments or strategic
alliances. The amount of our actual future capital requirements also will depend
upon many factors that are not within our control, including competitive
conditions and regulatory or other government actions. In the event that our
plans or assumptions change or prove to be inaccurate or our capital resources
prove to be insufficient to fund our growth and operations, then some or all of
our development and expansion plans could be delayed or abandoned, or we may be
required to seek additional financing or to sell assets, to the extent permitted
by the terms of the Senior Notes.

    We may seek to raise such additional capital from public or private equity
or debt sources. There can be no assurance that we will be able to obtain
additional financing or, if obtained, that it will be able to do so on a timely
basis or on favorable terms. If we are able to raise additional funds through
the incurrence of debt, it would likely become subject to additional restrictive
financial covenants. In the event that we are unable to obtain such additional
capital or are unable to obtain such additional capital on acceptable terms, we
may be required to reduce the scope of our expansion, which could adversely
affect our business, financial condition and results of operations, our ability
to compete and our ability to meet our obligations under the Senior Notes.

                                       50

    CASH FLOWS

    Our liquidity requirements arise from cash used in operating activities,
purchases of network equipment and payments on outstanding indebtedness.

    Our cash and cash equivalents decreased to approximately $54.7 million at
December 31, 1999 from approximately $81.4 million at December 31, 1998. Net
cash used by operating activities was approximately $30.5 million for 1999,
$25.5 million for 1998, and $1.7 million for 1997. The decrease in cash from
operations was primarily the result of the net loss and an increase in accounts
receivable, which was partially offset by an increase in accounts payable and
accrued expenses.

    Net cash used in investing activities was approximately $74.1 million,
$37.6 million and $3.9 million for 1999, 1998 and 1997, respectively. Net cash
used in investing activities for 1999 was primarily related to acquisitions and
capital expenditures made in connection with its telecommunication network
expansion.

    Net cash provided by financing activities was approximately $77.9 million,
$118.4 million and $31.6 million for 1999, 1998 and 1997, respectively. Cash
provided by financing activities for 1999 primarily resulted from the proceeds
from vendor and bank financing agreements and proceeds from the issuance of our
common stock through a private placement.

    EFFECTS OF INFLATION

    Inflation is not a material factor affecting our business and has not had a
significant effect on our operations to date.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are exposed to market and technology risk, including changes in interest
rates, and foreign currency exchange rates as well as network sabotage. We do
not hold any financial instruments for trading purposes. We believe that our
primary market risk exposure relates the effects that changes in interest rates
have on our investments and those portions of our outstanding indebtedness that
do not have fixed rates of interest. In this regard, changes in interest rates
affect the interest earned on our investments in cash equivalents, which consist
primarily of demand deposits and money market accounts, and U.S. Government
obligations which have been purchased by the Company and pledged to make certain
interest payments on the Senior Notes. In addition, changes in interest rates
impact the fair value of our long-term debt obligations (including the Senior
Notes). As of December 31, 1999, the fair value of the Senior Notes was
approximately $129.6 million and the fair value of the securities pledged to
make certain interest payments on the Senior Notes was approximately
$29.2 million. Changes in interest rates also affect our borrowings under our
vendor financing facilities with NTFC and IBM. Borrowings under the NTFC
facility bear interest at a fixed rate equal to the average yield to maturity of
the five-year Treasury Note plus an agreed-upon rate adjustment. Borrowings
under the IBM facility bears a weighted average interest rate of 12.41% and NTFC
bears interest rates ranging from 8.91% to 10.39%.

    Our foreign operations to date have not been significant, and, therefore any
foreign exchange rate fluctuations relating to our results of foreign operations
have also not been material. For 1999, we experienced a translation adjustment
of approximately $148,000 relating to net assets held in foreign subsidiaries.
We have not entered into foreign currency exchange forward contracts or other
derivative arrangements to manage risks associated with foreign exchange rate
fluctuations. Foreign exchange rate fluctuations exposure may increase in the
future as the size and scope of our foreign operations increases.

    Additional information relating to the fair value of certain of our
financial assets and liabilities is included in Note 12 in the Notes to
Consolidated Financial Statements.

    We believe that our primary technology risk is the unauthorized entry into
our network systems and disruption of operations ("hacking"). We did not
experience any unauthorized entries or disruptions in

                                       51

1999. We have taken steps to prevent any hacking into our network, however, we
cannot provide any assurance that we will not be affected by potential attempts
at disruption in the future.

    During the year ended December 31, 1999, we completed a coordinated
Company-wide review of each business unit to identify dependent systems and to
evaluate the potential exposure to the Y2K issue. We completed the upgrade and
replacement of systems potentially exposed to the Y2K issue. We did not
experience immediate adverse impact from the transition to the Year 2000.
However, we cannot provide assurance that we or our suppliers and customers have
not been affected in a manner that is not yet apparent. In addition, some
computer programs that were date sensitive to the Year 2000 may not have been
programmed to process the Year 2000 as a leap year, and any negative
consequential effects remain unknown. As a result, we will continue to monitor
our Year 2000 compliance and the Year 2000 compliance of our suppliers and
customers.

    We estimate that the total cost of our Y2K program, including auditing and
monitoring our vendors, inspecting our own systems and, where necessary,
migrating or converting our existing systems to new systems, has been
approximately $1.0 million.

                                       52

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS



                                                                PAGE
                                                              --------
                                                           
Report of Independent Public Accountants....................  54

Consolidated Statements of Operations for the years ended
  December 31, 1999, 1998 and 1997..........................  55

Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................  56

Consolidated Statements of Changes in Stockholders' Equity
  (Deficit) for the years ended December 31, 1999, 1998, and
  1997......................................................  57

Consolidated Statements of Cash Flows for the years ended
  December 31, 1999, 1998 and 1997..........................  58

Notes to Consolidated Financial Statements..................  59-89


                                       53

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Startec Global Communications Corporation:

    We have audited the accompanying consolidated balance sheets of Startec
Global Communications Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1999. 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 audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Startec Global
Communications Corporation and subsidiaries, as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

                                      ARTHUR ANDERSEN LLP

Vienna, Virginia
February 23, 2000
(except with respect to the
matters discussed in Note 15,
as to which the date is March 23, 2000

                                       54

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                           
Net revenues................................................  $276,471   $161,169   $85,857
Cost of services............................................   242,735    141,176    75,783
                                                              --------   --------   -------
  Gross margin..............................................    33,736     19,993    10,074
General and administrative expenses.........................    41,783     20,520     6,288
Selling and marketing expenses..............................    15,409      7,876     1,238
Depreciation and amortization...............................     7,753      2,253       451
                                                              --------   --------   -------
Income (loss) from operations...............................   (31,209)   (10,656)    2,097
Interest expense............................................   (21,813)   (12,830)     (762)
Interest income.............................................     5,077      5,426       313
Equity in loss from affiliates..............................      (290)        --        --
                                                              --------   --------   -------
  Income (loss) before income taxes.........................   (48,235)   (18,060)    1,648
Income tax provision........................................        --         --        29
                                                              --------   --------   -------
  Income (loss) before extraordinary item...................   (48,235)   (18,060)    1,619
Extraordinary item-loss on early extinguishment of debt.....        --       (514)       --
                                                              --------   --------   -------
Net Income (loss)...........................................  $(48,235)  $(18,574)  $ 1,619
                                                              ========   ========   =======
Basic earnings (loss) per common share:
Income (loss) before extraordinary item.....................  $  (5.13)  $  (2.02)  $  0.26
Extraordinary item-loss on early extinguishment of debt.....        --      (0.06)       --
                                                              --------   --------   -------
Basic earnings (loss) per common share......................  $  (5.13)  $  (2.08)  $  0.26
                                                              ========   ========   =======
Diluted earnings (loss) per common share:
Income (loss) before extraordinary item.....................  $  (5.13)  $  (2.02)  $  0.25
Extraordinary item-loss on early extinguishment of debt.....        --      (0.06)       --
                                                              --------   --------   -------
Diluted earnings (loss) per common share....................  $  (5.13)  $  (2.08)  $  0.25
                                                              ========   ========   =======


 The accompanying notes are an integral part of these consolidated statements.

                                       55

           STARTEC GLOBAL COMMUNICATIONS CORPORATIONAND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                   
                                     ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................  $ 54,731   $ 81,456
Accounts receivable, net of allowance for doubtful accounts
  of $3,964 and $2,659, respectively........................    65,182     40,370
Accounts receivable, related party..........................       518        684
Other current assets........................................     4,876      3,916
                                                              --------   --------
  Total current assets......................................   125,307    126,426

Property and equipment, net of accumulated depreciation and
  amortization of $10,422 and $3,493, respectively..........    94,221     43,525
Restricted cash and pledged securities......................    28,108     44,566
Intangible assets, net......................................    21,982      5,587
Other long-term assets......................................    11,013      5,878
                                                              --------   --------
                                                              $280,631   $225,982
                                                              ========   ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................  $ 68,095   $ 36,273
Accrued expenses............................................     9,186      6,845
Bank facility...............................................    14,191         --
Vendor financing............................................     5,253      1,476
Capital lease and other obligations.........................       132        402
Note payable to individuals and other.......................        --         16
                                                              --------   --------
  Total current liabilities.................................    96,857     45,012
Senior notes................................................   158,233    158,022
Vendor financing, net of current portion....................    19,504      7,409
Minority interest...........................................        36         --
Capital lease and other obligations, net of current
  portion...................................................       130         59
                                                              --------   --------
  Total liabilities.........................................   274,760    210,502

Commitments and contingencies (Note 7)

STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 40,000,000 and 20,000,000
  shares authorized, 11,354,005 and 8,964,815 shares issued
  and outstanding, respectively.............................       114         90
Additional paid-in capital..................................    78,447     39,632
Unearned compensation.......................................      (255)      (190)
Accumulated deficit.........................................   (72,287)   (24,052)
Accumulated other comprehensive loss........................      (148)        --
                                                              --------   --------
  Total stockholders' equity................................     5,871     15,480
                                                              --------   --------
                                                              $280,631   $225,982
                                                              ========   ========


   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                       56

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)


                                           VOTING               NONVOTING
                                        COMMON STOCK          COMMON STOCK       ADDITIONAL
                                     -------------------   -------------------    PAID-IN       UNEARNED      ACCUMULATED
                                      SHARES     AMOUNT     SHARES     AMOUNT     CAPITAL     COMPENSATION      DEFICIT
                                     --------   --------   --------   --------   ----------   -------------   ------------
                                                                                         
Balance at December 31, 1996.......    5,381      $ 54         22       $ 22      $   932            --         $ (7,097)
  Net income.......................       --        --         --         --           --            --            1,619
  Conversion of nonvoting common
    shares to voting common
    shares.........................       17        --        (17)       (17)          17            --               --
  Purchase and retirement of
    nonvoting common shares........       --        --         (5)        (5)         (40)           --               --
  Net proceeds from initial public
    offering.......................    3,278        33         --         --       34,961            --               --
  Exercise of employee stock
    options........................      136         1         --         --          143            --               --
  Unearned compensation pursuant to
    issuance of stock options......       --        --         --         --          385          (385)              --
  Amortization of unearned
    compensation...................       --        --         --         --           --           144               --
  Warrants issued in connection
    with equity and debt
    placement......................       --        --         --         --          823            --               --
                                     -------      ----       ----       ----      -------         -----         --------
Balance at December 31, 1997.......    8,812        88         --         --       37,221          (241)          (5,478)
  Net loss.........................       --        --         --         --           --            --          (18,574)
  Amortization of unearned
    compensation...................       --        --         --         --           --            51               --
  Exercise of employee stock
    options........................      129         2         --         --          260            --               --
  Shares issued in repayment of
    note payable to individual.....       24        --         --         --           44            --               --
  Warrants issued in connection
    with Senior Notes Offering.....       --        --         --         --        2,107            --               --
                                     -------      ----       ----       ----      -------         -----         --------
Balance at December 31, 1998.......    8,965        90         --         --       39,632          (190)         (24,052)
  Net loss.........................       --        --         --         --           --            --          (48,235)
  Net proceeds from private
    placement......................    1,875        19         --         --       29,024            --               --
  Exercise of employee stock
    options........................       49        --         --         --          422            --               --
  Unearned compensation pursuant to
    issuance of stock options......       --        --         --         --          283          (283)              --
  Amortization of unearned
    compensation...................       --        --         --         --           --           218               --
  Foreign currency translation
    adjustment.....................       --        --         --         --           --            --               --
  Shares issuable in connection
    with acquisitions
    (Note 13)......................       --        --         --         --        4,555            --               --
  Issuance of common stock in
    connection with acquisitions...      465         5         --         --        4,531            --               --
                                     -------      ----       ----       ----      -------         -----         --------
Balance at December 31, 1999.......   11,354      $114         --       $ --      $78,447         $(255)        $(72,287)
                                     =======      ====       ====       ====      =======         =====         ========
Total, December 31, 1999...........


