FLAG Telecom Reports Increase in Third Quarter Revenues Reflecting Continued Execution of Focused Strategy.

Business & Telecommunications Editors

HAMILTON, Bermuda--(BUSINESS WIRE)--Oct. 24, 2000

FLAG Telecom (NASDAQ:FTHL, LSE: FTL), a leading independent global telecom carriers' carrier and network service provider, today announced its financial results for the third quarter ended September 30, 2000.

The results show a continuing successful execution of the company's strategy to meet the global growth in demand for IP capacity and value-added services.

Third quarter highlights summary

-- Leased Capacity Services (`LCS'), which offer unprotected landing station to
city center circuits backed by service delivery guarantees;

-- Managed Bandwidth Services (`MBS'), which offer fully protected
international city to city circuits backed by service delivery and availability
guarantees;

-- IP Point-to-Point (`IP-P'), an international building to building service
backed by industry leading latency guarantees, designed for customers running
private Intranet backbones and offering Voice-over-IP services, and

-- IP Transit Services (`IP-T'), which is a traditional peered connection to
the Internet.

GAAP revenues continued their sequential growth, rising to $27.3m in the third quarter of 2000, up 10.5% from $24.7m in the second quarter. GAAP revenues in the third quarter of 1999 were $53.9m on the basis of sales-type lease accounting and so are not directly comparable. EBITDA continued in positive territory in the third quarter at $1.6m, despite an increase in network expenses associated with growing the FLAG Network Services (`FNS') business.

           Quarterly information on GAAP revenues and EBITDA

----------------------------------------------------------------------
($m)                 Q1 2000              Q2 2000             Q3 2000
GAAP revenues          19.2                24.7                 27.3
EBITDA                (2.5)                 1.8                 1.6
----------------------------------------------------------------------

Cash revenues for the nine months ended September 30, 2000 of $193.2m were up 26% over the same period in 1999. Adjusted EBITDA for the first nine months of 2000 of $128.7m was up 21% over the first nine months of 1999.

Andres Bande, Chairman and CEO of FLAG Telecom, commented:

"The encouraging performance in all areas of our business in this quarter shows that we are continuing to be successful in leveraging the value of our global network in increasingly challenging market conditions. We are pleased to report that FLAG Atlantic-1 remains on schedule and on budget with marine installation underway.

FLAG Network Services continued to roll out its innovative products and services, introducing two new products this quarter, IP Transit and IP Point-to-Point. We can now offer Managed Bandwidth and IP Services from six metropolitan city center locations worldwide. In the first nine months of this year this business increased its contribution to 17% of total revenues.

The expansion of our IP backbone into Europe and Asia and the extension of our Network Services worldwide remain a focus of our strategy and we continue to pursue opportunities in these areas."

Ed McCormack, Chief Operating Officer and CFO, commented:

"Based on progress in this quarter we believe we are well on track for exceeding our GAAP revenue target for 2000 of $90m. EBITDA continues to be positive but reflects the investment we have been making in our fast growing FLAG Network Services business. We continue to expect EBITDA to be positive at the year-end.

With $1.35bn cash at hand and taking into account committed bank facilities, we are in a secure financial position with adequate funding for our current projects."

Financial highlights

On a segmental basis, FLAG Telecom reports its revenues in its two primary operational areas.

Capacity Sales and Operations includes traditional carrier services, involving dispositions of capacity by sale and right of use and operation and maintenance revenues. During the third quarter, GAAP revenues in this segment rose to $21.6m, compared to $20.6m in the second quarter. EBITDA for the third quarter was $3.5m, compared to $2.3m in the second quarter.

FLAG Network Services develops and markets a growing range of value-added network services for international carriers and the IP community. FNS's product offering currently includes:

-- Leased Capacity Services (`LCS'), which offer unprotected landing station to
city center circuits backed by service delivery guarantees;

-- Managed Bandwidth Services (`MBS'), which offer fully protected
international city to city circuits backed by service delivery and availability
guarantees;

-- IP Point-to-Point (`IP-P'), an international building to building service
backed by industry leading latency guarantees, designed for customers running
private Intranet backbones and offering Voice-over-IP services, and

-- IP Transit Services (`IP-T'), which is a traditional peered connection to
the Internet.

With the existing products and the two new products launched this quarter, total contract value moved up to $41m from $27m at the second quarter. In the third quarter FNS generated $5.7m in GAAP revenues, up 39% from $4.1m in the second quarter of the year. The EBITDA for the third quarter of negative $1.9m compares to a negative $0.5m in the second quarter, reflecting increased expenses associated with growing this business.

Capital expenditure, excluding the FLAG Atlantic-1 (`FA-1') project, in the third quarter totaled $8m. Capital expenditure for the FA-1 project was $142m in the third quarter. For the year, FLAG anticipates total capital expenditure of approximately $700m (including FA-1).

