We took immediate action in the first quarter to reevaluate the credit worthiness of our customer base and ensure that the company will benefit from a high-quality revenue stream for the long-term, said Stig Johansson, president and CEO of Carrier1. The first quarter’s strong revenue growth demonstrates that our strategy of building a cost-efficient pan European network and outsourcing quality services to large users of communication, establishes Carrier1 as a recognized competitive force in this changing environment, he added.

Mr. Johansson noted that Carrier1’s long-term business plan is fully funded, with a solid liquidity and financial position. At March 31, 2001, total restricted and unrestricted cash and marketable securities stood at $261.4 million. At year-end 2001, this amount is expected to be approximately $200 million and the long-term debt is estimated at $233 million.

Full year 2001 forecast

Carrier1 is forecasting 2001 full year revenue of between $390 and $400 million, an approximate 50% increase over the total revenue of $261.6 million reported in 2000. This assumes a more conservative assessment of current market conditions and the desire to contain our exposure to future bad debts. Carrier1 expects its EBITDA for the year 2001 to break even, before bad debt expense of approximately $12 to $17 million. Carrier1 continues to forecast that for the full year 2001, data services revenue as a percentage of total revenue will reach 40%.

First quarter Highlights: Data services increase more than eight-fold year-over-year

During the first quarter, total revenue reached $89.6 million, an increase of 75% compared with the $51.3 million reported in the first quarter of 2000, and a 18% increase over the $76.2 million reported in the fourth quarter of 2000. Revenue from data services reached $30.9 million, more than eight times the $3.6 million reported in the same period in 2000 and a sequential growth of 121% compared to the $14.0 million reported in the fourth quarter of 2000.

Included in the data service revenue are $7.9 million of one-time sales. There were no such sales in the first quarter of 2000 and there were $3.3 million of one-time sales in the fourth quarter of 2000.

As more resources were allocated to serve increasing demand for data services, voice revenue accounted for 65% of total revenue or $58.6 million, a 23% increase over the first quarter of 2000 and a 6% decrease over the $62.2 million reported in the fourth quarter of 2000. Average revenue per minute of voice traffic decreased slightly during the first quarter to 13.5 cents.

Gross Margin: For the three-month period ended March 31, 2001, gross margin (revenues minus cost of services) improved to $4.9 million compared to a loss of $3.3 million in the first quarter of 2000 and a positive gross margin of $571,000 reported in the fourth quarter of 2000.

Operating Costs: Selling, general and administrative expenses before bad debt expense of $7.0 million were $12.3 million or 14% of revenue in the first quarter of 2001, compared with $7.4 million or 14% of revenue in the first quarter of 2000 and $10.3 million or 14% of revenue in the fourth quarter of 2000.

EBITDA: For the three-month period ending March 31, 2001, EBITDA loss, excluding bad debt expense, was $7.4 million or (8%) of revenue. This compares to a loss of $10.6 million, excluding bad debt of $271,000 or (21)% of revenue in the same period of 2000. However, bad debt expense of $7 million increased the EBITDA loss to $14.4 million. Recognizing the deteriorating economic situation in the sector of telecommunications, the company is reviewing its customer base with a view to improving the credit quality of its future revenue stream. As part of this effort, the company will terminate or reduce future services to certain customers. The company estimates that expenses related to this effort and its future bad debt expense will amount to approximately 5% and 2.5% of revenue for the second quarter of 2001 and the second half of 2001, respectively.

Carrier1 took an active and conscious decision to secure the quality of its current business in this time of constant change and uncertainty in the telecommunications sector, said Alex Schmid, Chief Financial Officer of Carrier1. We are positioning the company to face tremendous opportunities in the IP and Broadband services to large users and striving to develop long-term relationships with our customers. Underlying Carrier1’s outsourcing strategy is an essential element of trust from our customers due to the critical nature of our service offerings.

Earnings: For the three-month period ending March 31, 2001, net loss was $45.2 million including a currency exchange loss of $13.1 million, compared to a net loss of $48.0 million including a currency exchange loss of $19.7 million in the same period of 2000 and a loss of $20.6 million including a currency exchange gain of $8.1 million in the fourth quarter of 2000.

Capital Expenditures: For the first quarter of 2001, capital expenditures were $102 million, including final payments for major infrastructure projects including the German ring, the Hannover cross-connect, the development of the Southern Ring and the UK network. The company plans to invest approximately $203 million for the full year of 2001, as future capital expenditures are more directly tied to incremental revenue generation. It is currently planned that the focus of the investment budget for the remainder of 2001 will be on the metropolitan networks.