                                      ACCUMULATED
                                         OTHER
                                     COMPREHENSIVE               COMPREHENSIVE
                                          LOSS         TOTALS         LOSS
                                     --------------   --------   --------------
                                                        
Balance at December 31, 1996.......      $  --        $ (6,089)     $     --
  Net income.......................         --           1,619            --
  Conversion of nonvoting common
    shares to voting common
    shares.........................         --              --            --
  Purchase and retirement of
    nonvoting common shares........         --             (45)           --
  Net proceeds from initial public
    offering.......................         --          34,994            --
  Exercise of employee stock
    options........................         --             144            --
  Unearned compensation pursuant to
    issuance of stock options......         --              --            --
  Amortization of unearned
    compensation...................         --             144            --
  Warrants issued in connection
    with equity and debt
    placement......................         --             823            --
                                         -----        --------      --------
Balance at December 31, 1997.......         --          31,590            --
  Net loss.........................         --         (18,574)           --
  Amortization of unearned
    compensation...................         --              51            --
  Exercise of employee stock
    options........................         --             262            --
  Shares issued in repayment of
    note payable to individual.....         --              44            --
  Warrants issued in connection
    with Senior Notes Offering.....         --           2,107            --
                                         -----        --------      --------
Balance at December 31, 1998.......         --          15,480            --
  Net loss.........................         --         (48,235)     $(48,235)
  Net proceeds from private
    placement......................         --          29,043            --
  Exercise of employee stock
    options........................         --             422            --
  Unearned compensation pursuant to
    issuance of stock options......         --              --            --
  Amortization of unearned
    compensation...................         --             218            --
  Foreign currency translation
    adjustment.....................       (148)           (148)         (148)
  Shares issuable in connection
    with acquisitions
    (Note 13)......................         --           4,555            --
  Issuance of common stock in
    connection with acquisitions...         --           4,536            --
                                         -----        --------      --------
Balance at December 31, 1999.......      $(148)       $  5,871
                                         =====        ========
Total, December 31, 1999...........                                 $(48,383)
                                                                    ========


  The accompanying notes are an integral part of these consolidated statements

                                       57

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)



                                                                       FOR THE YEAR ENDED
                                                                          DECEMBER 31,
                                                              ------------------------------------
                                                                1999          1998          1997
                                                              --------      --------      --------
                                                                                 
OPERATING ACTIVITIES:
Net income (loss)...........................................  $(48,235)     $(18,574)     $  1,619
Extraordinary item-loss on early extinguishment of debt.....        --           514            --
Adjustments to net income (loss):
  Depreciation and amortization.............................     7,753         2,253           451
  Compensation pursuant to stock options....................       218            51           144
  Amortization of deferred debt financing costs and debt
    discounts...............................................       795           947           237
Changes in operating assets and liabilities, net of effect
  of acquisitions:
  Accounts receivable, net..................................   (23,193)      (22,315)      (11,646)
  Accounts receivable, related party........................       166          (307)         (299)
  Accounts payable..........................................    34,237        13,248         8,249
  Accrued expenses..........................................     2,158           745           (45)
  Other.....................................................    (4,417)       (2,039)         (429)
                                                              --------      --------      --------
    Net cash used in operating activities...................   (30,518)      (25,477)       (1,719)
                                                              --------      --------      --------
INVESTING ACTIVITIES:
Acquisitions................................................   (17,298)       (2,648)           --
Purchases of property and equipment.........................   (56,761)      (34,931)       (3,881)
                                                              --------      --------      --------
    Net cash used in investing activities...................   (74,059)      (37,579)       (3,881)
                                                              --------      --------      --------
FINANCING ACTIVITIES:
Proceeds from Senior Notes and Warrants Offering............        --       160,000            --
Proceeds from sale of pledged securities....................    19,200         8,261            --
Proceeds from vendor financing..............................    18,579         8,885            --
Proceeds from Private Placements............................    29,043            --            --
Proceeds from bank facility.................................    93,377            --            --
Net proceeds from issuance of common stock..................       422           262        34,994
Investments in pledged securities...........................        --       (52,417)           --
Payments of debt financing costs............................      (400)       (6,222)         (366)
Scheduled repayments of bank facility.......................   (79,186)           --            --
Scheduled repayments of vendor financing....................    (2,707)           --            --
Scheduled repayments under capital lease obligations........      (476)         (371)         (402)
Net repayments under receivables-based credit facility......        --            --        (1,812)
Repayments under notes payable to individuals and other.....        --            --          (650)
Repayments under notes payable to related parties...........        --            --          (153)
Purchase and retirement of nonvoting common stock...........        --            --           (45)
                                                              --------      --------      --------
    Net cash provided by financing activities...............    77,852       118,398        31,566
                                                              --------      --------      --------
Increase (Decrease) in Cash and Cash Equivalents............   (26,725)       55,342        25,966
Cash and Cash Equivalents, beginning of year................    81,456        26,114           148
                                                              --------      --------      --------
Cash and Cash Equivalents, end of year......................  $ 54,731      $ 81,456      $ 26,114
                                                              ========      ========      ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid...............................................  $ 20,981      $  9,408      $    591
Income tax paid.............................................        --            10            19
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Equipment acquired under capital lease......................  $     --      $     84      $    378
Note payable to individual converted to common stock........        --            44            --
Accrued expenses converted to a note........................        --            --            44


 The accompanying notes are an integral part of these consolidated statements.

                                       58

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    ORGANIZATION

    Startec Global Communications Corporation (the "Company"), is a Delaware
corporation founded in 1989 to provide communications services, including voice
and Internet access services. The Company offers international long-distance
service to residential and carrier customers through a flexible network of owned
and leased transmission facilities, resale arrangements, and foreign termination
arrangements. The Company's marketing targets select ethnic residential
communities located in major metropolitan areas and leading international
long-distance carriers. In 1999, the Company began three internet initiatives:
(i) Internet access for residential customers; (ii) global ethnic web
communities and (iii) the deployment of an internet protocol network. The
Company is headquartered in Bethesda, Maryland.

    RISK AND OTHER IMPORTANT FACTORS

    The Company is subject to various risks in connection with the operation of
its business. These risks include, but are not limited to, dependence on
operating agreements with foreign partners, significant foreign and U.S.-based
customers and suppliers, availability of transmission facilities, U.S. and
foreign regulations, international economic and political instability,
dependence on effective billing and information systems, customer attrition, and
rapid technological change. Many of the Company's competitors are significantly
larger and have substantially greater financial, technical, and marketing
resources than the Company; employ larger networks and control transmission
lines; offer a broader portfolio of services; have stronger name recognition and
loyalty; and have long-standing relationships with the Company's target
customers. In addition, many of the Company's competitors enjoy economies of
scale that can result in a lower cost structure for transmission and related
costs, which could cause significant pricing pressures within the
telecommunications industry. If the Company's competitors were to devote
significant additional resources to the provision of international long-distance
services to the Company's target customer base, the Company's business,
financial condition, and results of operations could be materially adversely
affected.

    The Company has devoted substantial resources to the buildout of its
network, deployment of its Internet initiatives, and the expansion of its
marketing programs and strategic acquisitions. As a result, the Company
experienced operating losses and negative cash flows from operations in 1998 and
1999. These losses and negative operating cash flows are expected to continue
for additional periods in the future. There can be no assurance that the
Company's operations will become profitable or will produce positive cash flows.
The Company's capital requirements for the continued buildout of its network and
growth of its customer base are substantial. The Company intends to fund its
operational and capital requirements in 2000 using cash on hand, its available
credit facilities, and with equity or debt financing. There can be no assurance
that such new financing will be available on terms management finds acceptable
or at all. In the event that the Company is unable to obtain such additional
financing, it will be required to substantially limit or curtail its expansion
plans, network buildout, marketing programs, and foreign operations or the
Company may resort to selling assets to the extent permitted by its debt
facilities. Even with such reductions, management believes that new financing
will be required by no later than the end of 2001.

    In the United States, the Federal Communications Commission ("FCC") and
relevant state Public Service Commissions have the authority to regulate
interstate and intrastate telephone service rates, respectively, ownership of
transmission facilities, and the terms and conditions under which the Company's
services are provided. Legislation that substantially revised the U.S.
Communications Act of 1934 was signed into law on February 8, 1996. This
legislation has specific guidelines under which the Regional Bell

                                       59

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Operating Companies ("RBOCs") can provide long-distance services, which will
permit the RBOCs to compete with the Company in providing domestic and
international long-distance services. Further, the legislation, among other
things, opens local service markets to competition from any entity (including
long-distance carriers, cable television companies and utilities).

    Because the legislation opens the Company's markets to additional
competition, particularly from the RBOCs, the Company's ability to compete may
be adversely affected. Moreover, certain Federal and other governmental
regulations may be amended or modified, and any such amendment or modification
could have material adverse effects on the Company's business, results of
operations, and financial condition.

    PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements of the Company include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany
transactions and balances have been eliminated.

    USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. During 1998,
the Company recorded a net favorable retroactive PTT rate adjustment in the
amount of $953,000. The rate adjustment relates to traffic sent from April 1997
through December 1998 and is reflected in cost of services in the accompanying
consolidated statement of operations. These rate adjustments occur routinely.

    RECLASSIFICATION

    Certain amounts have been reclassified to conform with the current
presentation.

    REVENUE RECOGNITION

    Revenues for telecommunication services provided to customers are recognized
as services are rendered, net of an allowance for revenue that the Company
estimates will ultimately not be realized. Revenues for return traffic received
according to the terms of the Company's operating agreements with its foreign
partners are recognized as revenue as the return traffic is received and
processed.

    The Company has entered into operating agreements with telecommunications
carriers in foreign countries under which international long-distance traffic is
both delivered and received. Under these agreements, the foreign carriers are
contractually obligated to adhere to the policy of the FCC, whereby traffic from
the foreign country is routed to international carriers, such as the Company, in
the same proportion as traffic carried into the country. Mutually exchanged
traffic between the Company and foreign carriers is settled through a formal
settlement policy at agreed upon rates per-minute. The Company records the
amount due to the foreign partner as an expense in the period the traffic is
terminated. When the return traffic is received in the future period, the
Company generally realizes a higher gross margin on the return traffic compared
to the lower margin (or sometimes negative margin) on the outbound traffic.
Revenue recognized from return traffic was approximately $824,000, $2.6 million
and $1.4 million, or .3 percent, 2 percent and 2 percent of net revenues in
1999, 1998 and 1997, respectively.

                                       60

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
There can be no assurance that traffic will be delivered back to the United
States or what impact changes in future settlement rates, allocations among
carriers or levels of traffic will have on net payments received and revenues
recorded by the Company.

    INTERNATIONAL OPERATIONS

    The consolidated statements of operations include amounts related to
non-U.S. subsidiaries. In 1999 and 1998, the Company recognized net revenues of
approximately $8.7 million and $23,000 and net losses of approximately
$11.7 million and $340,000 attributable to non-U.S. subsidiaries, respectively.

    COST OF SERVICES

    Cost of services represents direct charges from vendors that the Company
incurs to deliver service to its customers. These include costs of leasing
capacity and rate-per-minute charges from carriers that originate, transmit, and
terminate traffic on behalf of the Company.

    CASH AND CASH EQUIVALENTS

    The Company considers all short-term investments with original maturities of
90 days or less to be cash equivalents. Cash equivalents consist primarily of
money market accounts that are available on demand. The carrying amounts
reported in the accompanying consolidated balance sheets approximate fair value.

    PLEDGED SECURITIES AND RESTRICTED CASH

    In connection with the Senior Notes and Warrants Offering, the Company
placed $52 million of net proceeds into marketable securities to fund the first
six payments of interest on the Senior Notes through May 2001 which are payable
semi-annually in November and May. The Company was required to provide a bank
guarantee of $180,000 in connection with one of its foreign operating
agreements. This guarantee is in the form of a certificate of deposit. The
pledged securities and restricted cash are shown as long-term assets in the
accompanying consolidated balance sheets. The Company has both the positive
intent and ability to hold the pledged securities and restricted cash until
maturity. Accordingly, these instruments are carried at amortized cost. As of
December 31, 1999 and 1998, pledged securities totaled $27.9 million and
$44.4 million, respectively.

    OTHER CURRENT ASSETS

    During 1998, the Company advanced an aggregate of approximately
$1.4 million to certain of its employees and officers. The secured loans bear
interest at a rate of 7.87% per year, and are due and payable on December 31,
1999. The loans are included in other current assets in the accompanying
consolidated balance sheets. All but $472,000 of these amounts was collected in
January 2000, and the remaining payment terms were extended until December 31,
2000.

    LONG-LIVED ASSETS

    Long-lived assets and identifiable assets to be held and used are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount should be addressed. Impairment is measured by comparing the
carrying value to the estimated undiscounted future cash flows expected to

                                       61

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
result from the use of the assets and their eventual dispositions. The Company
considers expected cash flows and estimated future operating results, trends,
and other available information in assessing whether the carrying value of the
assets is impaired. Since inception, the Company has not recorded an impairment
of its long-lived assets.

    The Company's estimates of anticipated gross revenues, the remaining
estimated lives of tangible and intangible assets, or both, could be reduced
significantly in the future due to changes in technology, regulation, available
financing, or competitive pressures. As a result, the carrying amount of
long-lived assets could be reduced materially in the future.

    INVESTMENTS

    Investments in 50% or less-owned enterprises over which the Company can
exercise significant influence are accounted for using the equity method. Under
the equity method, investments are carried at cost plus or minus the Company's
equity in all increases and decreases in the investee's net assets after the
date of acquisition.

    PROPERTY AND EQUIPMENT

    Property and equipment are stated at historical cost. Depreciation is
provided for financial reporting purposes using the straight line method over
the following estimated useful lives:

                                                           
Property and leasehold improvements.........................        5 years
Communications equipment (including undersea cable).........  7 to 20 years
Computer and office equipment...............................   3 to 5 years



    Long-distance communications equipment includes assets financed under
facility agreements and capital lease obligations of approximately
$26.8 million and $1.5 million as of December 31, 1999 and 1998, respectively.

    Maintenance and repairs are expensed as incurred. Replacements and
improvements are capitalized. Gains on sales of assets are recognized at the
time of sale or deferred to the extent required by generally accepted accounting
principles.

    INTERNAL USE COMPUTER SOFTWARE

    In accordance with Statement of Position 98-1, "Accounting for the Costs of
Software Developed or Obtained for Internal Use," the Company capitalized
approximately $2.1 million and $910,000 for the years ended December 31, 1999
and 1998 respectively, in connection with its internal use software systems.
Such costs are amortized principally over 3-5 years and are included in property
and equipment in the accompanying consolidated balance sheets.

    DEBT DISCOUNTS AND DEFERRED FINANCING COSTS

    Deferred financing costs totaled $6.6 million and $6.2 million as of
December 31, 1999 and 1998, net of amortization of $964,000 and $380,000 in 1999
and 1998, respectively. Deferred financing costs were incurred primarily in
connection with the 1999 financing agreements and the 1998 Senior Notes and
Warrants Offering and are included in other long-term assets in the accompanying
consolidated balance sheets. Debt discounts associated with the Senior Notes and
Warrants Offering total $2.1 million, net of

                                       62

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
amortization of $340,000 and $129,000 in 1999 and 1998, respectively, and are
reflected as a reduction of the Senior Notes. Debt discounts and deferred
financing costs are amortized over the remaining life of the debt using the
effective interest method.

    CONCENTRATION OF CREDIT RISK

    Financial instruments that potentially subject the Company to a
concentration of credit risk are accounts receivable. Residential accounts
receivable consist of individually small amounts due from geographically
dispersed customers. Carrier accounts receivable represent amounts due from
long-distance carriers. The Company's allowance for doubtful accounts is based
on current market conditions. The Company's four largest carrier customers
represented approximately 26 and 32 percent of gross accounts receivable as of
December 31, 1999 and 1998, respectively. Revenues from several customers
represented more than 10 percent of net revenues for the periods presented (see
Note 11). Purchases from the five largest suppliers represented approximately
25, 30 and 47 percent of cost of services for the years ended December 31, 1999,
1998 and 1997, respectively. Services purchased from several suppliers
represented more than 10 percent of cost of services in the periods presented
(see Note 11). One of these suppliers, representing 4, 4 and 7 percent of cost
of services in the years ended December 31, 1999, 1998 and 1997, respectively,
is based in a foreign country.

    INCOME TAXES

    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires that deferred income taxes reflect the expected tax
consequences on future years of differences between the tax bases of assets and
liabilities and their bases for financial reporting purposes. Valuation
allowances are established when necessary to reduce deferred tax assets to the
expected amount to be realized.

    EARNINGS (LOSS) PER COMMON SHARE

    SFAS No. 128 "Earnings per Share" requires dual presentation of basic and
diluted earnings per share on the face of the statements of operations for all
periods presented. Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Weighted average common shares outstanding consist of the following as of
December 31, 1999, 1998 and 1997 (in thousands):



                                                           1999       1998       1997
                                                         --------   --------   --------
                                                                      
Weighted average common shares outstanding--basic......   9,411      8,945      6,136
Stock options and warrant equivalents..................      --         --        287
                                                          -----      -----      -----
Weighted average common and equivalent shares
  outstanding--diluted.................................   9,411      8,945      6,423
                                                          =====      =====      =====


                                       63

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    Options and warrants to purchase 2,455,928 and 1,366,726 shares of common
stock, were excluded from the computation of diluted loss per share in 1999 and
1998, respectively, because inclusion of these options would have an
anti-dilutive effect on loss per share.

    COMPREHENSIVE LOSS

    As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 requires the reporting of comprehensive
income (loss) in addition to net income (loss) from operations. Comprehensive
loss is a more inclusive reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in the
calculation of net income or loss. The Company's only component of other
comprehensive loss represents the foreign currency translation adjustment
recognized in the year ended December 31, 1999.

    ADVERTISING COSTS

    In accordance with Statement of Position 93-7, "Reporting on Advertising
Costs," costs for advertising are expensed as incurred within the fiscal year.
Such costs are included in selling and marketing expenses in the accompanying
consolidated statements of operations.

    RECENT ACCOUNTING PRONOUNCEMENTS

    In April 1998, Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"), was issued which requires that entities
expense costs of start-up activities as incurred. The Company adopted SOP 98-5
on January 1, 1998 and expensed approximately $166,000 of start-up costs
incurred for organizational activities associated with the Company's facilities
in the United Kingdom in 1998.

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS
No. 133, as amended, is effectively for all fiscal quarters of fiscal years
beginning after June 15, 2000, and management has not yet determined its effect
on the Company's financial statements or disclosures.

2. ACCOUNTS RECEIVABLE:

    Accounts receivable consist of the following (in thousands):



                                                               DECEMBER 31,
                                                            -------------------
                                                              1999       1998
                                                            --------   --------
                                                                 
Residential...............................................  $24,598    $20,340
Carrier...................................................   44,548     22,689
                                                            -------    -------
                                                             69,146     43,029

Allowance for doubtful accounts...........................   (3,964)    (2,659)
                                                            -------    -------
                                                            $65,182    $40,370
                                                            =======    =======


                                       64

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTS RECEIVABLE: (CONTINUED)
    The Company has certain service providers that are also customers. The
Company settles amounts receivable and payable from and to certain of these
parties on a net basis.

3. PROPERTY AND EQUIPMENT:

    Property and equipment, including equipment under capital leases consists of
the following at December 31, 1999 and 1998 (in thousands):



                                              DEPRECIABLE
                                                 LIVES         1999       1998
                                             -------------   --------   --------
                                                               
Property and leasehold improvements........        5 years   $  3,795   $ 1,314
Long distance communications equipment.....  7 to 20 years     51,642    29,017
Company and office equipment...............   3 to 5 years     11,583     4,746
                                                             --------   -------
                                                               67,020    35,077
Less: accumulated depreciation and
  amortization.............................                   (10,422)   (3,493)
                                                             --------   -------
                                                               56,598    31,584
Construction in progress...................                    37,623    11,941
                                                             --------   -------
                                                             $ 94,221   $43,525
                                                             ========   =======


    Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was $6.9 million, $2.3 million and $451,000, respectively. Construction in
progress consists primarily of network infrastructure equipment that has not
been placed into service; accordingly no depreciation has been recorded.

4. INTANGIBLE ASSETS:

    Intangible assets recorded in connection with the acquisitions made in 1999
and 1998 (Note 13) consist of the (in thousands):



                                                                DECEMBER 31,
                                                             -------------------
                                                               1999       1998
                                                             --------   --------
                                                                  
Telecommunications licenses................................  $ 2,659     $1,793
Covenant not-to-compete....................................      250        250
Goodwill...................................................   20,025      3,544
                                                             -------     ------
                                                              22,934      5,587
Accumulated amortization...................................     (952)        --
                                                             -------     ------
Intangible assets, net.....................................  $21,982     $5,587
                                                             =======     ======


    Goodwill and covenants not to compete are amortized on the straight-line
basis over 20 and 5 years, respectively. The telecommunications licenses were
acquired through the acquisition of Global Communications GmbH and Phone Systems
and Network, Inc. of France ("PSN"), and the PSN licenses are being amortized on
the straight line basis over 1-4 years.

                                       65

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ACCRUED EXPENSES:

    Accrued expenses consist of the following (in thousands):



                                                                  DECEMBER 31
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
                                                                   
Accrued interest............................................   $3,047     $2,496
Accrued marketing expense...................................      156        667
Accrued payroll and related taxes...........................    1,358        513
Accrued excise taxes and related charges....................    1,909      1,295
Other.......................................................    2,716      1,874
                                                               ------     ------
                                                               $9,186     $6,845
                                                               ======     ======


6. DEBT:

    Debt consists of the following (in thousands):



                                                             DECEMBER 31,
                                                          -------------------
                                                            1999       1998
                                                          --------   --------
                                                               
Senior notes, with a rate of 12% due May 2008...........  $160,000   $160,000
NTFC Financing Agreement, with an average rate of 9.51%     20,982      8,885
  maturing January 2004.................................
Congress Facility Agreement at the prime rate, maturing     14,191         --
  June 2002.............................................
Ascend Financing Agreement, with a rate of 8.5%,             2,311         --
  maturing October 2003.................................
IBM Financing Agreement, with an weighted average rate       1,464         --
  of
  12.41%, maturing 2003.................................
Note payable to individuals and other...................        --         16
Capital lease and other obligations.....................       262        461
                                                          --------   --------
                                                           199,210    169,362
Less: discount on Senior Notes..........................    (1,767)    (1,978)
Less: current portion...................................   (19,576)    (1,894)
                                                          --------   --------
                                                          $177,867   $165,490
                                                          ========   ========


    SENIOR NOTES AND WARRANTS OFFERING

    In May 1998, the Company issued $160 million of 12% senior unsecured notes
("Senior Notes") with a final maturity of May 2008. Warrants to purchase 200,226
shares of common stock at an exercise price of $24.20 per share were issued in
conjunction with the Senior Notes issuance. The Senior Notes were recorded at a
discount of $2.1 million to their face amount to reflect the fair market value
attributable to the warrants. The warrants became exercisable in November 1998.
The Company received net proceeds of $155 million, net of offering expenses.
Concurrent with the issuance, the Company purchased $52 million in U.S.
Government obligations from proceeds of the offering. The U.S. Government
obligations are pledged to fund the first six interest payments on the Senior
Notes (through May 2001). Interest on the Senior Notes is payable semi-annually
in arrears in May and November commencing November 1998.

                                       66

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)
Accrued interest as of December 31, 1999 and 1998 was $2.4 million and
$2.5 million respectively. As of December 31, 1999, no warrants issued in
connection with the Senior Notes have been exercised.

    Under the terms of the Senior Notes, the Company is subject to certain
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness, pay dividends or make distributions in respect to
capital stock or make certain restricted payments; create liens; or merge or
sell all or substantially all of its assets. The Senior Notes are redeemable at
the option of the Company, in whole or in part on or after May 15, 2003, at the
redemption prices set forth below, plus accrued and unpaid interest and
liquidated damages as defined in the indenture, if any, to the date of
redemption.



                                                              REDEMPTION
YEAR                                                            PRICE
- ----                                                          ----------
                                                           
2003........................................................     106%
2004........................................................     104%
2005........................................................     102%
2006 (and thereafter).......................................     100%


    In addition, at any time prior to May 15, 2001, through proceeds of a public
equity offering, the Company may redeem up to 35% of the Senior Notes originally
outstanding at a redemption price of 112% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, to the date of
redemption. Upon a change of control, the Company will be required to offer to
repurchase the outstanding Senior Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the date of purchase.

    The Senior Notes are unsecured obligations of the Company and rank pari
passu in right of payment with all other existing and future unsecured and
unsubordinated obligations of the Company unless expressly noted.

IBM FINANCING AGREEMENT

    In July 1999, the Company entered into a three year vendor financing
facility for up to $5 million with IBM Credit Corp (the"IBM Facility"). The IBM
Facility may be used to finance the purchase of IBM hardware and software from
IBM under a capital lease structure. Borrowings under the IBM Facility bear
interest at a fixed rate equal to the average yield to maturity of the five-year
Treasury Note plus a rate adjustment which varies by the type of equipment
purchased. During 1999, the borrowings on IBM carried interest at rates ranging
from 11.875% to 13.25% with a weighted average interest rate of 12.41%.

CFC FACILITY AGREEMENT

    In June 1999, the Company entered into a three year Loan and Security
Agreement with Congress Financial Corporation ("CFC Facility"), a subsidiary of
First Union National Bank for up to $30 million. The CFC Facility, secured by
trade accounts receivable may be used to finance equipment, undersea cables and
the expansion of the Company's facilities. The CFC Facility bears interest at
the prime rate effective on the date of borrowing. Principal and interest on the
CFC Facility are repaid through collections from trade accounts receivable.
There is an unused line fee equal to 1/4% per annum calculated upon the amount
the maximum credit exceeds the average daily balance of borrowed amounts during
the immediately preceding month payable monthly in arrears. During 1999, all
borrowings on the CFC Facility carried an interest rate of 7.5%.

                                       67

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)
    Under the terms of the CFC Facility, the Company is subject to certain
financial and operational covenants, including but not limited to minimum gross
margin percentages, restrictions on the Company's ability to pay dividends and
level of indebtedness.

ASCEND FINANCING AGREEMENT

    In May 1999, the Company entered into a vendor financing facility for up to
$20 million bearing interest at 8.5% with Ascend Credit Corporation ("Ascend
Facility"). The Ascend Facility may be used to finance equipment purchased from
Ascend under a capitalized lease structure.

NTFC FINANCING AGREEMENT

    In December 1998, the Company entered into a vendor financing facility for
up to $35 million with NTFC Capital Corporation, a financing arm of GE Capital
("NTFC Facility"). The NTFC Facility may be used to finance switches, associated
telecommunications equipment, undersea fiber optic cables, and the expansion of
facilities in the Company's targeted marketing areas. Each borrowing under the
NTFC Facility bears interest at a fixed rate equal to the average yield to
maturity of the five-year Treasury Note plus the Rate Adjustment (as defined in
the agreement). Individual borrowings under the NTFC Facility are amortized over
60 months from the date of advance with a final maturity of all outstanding
amounts by January 2004. As of December 31, 1999, approximately $21.0 million
bearing weighted average interest at approximately 9.51% was outstanding under
the NTFC Facility. Principal and interest payments of approximately $527,814 are
due monthly in arrears. During 1999, the borrowings on the NTFC Facility carried
interest rates ranging from 8.91% to 10.39%.

    Under the terms of the NTFC Facility, the Company is subject to certain
financial and operational covenants, including but not limited to minimum gross
margin percentages, restrictions on the Company's ability to pay dividends and
level of indebtedness.

COMMERCIAL LOAN AGREEMENT

    In July 1997, the Company entered into a loan agreement ("Loan") with a
commercial bank ("Lender"). The Loan provides for maximum borrowings of up to
$10 million through December 31, 1997, and the lesser of $15 million or
85 percent of eligible accounts receivable, as defined, thereafter until
maturity in December 1999. The Loan required a $150,000 commitment fee to be
paid at closing, and a quarterly commitment fee of one quarter percent of the
unused portion. In December 1998, the Company terminated the Loan. In connection
with the termination, the Company recognized an extraordinary loss of $514,000
related to the write-off of deferred financing costs and debt discounts related
to the Loan.

    In connection with the Loan, the Company issued the Lender warrants to
purchase 539,800 shares of the Company's common stock at $8.46 per share.
Vesting on the remaining warrants was contingent on the occurrence of certain
events. In December 1997, as a result of the Company's completed Initial Public
Offering of common stock, the remaining warrants were retired. The warrants were
valued at $823,000 and are classified as a component of stockholders' equity. As
of December 31, 1999, warrants to acquire 269,900 shares of common stock remain
outstanding and expire July 1, 2002.

                                       68

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT: (CONTINUED)

    Debt maturities as of December 31, 1999, excluding capital lease
obligations, are as follows (in thousands);

                                                           
2000........................................................    19,576
2001........................................................     5,700
2002........................................................     6,223
2003........................................................     6,811
Thereafter..................................................   160,000
                                                              --------
                                                              $199,210
                                                              ========



7. COMMITMENTS AND CONTINGENCIES:

LEASES

    The Company leases office space and equipment under non-cancelable operating
leases. Rent expense was approximately $2.3 million, $1 million and $313,000 for
the years ended December 31, 1999, 1998, and 1997, respectively. The terms of
the office lease require the Company to pay a proportionate share of real estate
taxes and operating expenses. The Company also leases equipment under capital
lease obligations. The future minimum commitments under lease obligations are as
follows (in thousands):



                                                             CAPITAL    OPERATING
FOR THE YEAR ENDING DECEMBER 31,                              LEASES     LEASES
- --------------------------------                             --------   ---------
                                                                  
2000.......................................................   $ 141      $ 3,266
2001.......................................................      80        2,822
2002.......................................................      60        2,304
2003.......................................................      --        1,458
2004.......................................................      --        1,227
Thereafter.................................................      --          908
                                                              -----      -------
                                                                281      $11,985
                                                                         =======

Less--Amounts representing interest........................     (19)
Less--Current portion......................................    (132)
                                                              -----
Long-term Portion..........................................   $ 130
                                                              =====


    LEASE WITH RELATED PARTY

    The Company has entered into an agreement with an affiliate of a stockholder
to lease capacity in certain undersea fiber optic cable. The agreement grants a
perpetual right to use the cable and requires ten semiannual payments of $38,330
beginning in June 1996. The Company is required to pay a proportional share of
the cost of operating and maintaining the cable. The Company can cancel this
agreement without further obligation, except for amounts related to past usage,
at any time.

                                       69

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
    LITIGATION

    Certain claims and suits have been filed or are pending against the Company.
In management's opinion, resolution of these matters will not have a material
impact on the Company's financial position or results of operations and adequate
provision for any potential losses has been made in the accompanying
consolidated financial statements.

8. STOCKHOLDERS' EQUITY:

    COMMON AND PREFERRED STOCK

    In December 1999, the Company issued 1,875,000 shares of voting common stock
for net proceeds of approximately $29.0 million through a private placement. The
shares were subsequently registered for resale by holders of such shares in
January 2000.

    In 1997, the Board of Directors authorized 100,000 shares of $1.00 par value
preferred stock. Concurrent with the approval of the Reorganization, the Board
of Directors approved an increase in the authorized shares of common and
preferred stock. Subsequent to year end 1998, total common and preferred shares
authorized increased to 40,000,000 and 1,000,000, respectively pursuant to the
Reorganization. The Board of Directors has the authority to issue these shares
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without further vote or action by the
stockholders.

    In October 1997, the Company completed an Initial Public Offering of its
common stock (the "Initial Public Offering"). Together with the exercise of the
overallotment option in November 1997, the Initial Public Offering placed
3,277,500 shares of common stock at a price of $12.00 per share, yielding net
proceeds (after underwriting discounts, commissions, and other professional
fees) to the Company of approximately $35 million.

    In July 1997, the Company exchanged 17,175 shares of its outstanding
nonvoting common stock for authorized voting common stock and purchased the
remaining 5,351 shares of outstanding nonvoting common stock from a former
officer and director of the Company for $45,269.

    STOCK OPTION PLANS

    In August 1997, the stockholders of the Company approved the 1997
Performance Incentive Plan (the "Performance Plan"). The Performance Plan
provides for the award to eligible employees of the Company and others of stock
options, stock appreciation rights, restricted stock, and other stock-based
awards, as well as cash-based annual and long-term incentive awards. In 1998,
the Board of Directors and stockholders approved an increase in the shares
authorized for issuance under the Performance Plan to 18.5 percent of the common
shares outstanding. The options expire ten years from the date of grant and vest
ratably over five years. The Performance Plan provides that all outstanding
options become fully vested in the event of a change in control, as defined. As
of December 31, 1999 and 1998, approximately 264,689 and 914,890 options,
respectively, were available for grant under the Performance Plan.

    The Company's Amended and Restated Stock Option Plan, reserves 270,000
shares of voting common stock to be issued to officers and key employees under
terms and conditions to be set by the Company's Board of Directors. In
conjunction with the Company's January 20, 1997 amendment to the plan, all
options were cancelled and certain options were reissued at their original
exercise prices and compensation

                                       70

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY: (CONTINUED)
expense was recognized for the excess of the fair value of the common stock over
the exercise price of the related options. The Company recognized approximately
$131,000 in compensation expense for the year ended December 31, 1997 as the
vesting of the options accelerated upon completion of the Initial Public
Offering.

    On December 14, 1998, the Company repriced 581,150 options outstanding,
which had exercise prices ranging between $10.00 and $26.75 per share to the
then market price of $9.00 per share. This was the Company's first and only
repricing of options and the repricing did not benefit executive officers,
affiliates, or major stockholders.

    A summary of the status of the Company's stock option plans as of
December 31, 1999, 1998 and 1997 and changes during the years ending on those
dates is presented in the following chart:



                                                     1999                    1998                   1997
                                            ----------------------   --------------------   --------------------
                                                         WEIGHTED               WEIGHTED               WEIGHTED
                                                          AVERAGE                AVERAGE                AVERAGE
                                                         PRICE PER              PRICE PER              PRICE PER
                                             OPTIONS       SHARE     OPTIONS      SHARE     OPTIONS      SHARE
                                            ----------   ---------   --------   ---------   --------   ---------
                                                                                     
Options outstanding at beginning of year
  January 1,..............................     743,600    $ 9.64      531,666    $ 9.96      138,300     $0.38
Granted...................................   1,248,652     14.47      977,900     10.54      668,366      8.14
Exercised.................................     (48,500)     8.69     (125,816)     1.85     (136,500)     1.05
Canceled..................................    (107,950)    10.30     (640,150)    12.81     (138,500)     0.38
                                            ----------    ------     --------    ------     --------     -----
Options outstanding at December 31,.......   1,835,802    $12.91      743,600    $ 9.64      531,666     $9.96
                                            ==========    ======     ========    ======     ========     =====
Options exercisable at December 31,.......     161,450    $ 9.78       76,530    $ 9.23      133,266     $1.85
                                            ==========    ======     ========    ======     ========     =====


    The following table summarizes information about stock options outstanding
at December 31, 1999:



                               OPTIONS OUTSTANDING                                    OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------   -----------------------
                                                           WEIGHTED
                                                            AVERAGE     WEIGHTED                  WEIGHTED
                                                           REMAINING     AVERAGE                   AVERAGE
RANGE OF                                      NUMBER      CONTRACTUAL   PRICE PER     NUMBER      PRICE PER
EXERCISE PRICES                             OUTSTANDING      LIFE         SHARE     EXERCISABLE     SHARE
- ---------------                             -----------   -----------   ---------   -----------   ---------
                                                                                   
$ 1.85--$ 1.85............................       5,350        7.05       $ 1.85           250      $ 1.85
$ 4.75--$ 4.75............................      10,000        8.75         4.75         2,000        4.75
$ 8.00--$10.00............................     923,300        9.08         9.05       140,950        9.17
$12.25--$14.87............................     231,387        9.53        13.24        10,250       14.10
$16.12--$18.50............................     665,765        9.51        18.37         8,000       16.56
                                             ---------        ----       ------       -------      ------
$ 1.85--$18.50............................   1,835,802        9.29       $12.91       161,450      $ 9.78
                                             =========        ====       ======       =======      ======


    The Company has elected to account for stock and stock rights in accordance
with Accounting Principles Board Opinion No. 25 ("Accounting for Stock Issued to
Employees"). SFAS No. 123, "Accounting for Stock-Based Compensation,"
established an alternative method of expense recognition for stock-based
compensation awards to employees based on fair values. The Company has elected
not to adopt SFAS No. 123 for expense recognition purposes.

                                       71

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY: (CONTINUED)
    Pro forma information regarding net income is required by SFAS No. 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method prescribed by SFAS No. 123. The fair value
of options granted during the years ended December 31, 1999, 1998, and 1997 was
estimated at the date of grant using a fair value option pricing model with the
following weighted-average assumptions: risk-free interest rates of 6 percent,
4.56 percent, and 6.2 percent; no dividend yield; weighted-average expected
lives of the options of five years, and expected volatility of 87 percent,
95 percent, and 50 percent respectively.

    The fair value option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price characteristics that
are significantly different from those of traded options. Because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock rights.

    The weighted-average fair value of options granted during 1999, 1998 and
1997, was $12.46 per share, $7.84 per share and $4.32 per share, respectively.
For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the estimated service period. If the Company had used
the fair value accounting provisions of SFAS No. 123, the pro forma net loss for
1999 and 1998 would have been approximately $49,861,000 and $19,125,000,
respectively, or $5.30 and $2.14 per share (basic and diluted), respectively.
Pro forma net income for 1997 would have been $1,600,000, or $0.26 per share
(basic) and $0.25 per share (diluted). The provisions of SFAS No. 123 are not
required to be applied to awards granted prior to January 1, 1995. The impact of
applying SFAS No. 123 may not necessarily be indicative of future results.

    Under the Performance Plan, the Company has granted options to acquire
57,500 shares of the Company's common stock to the Company's consultants in lieu
of payment for certain consulting services to be performed in the future.
Pursuant to SFAS No. 123, the Company recognized deferred compensation of
$668,000 for the fair value of these options, as calculated using a fair value
option pricing model, using the weighted average assumptions described above.
For the years ended December 31, 1999, 1998 and 1997, the Company recognized
expense of $218,000, $51,000 and $144,000, respectively, related to these
options over the estimated service periods of the consultants.

    STOCKHOLDER RIGHTS PLAN

    The Board of Directors has adopted a stockholder rights plan ("Rights" and
"Rights Plan"), which is designed to protect the rights of its stockholders and
deter coercive or unfair takeover tactics. It is not in response to any
acquisition proposal. Preferred stock purchase rights have been granted as a
dividend at the rate of one Right for each outstanding share of common stock
held of record as of the close of business on April 3, 1998.

    Each Right, when exercisable, would entitle the holder thereof to purchase
1/1,000th of a share of Series A Junior Participating Preferred Stock ("Junior
Preferred Stock") at a price of $175 per 1/1,000th share. The Company's Board of
Directors designated 25,000 shares of the authorized Preferred Stock for this
purpose. The Rights, which have no voting rights, will expire on March 25, 2008.

    At the time of adoption of the Rights Plan, the Rights are neither
exercisable nor traded separately from the common stock. Subject to certain
limited exceptions, the Rights will be exercisable only if a

                                       72

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCKHOLDERS' EQUITY: (CONTINUED)
person or group, other than an Exempt Person, as defined in the Rights Plan,
becomes the beneficial owner of 15% or more of the common stock or announces a
tender or exchange offer which would result in its ownership of 15% or more of
the common stock. Ten days after a public announcement that a person has become
the beneficial owner of 15% or more of the common stock or ten days following
the commencement of a tender or exchange offer which would result in a person
becoming the beneficial owner of 15% or more of the common stock (the earlier of
which is called the "Distribution Date"), each holder of a Right, other than the
acquiring person, would be entitled to purchase a certain number of shares of
common stock for each Right at one-half of the then-current market price. If the
Company is acquired in a merger, or 50% or more of the Company's assets are sold
in one or more related transactions, each Right would entitle the holder thereof
to purchase common stock of the acquiring company at one half of the then-market
price of such common stock.

    At any time after a person or group becomes the beneficial owner of 15% or
more of the common stock, the Board of Directors may exchange one share of
common stock for each Right, other than Rights held by the acquiring person.
Generally, the Board of Directors may redeem the Rights at any time until
10 days following the public announcement that a person or group of persons has
acquired beneficial ownership of 15% or more of the outstanding common stock.
The redemption price is $.001 per Right. The Rights Plan was amended by the
Board of Directors on August 21, 1999 to raise the trigger threshold from 10% to
15% and to authorize the Board to take steps to preclude an inadvertant
triggering of the Rights Plan.

    WARRANT AND REGISTRATION RIGHTS

    The Company agreed to issue to certain underwriters of the Initial Public
Offering, warrants to purchase up to 150,000 shares of common stock at an
exercise price of $13.20 per share. The warrants are exercisable for a period of
five years beginning October 1998. The holders of the warrants will have no
voting or other stockholder rights unless and until the warrants are exercised.
The fair value of these warrants was approximately $870,000 when issued, and is
classified in stockholders' equity.

    As of December 31, 1999, the Company has warrants outstanding of 470,126 in
connection with debt issuances and agreements. Warrants issued in connection
with the Senior Notes and Warrants Offering have an exercise price of $24.20 and
expire May 2008. Warrants issued in connection with the Commercial Loan
Agreement have an exercise price of $8.46 and are exercisable for a period of
five years beginning July 1997. The holders of the warrants will have no voting
or other stockholder rights unless and until the warrants are exercised.

    EMPLOYEE BENEFIT PLANS

    During 1998, the Company adopted the Startec Employee 401(K) Plan (the
"Plan"), a defined contribution plan. Employees are eligible for the Plan after
completing at least one year of service and attaining age 20. The Plan allows
for employee contributions up to 15% of their compensation. In September 1998,
the Company adopted a contribution matching plan pursuant to which the Company,
at its discretion, may contribute shares of the Company's common stock in an
amount up to five percent of employee contributions. In 1999, the Company
contributed approximately 5,000 shares. These shares will vest ratably over a
five year period from the date of employment.

                                       73

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES:

    The Company has net operating loss carryforwards ("NOLs") for Federal income
tax purposes of approximately $79,578,000 and $25,483,000, as of December 31,
1999 and 1998, respectively, which may be applied against future taxable income
and expire between 2010 and 2019. The Company utilized a portion of these NOLs
to partially offset its taxable income for the year ended December 31, 1997. The
use of the NOLs is subject to statutory and regulatory limitations regarding
changes in ownership. SFAS No. 109 requires that the tax benefit of NOLs for
financial reporting purposes be recorded as an asset to the extent that
management assesses the realization of such deferred tax assets is "more likely
than not." A valuation reserve is established for any deferred tax assets that
are not expected to be realized.

    As a result of historical and projected operating losses, a valuation
allowance equal to the net deferred tax asset was recorded for all periods
presented.

    The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows (in thousands):



                                                             DECEMBER 31,
                                                          -------------------
                                                            1999       1998
                                                          --------   --------
                                                               
Deferred tax assets:
  Net operating loss carryforwards......................  $ 30,733   $  9,842
  Allowance for doubtful accounts.......................     1,531      1,378
  Contested liabilities.................................     1,052        553
  Cash to accrual adjustments...........................        --        230
  Other.................................................       456        155
                                                          --------   --------
      Total deferred tax assets.........................    33,772     12,158
                                                          --------   --------
Deferred tax liabilities:
  Depreciation..........................................     3,227      1,227
  Other.................................................        19         19
                                                          --------   --------
      Total deferred tax liabilities....................     3,246      1,246
                                                          --------   --------
Net deferred tax assets.................................    30,526     10,912
Valuation allowance.....................................   (30,526)   (10,912)
                                                          --------   --------
                                                          $     --   $     --
                                                          ========   ========


    Pursuant to Section 448 of the Internal Revenue Code, the Company was
required to change from the cash to the accrual method of accounting. The effect
of this change was amortized over four years for tax purposes.

    The Company recorded no benefit or provision for income taxes for the years
ended December 31, 1999 and 1998. A provision for Federal alternative minimum
tax was recorded for the year ended

                                       74

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES: (CONTINUED)
December 31, 1997. The components of income tax expense for the year ended
December 31, 1997 are as follows (in thousands):



                                                                1997
                                                              --------
                                                           
Current Provision
Federal.....................................................   $ 171
Federal alternative minimum tax.............................      29
State.......................................................      23
                                                               -----
                                                                 223
                                                               -----
Deferred benefit
Federal.....................................................     (86)
State.......................................................     (12)
Benefit of net operating loss carryforwards.................     (96)
                                                               -----
                                                                (194)
                                                               -----
                                                               $  29
                                                               =====


    The provision for income taxes for the year ended December 31, 1997 results
in an effective rate which differs from the Federal statutory rate as follows:



                                                                1997
                                                              --------
                                                           
Statutory Federal income tax rate...........................    35.0%
Impact of graduated rate....................................    (1.0)
State income taxes, net of Federal tax benefit..............     4.6
Federal alternative minimum tax.............................     1.8
Benefit of net operating loss carryforwards.................   (38.6)
                                                               -----
Effective rate..............................................     1.8%
                                                               =====


10. RELATED-PARTY TRANSACTIONS:

    The Company has an agreement with an affiliate of a stockholder of the
Company that calls for the purchase and sale of long distance services. Revenues
generated from this affiliate amounted to approximately $825,000, $1.9 million
and $1.9 million, or .3, 1 and 2 percent of total net revenues for the years
ended December 31, 1999, 1998, and 1997, respectively. The Company was in a net
accounts receivable position with this affiliate of approximately $286,000 and
$684,000 as of December 31, 1999 and 1998, respectively. Services provided by
this affiliate and recognized in cost of services amounted to approximately
$409,000, $366,000 and $680,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

    The Company also has a lease with an affiliate of a stockholder of the
Company (see Note 7).

                                       75

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. BUSINESS SEGMENT DATA AND SIGNIFICANT CUSTOMERS AND SUPPLIERS:

    The Company classifies its operations into two industry segments,
long-distance telecommunications services and Internet services. The long
distance telecommunications service segment is evaluated by management on a
regional basis by continent.

    The Company evaluates the performance of its segments based primarily on
Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA"). The
Company's interest income and expense is included in the consolidated Federal
income tax return of the Company and its subsidiaries and is allocated based
upon the relative contribution to the Company's consolidated general and
administrative expense. Prior to 1999, the Company operated in only one business
segment: long-distance telecommunications. Operations in Europe and Asia were
not material in 1998 and 1997.

    The majority of the Company's selling, general, and administrative cost is
incurred by the North American operations. However, selling, general, and
administrative cost is allocated to the Company's other segments based on the
total head count for the Company.

    The following table presents revenues and other financial information on a
regional and segmented basis for the year ended December 31, 1999 (in
thousands);



                                              LONG DISTANCE TELECOMMUNICATIONS
                                              ---------------------------------
                                                NORTH                             INTERNET
                                               AMERICA     EUROPE       ASIA      SERVICES   CONSOLIDATED
                                              ---------   ---------   ---------   --------   ------------
                                                                              
Net revenues................................  $263,611    $  7,169     $5,691     $    --      $276,471
Gross margin................................    31,747        (594)     2,583          --        33,736
Selling, marketing, general and
  administrative expense....................    42,204      10,328      3,193       1,467        57,192
EBITDA......................................   (10,457)    (10,922)      (610)     (1,467)      (23,456)
Depreciation and amortization expense.......     6,364         657        732          --         7,753
Interest expense............................    21,794          19         --          --        21,813
Interest income.............................     5,019          22         36          --         5,077
Fixed Assets, gross.........................    83,897       2,249      3,077      15,420       104,643
Total assets................................   249,890       8,256      9,998      12,487       280,631


    As of December 31, 1999, the Company's long-lived assets located in the
United States were $83,897,000 in 1999 and $47,018,000 in 1998.

                                       76

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. BUSINESS SEGMENT DATA AND SIGNIFICANT CUSTOMERS AND SUPPLIERS: (CONTINUED)
    Substantially all of the Company's revenues for each period presented were
derived from long distance telecommunications service calls originated within
the United States and terminated outside the United States. Net revenues
terminated by geographic area were as follows (in thousands):



                                                  FOR THE YEAR ENDED DECEMBER 31,
                                                 ---------------------------------
                                                   1999        1998        1997
                                                 ---------   ---------   ---------
                                                                
Asia Pacific Rim...............................  $102,809    $ 72,274     $42,039
Middle East/North Africa.......................    43,373      30,303      21,236
Sub-Saharan Africa.............................    26,718      13,020       6,394
Eastern Europe.................................    25,180      15,539       7,964
Western Europe.................................    12,346       2,725       1,913
North America..................................     7,785       5,661       3,398
South America and Other........................    58,260      21,647       2,913
                                                 --------    --------     -------
Total..........................................  $276,471    $161,169     $85,857
                                                 ========    ========     =======


    SIGNIFICANT CUSTOMERS

    A significant portion of the Company's net revenues is derived from a
limited number of customers. During 1999, 1998 and 1997, the Company's five
largest carrier customers accounted for approximately 35 percent, 61 percent and
47 percent of net revenues, respectively. One customer accounted for ten percent
or more of net revenues in 1999 and 1998 while two customers accounted for ten
percent or more of net revenues during 1997. The Company's agreements and
arrangements with its carrier customers generally may be terminated on short
notice without penalty. The following customers provided 10 percent or more of
the Company's total net revenues in the year indicated (in thousands):



                                                    FOR THE YEAR ENDED DECEMBER 31,
                                                   ---------------------------------
                                                     1999        1998        1997
                                                   ---------   ---------   ---------
                                                                  
MCI/WorldCom, Inc................................   $61,927     $38,289     $19,886
Frontier.........................................         *           *      12,420


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

*   Represents less than 10% of the total.

    SIGNIFICANT SUPPLIERS

    A significant portion of the Company's cost of services is purchased from a
limited number of suppliers. The following suppliers provided 10 percent or more
of the Company's total cost of services in the year indicated (in thousands):



                                                     FOR THE YEAR ENDED DECEMBER
                                                                 31,
                                                    ------------------------------
                                                      1999       1998       1997
                                                    --------   --------   --------
                                                                 
MCI/WorldCom, Inc.................................  $22,213    $     *     $9,918
Pacific Gateway Exchange..........................        *     14,421      8,893


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

*   Represents less than 10% of the total

                                       77

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. FAIR VALUE OF FINANCIAL INSTRUMENTS:

    The fair value of certain financial assets and liabilities are shown below:



                                                       DECEMBER 31, 1999     DECEMBER 31, 1998
                                                      -------------------   -------------------
                                                      CARRYING     FAIR     CARRYING     FAIR
                                                       AMOUNT     VALUE      AMOUNT     VALUE
                                                      --------   --------   --------   --------
                                                                           
Financial assets:
  Pledged short-term marketable securities..........  $ 27,928   $ 29,221   $ 44,156   $ 45,180

Financial liabilities:
  Senior Notes, excluding debt discount.............   160,000    129,600    160,000    144,000
  Vendor financing and bank facility................    38,948     38,948      8,885      8,885


    Short-term marketable securities and the Senior Notes are valued based on
quoted market prices. The fair values of the vendor financing are estimated
based on expected future payments discounted at the Company's incremental
borrowing rate.

    The carrying amounts for current assets, restricted cash and current
liabilities approximate their fair value due to their short maturity. The fair
value of notes payable to individuals and others and notes payable to related
parties cannot be reasonably and practicably estimated due to the unique nature
of the related underlying transactions and terms. However, given the terms and
conditions of these instruments, if these financial instruments were with
unrelated parties, interest rates and payment terms could be different than the
currently stated rates and terms.

13. ACQUISITIONS:

    In December 1999, the Company acquired SigmaNet Network Corporation
("SigmaNet") for approximately $648,000 in cash and 223,786 shares of Startec
common stock valued at approximately $4.3 million. These shares were issued in
January 2000. SigmaNet provides Internet services under the name of IAOL,
including Internet access and a Web portal for the Asian Indian community. The
purchase price was allocated to the net assets acquired based upon the estimated
fair value of such assets, which resulted in an allocation of $4.9 million to
goodwill. Purchase price allocations have been completed on a preliminary basis
and are subject to adjustment should new or additional facts about the business
become known.

    In July 1999, the Company acquired the fixed assets and customers of
Worldwide Telecommunications Company Limited, Infinity Telecommunications
Limited and Pacific Direct, Inc. (collectively "Worldwide Group") for
approximately $200,000 in cash and $790,000 in shares of common stock. At the
close of the transaction, 40,505 shares of common stock were issued. The
remaining number of shares will be issued in accordance with the agreement as an
amount equal to approximately $200,000 divided by the fair value of the common
stock at the day of issuance. Worldwide Group provides voice and data services
to businesses and individuals in the Hong Kong, China region. The purchase price
was allocated to the net assets acquired based upon the estimated fair value of
such assets, which resulted in an allocation of $1.1 million to goodwill.
Purchase price allocations have been completed on a preliminary basis and are
subject to adjustment should new or additional facts about the business become
known.

    In February 1999, the Company acquired a 64.6% ownership interest in Phone
Systems and Network, Inc. of France ("PSN") for approximately $3.8 million in
cash and 425,000 shares of the common stock. The Company acquired an additional
20.4% ownership interest was acquired through a cash tender offer and open
market purchases for a total ownership interest of approximately 85%. Total
consideration

                                       78

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. ACQUISITIONS: (CONTINUED)
amounted to approximately $11.3 million, including acquisition costs. The
Company recognized approximately $10.5 million in intangible assets associated
with the acquisition. PSN is a facilities based provider in France, with
switches in both Paris and Switzerland with additional capacity on a switch
located in the United Kingdom. PSN also provides services on a switchless
reseller basis in Belgium. Common shares of PSN are traded on the Nouveau Marche
Exchange in France.

    In November 1998, the Company acquired PCI Communications, Inc. ("PCI") for
$2.65 million. PCI is a provider of voice and data services located in the
Pacific Rim island of Guam. PCI has signatory status on the TPC-5,
Guam-Filipinos and China-U.S. cables. The acquisition will allow Startec to
access a U.S. based satellite line of sight that extends from Southeast Asia to
Central Europe. The purchase price was allocated to the net assets acquired
based upon the estimated fair value of such assets, which resulted in an
allocation of $1 million to goodwill and $250,000 to a covenant not to compete
agreement.

    In December 1998, the Company acquired Global Communications GmbH of Germany
("Global") for $5.4 million. Global has a Class IV nationwide telecommunications
license for Germany, an interconnection agreement with Deutsche Telekom and a
Siemens EWSD switch located in Dusseldorf. The purchase price was allocated to
the net assets acquired based upon the estimated fair value of such assets,
which resulted in an allocation of $2.5 million to goodwill and a
telecommunications license.

    The Company has accounted for all of the referenced acquisitions using the
purchase method. Accordingly, the results of operations of the acquired
companies are included in the accompanying consolidated statements of operations
of the Company, as of the date of their respective acquisition.

    The Company's summarized, unaudited consolidated pro forma results of
operations, assuming the above PCI and PSN transaction occurred on January 1,
1998 are as follows (in thousands, except per share amounts):



                                                          FOR THE YEAR ENDED
                                                             DECEMBER 31,
                                                          -------------------
                                                            1999       1998
                                                          --------   --------
                                                               
Net Revenues............................................  $277,431   $172,021
Loss from operations....................................   (31,458)   (12,412)
Loss before extraordinary item..........................   (48,432)   (19,574)
Net loss................................................   (48,432)   (20,088)
Basic and diluted loss per common share:
  Loss before extraordinary item........................     (5.15)     (2.19)
  Net loss per common share.............................     (5.15)     (2.25)


    Operations for Global were not significant for 1998, and operations for
SigmaNet and Worldwide Group were not significant for 1999 or 1998.

    In May 1999, the Company entered into an agreement to acquire up to a 49%
fully diluted ownership interest in Dialnet Communications Limited ("Dialnet")
for up to $1.6 million. Dialnet provides value added voice and data services in
India. The agreement, which became effective July 1999 upon approval by the
government of India, provides for an investment of $1 million payable in equal
installments of $500,000 in July 1999 and March 2000 and a $600,000 convertible
loan. The loan, convertible into common shares of Dialnet through July 2002,
extends available credit of $300,000 immediately and an additional $300,000 in
March 2000. Per the agreement, the remaining $500,000 investment and $300,000
loan, are payable at the

                                       79

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. ACQUISITIONS: (CONTINUED)
Company's option. As of December 31, 1999, the Company has an equity investment
of $500,000, and $300,000 is outstanding under the convertible loan. In
January 2000, the Company loaned the remaining $300,000 under the convertible
loan.

    In February 1999, the Company acquired a 20% equity ownership interest in
BCH Holding Company, Inc. ("BCH") with operations in Poland, for approximately
$1.2 million. Concurrent with the acquisition, Startec received a $2.5 million
note payable from BCH convertible at Startec's option into common shares
equivalent to an additional 28% fully diluted ownership interest of BCH. BCH is
a reseller of international voice and a licensed Internet service provider in
Poland. The investment in BCH and the note payable from BCH are included in
other long-term assets in the accompanying consolidated balance sheets.

14. QUARTERLY FINANCIAL DATA (UNAUDITED):

    The following quarterly financial data has been prepared from the financial
records of the Company without audit, and reflects all adjustments which, in the
opinion of management, were of a normal recurring nature and necessary for a
fair presentation of the results of operations for the interim periods
presented. The operating results for any quarter are not necessarily indicative
of results for any future period.



                                                                       1999
                                                     -----------------------------------------
                                                      FIRST      SECOND     THIRD      FOURTH
                                                     QUARTER    QUARTER    QUARTER    QUARTER
                                                     --------   --------   --------   --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                          
Net revenues.......................................  $57,714    $61,916    $76,616    $ 80,225
Gross margin.......................................    5,060      7,188     10,071      11,417
Loss from operations...............................  (10,260)    (7,899)    (6,860)     (6,190)
Net loss...........................................  (13,827)   (11,922)   (11,272)    (11,214)
Basic and diluted loss per common share:
  Net loss.........................................    (1.51)     (1.28)     (1.19)      (1.15)
  Weighted average common shares outstanding--basic
    and diluted....................................    9,144      9,390      9,422       9,681


                                       80

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. QUARTERLY FINANCIAL DATA (UNAUDITED): (CONTINUED)



                                                                       1998
                                                     -----------------------------------------
                                                      FIRST      SECOND     THIRD      FOURTH
                                                     QUARTER    QUARTER    QUARTER    QUARTER
                                                     --------   --------   --------   --------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                          
Net revenues.......................................  $29,891    $33,461    $47,448    $ 50,369
Gross margin.......................................    4,236      4,632      5,496       5,629
Income (loss) from operations......................      713     (1,166)    (3,282)     (6,921)
Income (loss) before extraordinary item............      899     (2,657)    (6,015)    (10,287)
Net income (loss)..................................      899     (2,657)    (6,015)     10,801)
Basic earnings (loss) per common share:
  Income (loss) before extraordinary item..........     0.10      (0.30)     (0.67)      (1.15)
  Net income (loss)................................     0.10      (0.30)     (0.67)      (1.21)
  Weighted average common shares
    outstanding--basic.............................    8,909      8,942      8,964       8,965
Diluted earnings (loss) per common share:
  Income (loss) before extraordinary item..........     0.10      (0.30)     (0.67)      (1.15)
  Net income (loss)................................     0.10      (0.30)     (0.67)      (1.21)
  Weighted average common and equivalent shares
    outstanding--diluted...........................    9,365      8,942      8,964       8,965


15. SUBSEQUENT EVENTS:

    During the first quarter of 2000, we acquired several IP termination
facilities from various vendors. We have integrated these facilities into our IP
network and have launched Voice over IP services as a new line of business in
the first quarter of 2000. The aggregate cost of these IP facilities will be up
to $10 million, depending upon transaction and revenue sharing agreements.

    During the first quarter of 2000, we acquired DLC Enterprises Inc., a New
York-based telecommunications company for approximately $1 million. DLC offers
dial-1, debit card and ISP services. DLC provides Startec with a management and
sales force, proprietary billing and customer provisioning software and small
business revenue. The acquisition of DLC facilitates the introduction of
commercial services for ethnic and mid-sized business customers.

    During the first quarter of 2000, Startec acquired Global Villager Inc. for
$500,000 in cash and 498,916 shares of common stock valued at $12.5 million. The
shares were issued in March 2000. Global Villager owns a leading bilingual
Chinese/English Web community, DragonSurf.com, which provides a vast range of
content and services on its Web site for the Greater Chinese community.

    During the first quarter of 2000, Startec acquired Vancouver Telephone
Company ("VTC"), for $1,033,722 in cash and 520,463 shares of common stock
valued at $13.8 million. VTC provides domestic and international long distance
services in Canada. VTC markets its telephone services to ethnic communities in
Canada, including Taiwanese, Chinese, Romanian and Serbian communities.

                                       81

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

    None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    The following table sets forth the names and other information about our
executive officers and directors as of December 31, 1999. Our board of directors
is divided into three classes of directors, each containing, as nearly as
possible, an equal number of directors. Directors within each class are elected
to serve three-year terms, and approximately one-third of the directors stand
for election at each annual meeting of the stockholders. At the next annual
meeting, the stockholders will elect the person to serve as our Class III
director.



                                              AGE                POSITION WITH COMPANY
                                            --------   ------------------------------------------
                                                 
Ram Mukunda...............................     41      Chairman, President, and Chief Executive
                                                       Officer
Prabhav V. Maniyar........................     40      Chief Financial Officer and Director
Nazir G. Dossani..........................     58      Director
Richard K. Prins..........................     43      Director
Sudhaker Shenoy...........................     53      Director
Anthony A. Das............................     46      Chief Operating Officer, Online Services
David Venn................................     40      Chief Operating Officer, European
                                                       Operations
John H. Wolaver...........................     54      Chief Operating Officer, North American
                                                       Operations


    The business experience, principal occupation and employment of our
executive officers and directors are as follows:

    Ram Mukunda is our founder. Prior to 1989, Mr. Mukunda was an Advisor in
Strategic Planning with INTELSAT, an international consortium responsible for
global satellite services. While at INTELSAT, he was responsible for issues
relating to corporate, business, financial planning and strategic development.
Prior to joining INTELSAT, he worked as a fixed-income analyst with Caine,
Gressel. Mr. Mukunda earned an M.S. in electrical engineering from the
University of Maryland.

    Prabhav V. Maniyar joined us as Chief Financial Officer in January 1997.
From June 1993 until he joined us, Mr. Maniyar was the Chief Financial Officer
of Eldyne, Inc., Unidyne Corporation and Diversified Control Systems, LLC,
collectively known as the Witt Group of Companies. The Witt Group of Companies
was acquired by the Titan Corporation in May 1996. From June 1985to May 1993,
Mr. Maniyar held progressively more responsible positions with NationsBank.
Mr. Maniyar earned a B.S. in Economics from Virginia Commonwealth University and
an M.A. in Economics from Old Dominion University.

    Nazir G. Dossani joined us as a director in October 1997 at the completion
of our initial public offering. Mr. Dossani was recently appointed Senior Vice
President for Asset/Liability Management and Research at the Federal Home Loan
Mortgage Corp. From January 1993 until his recent promotion, he was Vice
President for Asset/Liability Management. Prior to this position, Mr. Dossani
was Vice President--Pricing and Portfolio Analysis at the Federal National
Mortgage Association. Mr. Dossani received a Ph.D. in regional science from the
University of Pennsylvania and an M.B.A. from the Wharton School of the
University of Pennsylvania.

    Richard K. Prins joined us as a director in October 1997 at the completion
of our initial public offering. Mr. Prins is a Senior Vice President with
Ferris, Baker Watts, Incorporated. From July 1988 through March1996, he served
as Managing Director of Investment Banking with Crestar Securities

                                       82

Corporation. Mr. Prins received an M.B.A. from Oral Roberts University and a
B.A. from Colgate University. He currently serves on the Board of Directors of
Path Net, Inc., a domestic telecommunications company, Socrates Corporation
(SOCT) and The Association for Corporation Growth, National Capital Chapter.

    Sudhakar Shenoy joined us as a director in 1999. He is the founder and Chief
Executive Officer of Information Management Consultants, an internationally
recognized systems and software development firm serving the public and private
sectors for more than the last five years. Mr. Shenoy received a bachelor's
degree in electrical engineering from the Indian Institute of Technology, an
M.S. in electrical engineering and an M.B.A. from the University of Connecticut
Schools of Engineering and Business Administration, respectively.

    Anthony A. Das is the Chief Operating Officer for Online Services. Mr. Das
joined us in February 1997. Prior to joining, Mr. Das was a senior consultant at
Armitage Associates between 1995 and 1997. Prior to joining Armitage Associates,
he served as a senior career executive in the Office of the Secretary,
Department of Commerce from 1993 to 1995. From 1990 to 1993, Mr. Das was the
Director of Public Communication at the State Department.

    David Venn joined us as Chief Operating Officer, European Operations, in
December 1999. Mr. Venn was a senior vice president and then the chief operating
officer from 1997 to 2000 for International Wireless Communications Inc. in
London, England. From 1994-97, Mr. Venn was the managing director of London
Interconnect Ltd. In 1998, while Mr. Venn was a senior vice president of
International Wireless Communications, Inc., it filed for protection under
Chapter 11 of the Federal bankruptcy laws. The company emerged from Chapter 11
status in February 2000. Mr. Venn holds a bachelor of science in
telecommunications engineering from University South West and an M.B.A. from
Ashridge Management College, both in the U.K.

    John H. Wolaver joined us as Chief Operating Officer, North American
operations, in December 1999. Mr. Wolaver was most recently an executive vice
president and chief operating officer of United Telesis, LLC in Washington, D.C.
Mr. Wolaver has almost 20 years of telecommunications experience, particularly
in the areas of sales and marketing. At Sprint, he was a director in the
partnership marketing/ consumer services group. At MCI he was a director in
corporate marketing. Mr. Wolaver received a bachelor's degree in liberal arts
from Purdue University, an M.A. in finance and statistics from Central Michigan
University and an M.B.A. from The Wharton School of the University of
Pennsylvania.

COMMITTEES OF THE BOARD

    The board of directors has established a Compensation Committee and an Audit
Committee. The Compensation Committee is responsible for reviewing and approving
salaries, bonuses and benefits paid or given to all of our executive officers
and making recommendations to our board of directors with regard to employee
compensation and benefit plans. The Compensation Committee also administers our
Amended and Restated Option Plan and our Amended and Restated 1997 Performance
Incentive Plan ("1997 Plan"). The members of the Compensation Committee are
Richard Prins and Nazir Dossani. This committee met twice during 1999. The Audit
Committee, which consist entirely of non-employee directors, is charged with
recommending the engagement of independent accountants to audit our financial
statements, discussing the scope and results of the audit with the independent
accountants, reviewing the functions of the management and the independent
accountants pertaining to our financial statements, reviewing management's
procedures and policies regarding internal accounting controls, and performing
such other related duties and functions as are deemed appropriate by the Audit
Committee and the board of directors. The members of the Audit Committee are
Richard Prins, Nazir Dosani and Sudhakar Shenoy. This committee met once during
1999.

    The board of directors held six meetings in 1999 and took various actions by
written consent. During 1999, each incumbent director attended at least 75% of
the aggregate of the total number of meetings of

                                       83

the board during the period for which such incumbent was a director, and the
total number of meetings held by all committees on which such incumbent served.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

    Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of our common stock, to file reports
of ownership and changes in their ownership of our common stock with the
Securities and Exchange Commission. Such insiders are required by SEC
regulations to furnish us with copies of all Section 16(a) reports that they
file.

    Based solely on its review of the copies of such reports received by us, or
written representations from such reporting persons that no Form 5s were
required for those persons, we believe that our directors and executive officers
complied with all applicable Section 16(a) filing requirements for fiscal 1999,
except that Messrs. Venn and Wolaver filed their respective initial statements
of beneficial ownership of securities on Form 3 approximately three months late,
Mr. Mukunda failed to report an option award in each of 1998 and 1999,
Mr. Prins failed to report an option award in 1998, Mr. Dossani failed to report
an option award in each of 1998 and 1999, and Mr. Maniyar failed to report an
option award in each of 1998 and 1999.

ITEM 11. EXECUTIVE COMPENSATION

    The following table sets forth certain summary financial information
concerning compensation for services in all capacities awarded to, earned by or
paid to, our chief executive officer and certain of the other most highly
compensated executive officers, whose aggregate cash and cash equivalent
compensation exceeded $100,000.

                           SUMMARY COMPENSATION TABLE



                                                                                    LONG TERM COMPENSATION
                                                                                 ----------------------------
                                                         ANNUAL COMPENSATION     SECURITIES         ALL
                 NAME AND                              -----------------------   UNDERLYING        OTHER
            PRINCIPAL POSITION                YEAR      SALARY         BONUS      OPTIONS     COMPENSATION(1)
            ------------------              --------   --------       --------   ----------   ---------------
                                                                               
Ram Mukunda...............................    1999     $324,987         $ --        40,000        $35,426
  President, Chief Executive Officer          1998      401,117(2)        --        30,000         35,000
                                              1997      345,833(3)        --            --         30,800

Prabhav V. Maniyar........................    1999      233,645           --        21,000         15,846
  Chief Financial Officer                     1998      180,042           --        15,000         18,000
                                              1997      149,585           --       157,616             --

Anthony A. Das............................    1999      152,305           --        21,000             --
  Chief Operating Officer,                    1998      124,167           --        15,000             --
  Online Services                             1997       79,167           --        30,000             --

David Venn (4)............................    1999           --           --        40,000             --
  Chief Operating Officer,                    1998           --           --            --             --
  European Operations                         1997           --           --            --             --

John H. Wolaver (5).......................    1999           --           --        36,500             --
  Chief Operating Officer,                    1998           --           --            --             --
  North American Operations                   1997           --           --            --             --


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

(1) This amount includes the value of an automobile allowance.

(2) Includes $102,000 accrued salary for prior periods.

                                       84

(3) Includes $150,000 accrued salary for prior periods.

(4) Mr. Venn joined us on December 28, 1999.

(5) Mr. Wolaver joined us on December 28, 1999.

DIRECTOR COMPENSATION

    Directors do not receive cash compensation for their service on our board of
directors. In the future, however, directors who are not employees may receive
meeting fees, committee fees and other compensation relating to their service.
Each member of our board of directors who is not an employee is entitled to
receive an automatic grant of options to purchase 10,000 shares of our common
stock upon joining the board and additional options to purchase 10,000 shares
per year of service thereafter. All directors will be reimbursed for reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
committee meetings.

EMPLOYMENT AGREEMENTS

    Startec entered into an employment agreement with Mr. Ram Mukunda on
July 1,1997, pursuant to which Mr. Mukunda holds the positions of President,
Chief Executive Officer and Treasurer, was paid an initial annual base salary of
$250,000 per year, is entitled to participate in the 1997 Plan, is eligible to
receive a bonus of up to 40% of his base salary as determined by the
Compensation Committee based upon our financial and operating performance, and
is entitled to receive an automobile allowance of $1,500 per month. In addition,
the agreement provides that, if there is a "Change of Control," Mr. Mukunda will
receive, for the longer of 12 months or the balance of the term under his
employment agreement (which initially could be for a period of up to three
years), the following benefits: (1) a severance payment equal to $20,830 per
month; (2) a pro rata portion of the bonus applicable to the calendar year in
which such termination occurs; (3) all accrued but unpaid base salary and other
benefits as of the date of termination; and (4) such other benefits as he was
eligible to participate in at and as of the date of termination. Effective
July 1, 1998, Mr. Mukunda's annual base salary was increased to $325,000.

    We also entered into an employment agreement with Prabhav V. Maniyar on
July 1, 1997, pursuant to which Mr. Maniyar holds the positions of Senior Vice
President, Chief Financial Officer and Secretary, was paid an initial annual
base salary of $175,000 per year, is entitled to participate in the 1997 Plan,
is eligible to receive a bonus of up to 40% of his base salary as determined by
the Compensation Committee based upon our financial and operating performance,
and is entitled to receive an automobile allowance of $750 per month.
Mr. Maniyar resigned effective February 22, 2000 as secretary. In addition, the
agreement provides that if there is a "Change of Control," Mr. Maniyar will
receive, for the longer of 12 months or the balance of the term under his
employment agreement (which initially could be for a period of up to three
years), the following benefits: (1) a severance payment equal to $14,580 per
month; (2) a pro rata portion of the bonus applicable to the calendar year in
which such termination occurs; (3) all accrued but unpaid base salary and other
benefits; and (4) such other benefits as he was eligible to participate in at
and as of the date of termination. Effective July 1, 1998, Mr. Maniyar's annual
base salary was increased to $225,000.

    Each of Mr. Mukunda's and Mr. Maniyar's agreements have an initial term of
three years and are renewable for successive one year terms. In addition, the
agreements also contain provisions which restrict the ability of
Messrs. Mukunda and Maniyar to compete with Startec for a period of one year
following termination. For purposes of the agreements, a "Change of Control"
shall be deemed to have occurred if (A) any person becomes a beneficial owner,
directly or indirectly, of our securities representing 30% or more of the
combined voting power of all classes of our outstanding voting securities; or
(B) during any period of two consecutive calendar years individuals who at the
beginning of such period constitute the board of directors, cease for any reason
to constitute at least a majority thereof, unless the election or nomination for
the election by our stockholders of each new director was approved by a vote of
at least

                                       85

two-thirds of the directors then still in office who either were directors at
the beginning of the two-year period or whose election or nomination for
election was previously so approved; or (C) our stockholders approve a merger or
consolidation with any other company or entity, other than a merger or
consolidation that would result in our voting securities outstanding immediately
prior thereto continuing to represent more than 50% of the combined voting power
of our voting securities or such surviving entity outstanding immediately after
such merger or consolidation (exclusive of the situation where the merger or
consolidation is effected in order to implement a recapitalization in which no
person acquires more than 30% of the combined voting power of our outstanding
securities); or (D) our stockholders approve a plan of complete liquidation or
an agreement for the sale or disposition of all or substantially all of our
assets.

    On December 28, 1999, we entered into an employment agreement with David
Venn. Under the agreement, Mr. Venn receives a base salary of $225,000 and is
eligible for an annual bonus of up to 40% of his base salary as determined by
our board of directors or president. The agreement provides for limited
severance payments if he is terminated without cause equal to his base salary
for a period of six months. The agreement expires on December 31, 2002 unless
extended and contains confidentiality and non-competition provisions.

STOCK OPTION GRANTS

    The following table sets forth certain information regarding grants of
options to purchase common stock made by the Compensation Committee during the
fiscal year ended December 31, 1999, to each of the officers listed in the
summary compensation table above. No stock appreciation rights were granted
during 1999. On March 22, 2000, the closing price of our common stock was
$26.9375.



                                                                                                         REALIZED VALUE AT
                                                                                                       ASSUMED ANNUAL RATES
                                                                                                          OF STOCK PRICE
                          NUMBER OF         PERCENTAGE OF                                            APPRECIATION FOR OPTIONS
                         SECURITIES         TOTAL OPTIONS                    MARKET                           TERM(3)
                         UNDERLYING           GRANTED TO        EXERCISE    PRICE ON    EXPIRATION   -------------------------
        NAME           OPTIONS GRANTED   EMPLOYEES IN 1999(1)   PRICE(2)   GRANT DATE      DATE          5%           10%
        ----           ---------------   --------------------   --------   ----------   ----------   ----------   ------------
                                                                                             
Ram Mukunda..........      40,000                3.21%           $18.50      $18.16      12/28/09     $537,705     $1,362,650
Prabhav V. Maniyar...      21,000                1.69%            12.44       12.44       10/1/09      276,492        697,751
Anthony A. Das.......      21,000                1.68%            18.50       18.16      12/28/09      282,295        715,391
David Venn...........      40,000                3.21%            18.50       18.16      12/28/09      537,705      1,362,650
John H. Wolaver......      36,500                2.92%            18.50       18.16      12/28/09      490,656      1,243,418


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

(1) During 1999, options were granted to purchase a total of 1,248,652 shares of
    our common stock.

(2) The exercise price was equal to or greater than the per share price of our
    common stock underlying the options on the date of grant.

(3) Amounts reflected in these columns represent amounts that may be realized
    upon exercise of options immediately prior to the expiration of their term
    assuming the specified compounded rates of appreciation (5% and 10%) on our
    common stock over the term of the options. Actual gains, if any, on the
    stock option exercises and common stock holdings are dependent upon the
    timing of such exercise and the future performance of our common stock.
    There can be no assurance that the rates of appreciation assumed in this
    table can be achieved or that the amounts reflected will be received by the
    holder of the option.

                                       86

OPTION EXERCISES AND HOLDINGS

    The following table sets forth certain information as of December 31, 1999
regarding the number and value of options exercised during 1999 and unexercised
options held by each of the officers listed in the summary compensation table
above. No stock appreciation rights were exercised during 1999.



                                                                      NUMBER OF SECURITIES
                                                                           UNDERLYING        VALUE OF UNEXERCISED
                                                                          UNEXERCISED           "IN-THE-MONEY"
                                                                       OPTIONS AT FISCAL      OPTIONS AT FISCAL
                                                                            YEAR-END              YEAR- END
                            SHARES ACQUIRED ON                            EXERCISABLE/           EXERCISABLE/
           NAME                EXERCISE(#)       VALUE REALIZED ($)      UNEXERCISABLE       UNEXERCISABLE($)(1)
           ----             ------------------   ------------------   --------------------   --------------------
                                                                                 
Ram Mukunda...............            --                   --             6,000/64,000          76,125/642,000
Prabhav V. Maniyar........            --                   --            23,000/63,000         376,812/964,823
Anthony A. Das............         9,000              111,375             3,000/46,500          53,813/634,595
David Venn................            --                   --                --/40,000               0/351,100
John H. Wolaver...........            --                   --                --/36,500               0/320,379


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

(1) Options are "in-the-money" if the fair market value of underlying securities
    exceeds the exercise price of the options. On March 22, 2000, the closing
    price of our common stock was $26.9375.

                                       87

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth information regarding the ownership of our
voting securities as of December 31, 1999, including options and warrants by
(i) each person known to be the beneficial owner of more than five percent of
any class of our voting securities, (ii) each director and executive officer,
and (iii) all directors and executive officers as a group.



                                                              AMOUNT AND NATURE OF
                                                                   BENEFICIAL
NAME AND ADDRESS(1)                                               OWNERSHIP(2)       PERCENT OF CLASS
- -------------------                                           --------------------   ----------------
                                                                               
Ram Mukunda(3)..............................................        3,584,675              29.6%
Prabhav V. Maniyar(4).......................................          134,616               1.1%
Sudhakar Shenoy(5)..........................................            1,000                 *
Nazir G. Dossani (6)........................................           12,000                 *
Richard K. Prins(7).........................................           47,000                 *
Anthony A. Das(8)...........................................            3,000                 *
David Venn(9)...............................................               --                 *
John H. Wolaver(10).........................................               --                 *
All Directors and Executive Officers as a group (8
  persons)..................................................        3,782,291              31.2%
Gold & Appell Transfer SA(11)...............................        1,026,050              10.9%
  Omar Hodge Building
  Wickhams Cay, Road Town
  Tortula, British Virgin Islands
Atocha, LP(12)..............................................          606,500               6.7%
  6429 Georgetown Pike
  McLean, Virginia 22101
RS Investment Management Co. LLL(13)........................          575,000               6.1%
  388 Market Street, Suite 200
  San Francisco, CA 94111
Blue Carol Enterprises Ltd..................................          807,124               6.7%
  930 Ocean Center
  Harbour City
  Kowloon, Hong Kong


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

*   Represents beneficial ownership of less than one percent of the outstanding
    shares of our class of common stock.

(1) Unless otherwise noted, the address of all persons listed is c/o Startec
    Global Communications Corporation, 10411 Motor City Drive, Bethesda, MD
    20817.

(2) Beneficial ownership is determined in accordance with the rules of the SEC.
    Shares of our common stock subject to options, warrants or other rights to
    purchase which are currently exercisable or are exercisable within 60 days
    of December 31, 1999 are deemed beneficially owned for computing the
    percentage ownership of the persons holdings such options, warrants or
    rights, but are not deemed outstanding for computing the percentage
    ownership of any other person. Unless otherwise indicated, each person
    possesses sole voting and investment power with respect to the shares shown.

(3) Includes exercisable options to purchase 6,000 shares of our common stock.
    Does not include unexercisable options to purchase 64,000 shares of common
    stock.

(4) Includes exercisable options to purchase 23,000 shares of our common stock.
    Does not include unexercisable options to purchase 63,000 shares of common
    stock.

(5) Does not include unexercisable options to purchase 10,000 shares of our
    common stock.

                                       88

(6) Includes exercisable options to purchase 3,000 shares of common stock. Does
    not include unexercisable options to purchase 17,000 shares of common stock.

(7) Includes exercisable options to purchase 3,000 shares of common stock and a
    warrant to purchase 33,000 shares of common stock. Does not include
    unexercisable options to purchase 17,000 shares of common stock. In
    addition, Mr. Prins is a Senior Vice President of Ferris, Baker Watts,
    Incorporated.

(8) Includes exercisable options to purchase 3,000 shares of common stock. Does
    not include unexercisable options to purchase 46,500 shares of common stock.

(9) Does not include unexercisable options to purchase 40,000 shares of common
    stock.

(10) Does not include unexercisable options to purchase 36,500 shares of common
    stock.

(11) As reported on Schedule 13D/A filed with the SEC on August 12, 1999.

(12) As reported on Schedule 13G filed with the SEC on April 22, 1999.

(13) As reported on Schedule 13G filed with the SEC on February 15, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    We have an agreement with Companhia Santomensed De Telecommunicacoes, an
affiliate of Blue Carol Enterprises Ltd., which currently holds 6.7% of the
outstanding shares of our common stock, for the purchase and sale of long
distance services. Revenues generated from this agreement amounted to
approximately $1,900,000, $1,900,000 and $825,000, or 2%, 1% and 0.3% of our
total revenues for the years ended December 31, 1997, 1998 and 1999,
respectively. Services provided amounted to approximately $680,000, $366,000 and
$409,000 of our costs of services for the years ended December 31, 1997, 1998
and 1999, respectively. We also have a lease agreement with an affiliate of Blue
Carol, Companhia Portuguesa Radio Marconi, S.A. dated June 15, 1996, for rights
to use undersea fiber optic cable at a cost of $38,330 semi-annually for five
years on a resale basis. During the second quarter of 1998, loans to certain
employees, including executive officers, were made on substantially the same
terms, including interest rates. An aggregate of $1,488,238 was advanced to the
employees, including $400,000 to Mr. Mukunda, and $550,000 to Mr. Maniyar. The
loan to Mr. Mukunda was made in connection with the payment of taxes and other
obligations. Mr. Maniyar's loan was granted in connection with his exercise of
outstanding options to purchase common stock and the payment of taxes related
thereto. Both loans bear interest at a rate of 7.87% per year. Principal and
interest on Mr. Mukunda's loan are due December 31, 2000 and may not be
pre-paid. Mr. Maniyar's loan, including accrued interest, has been repaid.

                                       89

                                    PART IV

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

    The following documents are filed as part of this Annual Report on
Form 10-K:

    (a) 1. FINANCIAL STATEMENTS. The financial statements of the Company and the
           related Report of Independent Public Accountants are filed as Item 8
           hereof.

    (a) 2. FINANCIAL STATEMENT SCHEDULE. The Financial Statement Schedule
           described below is filed as part of this report.

          Description:

          Report of Independent Public Accountants Schedule II--Valuation and
          Qualifying Accounts

    (a) 3. EXHIBITS. The Exhibits required to be filed pursuant to Form 10-K are
           identified in the Exhibit Index.

    (b) REPORTS ON FORM 8-K

    During the last quarter of 1999, we filed two reports on Form 8-K with the
SEC on November 9 and December 30 to file certain press releases under Item 5 of
Form 8-K.

                                       90

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized this 24th
day of March 2000.

                                                      
                                                       STARTEC GLOBAL COMMUNICATIONS CORPORATION

                                                       By   /s/ PRABHAV V. MANIYAR
                                                            -----------------------------------------
                                                            Prabhav V. Maniyar
                                                            Chief Financial Officer



    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

                   STARTEC GLOBAL COMMUNICATIONS CORPORATION



              SIGNATURE                                TITLE                       DATE
              ---------                                -----                       ----
                                                                        
/s/ RAM MUKUNDA                        President, Chief Executive Officer,    March 24, 2000
- ------------------------------------   Treasurer and Chairman (Principal
Ram Mukunda                            Executive Officer)

/s/ PRABHAV V. MANIYAR                 Chief Financial Officer and Director   March 24, 2000
- ------------------------------------   (Principal Financial and Accounting
Prabhav V. Maniyar                     Officer)

/s/ SUDHAKAR V. SHENOY                 Director                               March 24, 2000
- ------------------------------------
Sudhakar V. Shenoy

/s/ NAZIR G. DOSSANI                   Director                               March 24, 2000
- ------------------------------------
Nazir G. Dossani

/s/ RICHARD K. PRINS                   Director                               March 24, 2000
- ------------------------------------
Richard K. Prins


                                       91

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Startec Global Communications Corporation:

    We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Startec Global
Communications Corporation and subsidiaries (a Delaware corporation) included in
this Form 10-K and have issued our report thereon dated February 23, 2000.
(except for the matters discussed in Note 15 of the consolidated financial
statements, as to which the date is March 23, 2000. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 14 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states, in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                      ARTHUR ANDERSEN LLP

Vienna, Virginia
February 23, 2000

                                       92

           STARTEC GLOBAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)



                                                             ADDITIONS
                                                      ------------------------
                                                      CHARGED TO    CHARGED TO
                                          BEGINNING    COSTS AND      OTHER         ENDING
DESCRIPTION                                BALANCE    EXPENSES(A)   ACCOUNT(B)   DEDUCTIONS(C)   BALANCE
- -----------                               ---------   -----------   ----------   -------------   --------
                                                                                  
Reflected as reductions to the related
  assets:

Provisions for uncollectible accounts
  (deductions from trade accounts
  receivable)...........................
Year ended December 31, 1997............   $1,079        $ 57         $1,864        $  (647)      $2,353
Year ended December 31, 1998............    2,353         329            827           (850)       2,659
Year ended December 31, 1999............    2,659         271          3,993         (2,959)       3,964


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

(a) Includes $329,000 and $271,000 of reserves recognized in purchase accounting
    in 1998 and 1999.

(b) Represents a reduction of residential revenue not expected to be realized.

(c) Represents amounts written off as uncollectible.

                                       93

                                 EXHIBIT INDEX



       EXHIBIT
       NUMBER                                   DESCRIPTION
- ---------------------   ------------------------------------------------------------
                     
 2.1****                Agreement and Plan of Reorganization dated June 30, 1998 by
                        and between Startec Global Communications Corporation and
                        Startec Global Holding Corporation

 3.1****                Restated Certificate of Incorporation.

 3.2****                Bylaws.

 4.1*                   Specimen of Common Stock Certificate.

 4.2*                   Warrant Agreement dated as of July 1, 1997 by and between
                        Startec, Inc. and Signet Bank.

 4.3*                   Form of Underwriters' Warrant Agreement (including Form of
                        Warrant).

 4.4*                   Voting Agreement dated as of July 31, 1997 by and between
                        Ram Mukunda and Vijay and Usha Srinivas.

 4.5***                 Indenture, dated as of May 21, 1998, between the Company and
                        First Union National Bank.

 4.6***                 Form of 12% Series A Senior Notes due 2008

 4.7***                 Registration Rights Agreement, dated as of May 21, 1998,
                        among the Company, Lehman Brothers Inc., Goldman Sachs & Co.
                        and ING Barings (U.S.) Securities, Inc.

 4.8***                 Warrant Agreement, dated as of May 21, 1998 by and between
                        the Company and First Union National Bank, a Warrant Agent

 4.9***                 Form of Warrant (included as Exhibit A to Exhibit 4.8)

 4.10***                Collateral Pledge and Security Agreement, dated as of May
                        21, 1998 by and between the Company and First Union National
                        Bank, as Trustee

 4.11**                 Rights Agreement, dated as of March 26, 1998, between the
                        Company and Continental Stock Transfer & Trust Company.

4.12++++                First Supplemental Indenture dated as of 20 August 1999 by
                        and between the Company and First Union National Bank, as
                        Trustee

10.1*                   Secured Revolving Line of Credit Facility Agreement dated as
                        of July 1, 1997 by and between Startec, Inc. and Signet
                        Bank.

10.2*                   Lease by and between Vaswani Place Limited Partnership and
                        Startec, Inc. dated as of September 1, 1994, as amended.

10.3*                   Agreement by and between World Communications, Inc. and
                        Startec, Inc. dated as of April 25, 1990.

10.4*                   Co-Location and Facilities Management Services Agreement by
                        and between Extranet Telecommunications, Inc. and Startec,
                        Inc. dated as of August 28, 1997.

10.5*                   Employment Agreement dated as of July 1, 1997 by and between
                        Startec, Inc. and Ram Mukunda.

10.6*                   Employment Agreement dated as of July 1, 1997 by and between
                        Startec, Inc. and Prabhav V. Maniyar.

10.7*                   Amended and Restated Stock Option Plan.

10.8*                   1997 Performance Incentive Plan.

10.9*                   Subscription Agreement by and among Blue Carol Enterprises,
                        Limited, Startec, Inc. and Ram Mukunda dated as of February
                        8, 1995.


                                       94




       EXHIBIT
       NUMBER                                   DESCRIPTION
- ---------------------   ------------------------------------------------------------
                     
10.10*                  Agreement for Management Participation by and among Blue
                        Carol Enterprises, Limited, Startec, Inc. and Ram Makunda
                        dated as of February 8, 1995, as amended as of June 16,
                        1997.

10.11*                  Service Agreement by and between Companhia Santomensed De
                        Telecommunicacoes and Startec, Inc. as amended on February
                        8, 1995.

10.12*+                 Lease Agreement between Companhia Protuguesa Radio Marconi,
                        S.A. and Startec, Inc. dated as of June 15, 1996.

10.13*+                 Indefeasible Right of Use Agreement between Companhia
                        Portuguesa Radio Marconi, S.A. and Startec, Inc. dated as of
                        January 1, 1996.

10.14*+                 International Telecommunication Services Agreement between
                        Videsh Sanchar Nigam Ltd. and Startec, Inc. dated as of
                        November 12, 1992.

10.15*+                 Digital Service Agreement with Communications Transmission
                        Group, Inc. dated as of October 25, 1994.

10.16*+                 Lease Agreement by and between GPT Finance Corporation and
                        Startec, Inc. dated as of January 10, 1990.

10.17*+                 Carrier Services Agreement by and between Frontier
                        Communications Services, Inc. and Startec, Inc. dated as of
                        February 26, 1997.

10.18*+                 Carrier Services Agreement by and between MFS International,
                        Inc. and Startec, Inc. dated as of July 3, 1996.

10.19*+                 International Carrier Voice Service Agreement by and between
                        MFS International, Inc. and Startec, Inc. dated as of June
                        6, 1996.

10.20*+                 Carrier Services Agreement by and between Cherry
                        Communications, Inc. and Startec, Inc. dated as of June 7,
                        1995.

10.21***                Agreement by and between Northern Telecom Inc. and the
                        Company, dated as of December 23, 1997

10.22***                Indefeasible Right of Use Agreement by and between
                        Telegloble Cantat-3, Inc. and the Company, dated as of
                        September 15, 1997 (Canus 1 Cable System).

10.23***                Indefeasible Right of Use Agreement by and between Teleglobe
                        Cantat-3, Inc. and the Company, dated as of September 15,
                        1997 (Cantat 3 Cable System).

10.24#                  Loan and Security Agreement by and between Prabhav V.
                        Maniyar and the Company, dated June 30, 1998 (as amended and
                        related by agreement dated December 31, 1998. See Exhibit
                        10.41 below).

10.25#                  Lease by and between The Vaswani Place Corporation and the
                        Company, dated as of October 27, 1998.

10.26#                  Indefeasible Right of Use Agreement by and between Cable &
                        Wireless Inc. and the Company, dated June 9, 1998 (Gemini
                        Cable System)

10.27#                  First Amendment to Lease by and between The Vaswani Place
                        Corporation and the Company, dated May 11, 1998.

10.28#                  International Facilities License, United Kingdom

10.29##                 Columbus III Cable System Construction and Maintenance
                        Agreement dated February 11, 1998.

10.30###                TAT-14 Cable Network Construction and Maintenance Agreement
                        dated as of September 2, 1998.

10.31###                SEA-ME-WE Construction and Maintenance Agreement dated as of
                        January 1, 1997.


                                       95




       EXHIBIT
       NUMBER                                   DESCRIPTION
- ---------------------   ------------------------------------------------------------
                     
10.32###                Amendment dated as of July 8, 1998 by and between Cable &
                        Wireless, Inc. and the Company to the Indefeasible Right of
                        Use Agreement, dated as of June 9, 1998 (Gemini Cable
                        System).

10.33###                Rack Space Agreement by and between Americatel Corporation
                        and the Company, dated as of July 27, 1998.

10.34###                Rack Space Agreement by and between IXC Carrier, Inc. and
                        the Company, dated as of July 6, 1998 (Los Angeles).

10.35###                Rack Space Agreement by and between IXC Carrier, Inc. and
                        the Company, dated as of August 19, 1998 (Dallas).

10.36###                Co-Location Agreement by and between Espirit Telecom Benelux
                        BV and the Company., dated as of September 21, 1998

10.37###                Sublease Agreement by and between Information Systems &
                        Networks, Inc. and the Company dated as of August 11, 1998.

10.38###                Master Supply Agreement by and between TTN, Inc. and the
                        Company dated as of September 21, 1998.

10.39#####              Loan and Security Agreement by and between NTFC Capital
                        Corporation and the Company, dated as of December 31, 1998.

10.40#####              Loan and Security Agreement by and between Ram Mukunda and
                        the Company, dated as of October 8, 1998.

10.41#####              Loan and Security Agreement by and between Prabhav V.
                        Maniyar and the Company, dated as of December 31, 1998.

10.42#####              TPC-5 Cable Network IRU Agreement between Companhia
                        Portuguesa Radio Marconi, SA and the Company, dated December
                        15, 1998.

10.43#####              TPC-5 Cable Network Indefeasible Right of Use Agreement
                        between KDD Corporation and the Company dated December 31,
                        1998.

10.44#####              TAT-12/13 Cable Network IRU Agreement between Companhia
                        Portuguesa Radio Marconi, SA and the Company, dated December
                        15, 1998.

10.45#####              Lease between 36 North East Second Street, L.L.C and the
                        Company executed on November 30, 1998.

10.46#####              Lease between 36 North East Second Street, L.L.C and the
                        Company executed on October 29, 1998.

10.47####               Stock Purchase Agreement dated as of November 30, 1998 by
                        and between the Company and Pacific Systems Corporation

10.48####               Quota Purchase Agreement by and between Martin Otten and
                        Rolf Otten, on the one part, and the Company, on the other
                        part, effective as of December 31, 1998.

10.49++                 Sublease Agreement by and between Ceridian Corporation and
                        the Company dated January 8, 1999.

10.50+++                Purchase and License Agreement between Ascend Communications
                        Inc. and Startec Global Operating Company dated on May 5,
                        1999.

10.51+++                Term Lease Master Agreement between IBM Corporation and
                        Startec Global Operating Company dated as of June 22, 1999.

10.52+++                Loan and Security Agreement between Congress Financial
                        Corporation and Startec Global Operating Company dated as of
                        June 29, 1999.


                                       96




       EXHIBIT
       NUMBER                                   DESCRIPTION
- ---------------------   ------------------------------------------------------------
                     
10.53+++                Lease Agreement between the Rector, Church Wardens and
                        Vestryment of Trinity Church in the City of New York and the
                        Company dated as of April 23, 1999.

10.54++++               Billing and Collection Services Agreement between BC Tel
                        Corporation and Startec Global Communications Company
                        (Canada) dated 23 July, 1999.

10.55++++               Procedures of the Interexchange Carrier Group Agreement
                        between BC Tel Corporation and Startec Global Communications
                        Company (Canada) dated July 23, 1999.

21.1                    Subsidiaries of Company.

23.1                    Consent of Arthur Andersen LLP.


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

   
*     Incorporated by reference from the Company's Registration
      Statement on Form S-1 (SEC File No. 333-32753).
**    Incorporated by reference from the Company's Current Report
      on Form 8-K filed on April 8, 1998
***   Incorporated by reference from the Company's Quarterly
      Report on Form 10-Q for the quarter ended June 30, 1998
****  Incorporated by reference from the Company's Registration
      Statement on Form S-4 (SEC File No. 333-58247)
#     Incorporated by reference from the Company's Registration
      Statement on Form S-4 (SEC File No. 333-61779)
##    Incorporated by reference from the Company's Registration
      Statement on Form S-1 (SEC File No. 333-64465)
###   Incorporated by reference from the Company's Quarterly
      Report on Form 10-Q for the quarter ended September 30,
      1998.
####  Incorporated by reference from the Company's Current Report
      on Form 8-K/A filed on February 12, 1999.
##### Incorporated by reference from the Company's Annual report
      on Form 10-K for the fiscal year ended 1998.
+     Portions of the Exhibit have been omitted pursuant to a
      grant of Confidential Treatment by the Securities and
      Exchange Commission under Rule 406 of the Securities Act of
      1933, as amended, and the Freedom of Information Act.
++    Incorporated by reference from the Company's Quarterly
      Report on Form 10-Q for the quarter ended March 31, 1999.
+++   Incorporated by reference from the Company's Quarterly
      Report on Form 10-Q for the quarter ended June 30, 1999.
++++  Incorporated by reference from the Company's Quarterly
      Report on Form 10-Q for the quarter ended September 30,
      1999.



                                       97

EX-23.1

                                                                    EXHIBIT 23.1

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

    As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into Startec Global Communications
Corporation's previously filed Registration Statement on Form S-8, File No.
333-44317.

                                          Arthur Andersen LLP

Vienna, Virginia
March 23, 2000