As at September 30, 2000, cash at hand was $1.35bn. Total debt, after the repayment of $25m of a FLAG Limited banking facility, stood at $1.10bn, giving a net cash position of $243m.

Operational highlights

FLAG Europe-Asia (`FEA')

As at the end of the third quarter 2000, FEA had made over $900m sales to over 100 customers worldwide. The average fill rate across the route was some 25% with substantially higher rates at the Western end and over the Hong Kong to Japan leg.

FLAG Atlantic-1

FA-1, the 2.4 Tbps transatlantic dual cable system we are building in conjunction with Global TeleSystems Inc., remains on schedule to enter service in the first quarter of 2001. All the permits at the landing sites have been obtained and the landing stations at Plerin in Brittanny, France, Skewjack in Cornwall, UK and Long Island (North), New York, USA have been completed. The remaining landing station in the USA is currently under construction and is expected to be completed by year end. The shore-end cables have been successfully landed in the UK, France and the US and marine installation activity across the Atlantic has begun.

FLAG Pacific-1 (`FP-1')

FP-1 is the eight fiber pair, 5.12 Tbps transpacific system FLAG Telecom announced in March 2000. The marine survey for FP-1 is now 30% complete and work is ongoing to secure landing station sites and to obtain the necessary permits.

FLAG Network Services

FNS introduced two new products this quarter: IP Transit and IP Point-to-Point. Network development continued to extend FNS's global presence by building a strong position in Asia and the Middle East. In addition to existing locations in Madrid, London, New York and Hong Kong, FNS added Tokyo and San Francisco this quarter. Under an agreement with Telecom Egypt, MBS will be offered from an additional city center POP in Cairo which has recently entered into commercial service. FNS already has 28 customers worldwide. Development continues on the next generation of IP products expected to include IP VPNs, caching, content distribution and media streaming services.

The appointment of Tom Gray as President of FNS emphasizes the commitment to the development of this important division of the Company. Mr. Gray was formerly with Ameritech and Belgacom where he led the business unit for value added services.

The Company will hold a conference call to discuss these results at 10:00amEST/3:00pm UK time on Wednesday 25 October 2000. The teleconference will be broadcast simultaneously on our website. For further details contact Taylor Rafferty telephone number 1 212 889 4350 or 44 (0) 20 7936 0400.

For further information, please see our website www.flagtelecom.com

Statements contained in this Press Release which are not historical facts may be forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. To identify forward-looking statements, look for words like "believes", "expects", "may", "will", "should", "seeks", "approximately", "intends", "plans", "estimates" or "anticipates" and similar words and phrases. Discussions of strategy, plans or intentions often contain forward-looking statements. These, and all forward-looking statements, necessarily depend on assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to: the Company's ability to achieve revenues from products and services that are in the early stages of development or operation, the Company's completion of FLAG Atlantic-1 and FLAG Pacific-1 within budget and on time, the Company's ability to deploy sophisticated technologies on a global basis, the Company's ability to upgrade and expand its network and respond to customer demands and industry changes, regulatory enactments and changes, competition and pricing pressure, rapid technological change, adverse foreign economic or political events and other factors that are discussed in the Company's Registration Statements on Form F-1 and Form F-4 filed with the Securities and Exchange Commission. The Company cautions readers not to rely on forward-looking statements. The Company disclaims any intent or obligation to update these forward-looking statements.

FLAG TELECOM HOLDINGS LIMITED

Consolidated Statement of Operations

The following table summarizes the results for the three months ended September 30, 2000 and the nine months ended September 30, 2000. The comparative numbers for the nine months ended September 30, 1999 combine the results of FLAG Limited from January to February 26, 1999 which was the only operating entity of the Group at that time, and the results of FLAG Telecom from incorporation on February 27 to September 30, 1999.

(Numbers in $ thousands, except per share amounts)

                                             FTHL                 FTHL
                               Three months ended   Three months ended
                               September 30, 2000   September 30, 1999
                                      (Unaudited)          (Unaudited)

REVENUES 1                                 27,327               53,913

OPERATING COSTS:
Network Expenses                            4,686                    -
Operations & Maintenance                    7,603                6,290
Sales & Marketing                           3,552                4,437
General and Administrative                  9,877                6,689
Depreciation / cost of capacity sold 1     19,598               23,320
                                           ------               ------

OPERATING INCOME (LOSS)                   (17,989)              13,177
Income from Affiliates                      1,138                    -
Interest Expense                          (28,287)             (13,536)
Foreign Exchange Gain                      16,502                    -
Interest Income                            21,654                2,088
Minority Interest                               -               (1,586)
                                           ------               ------
INCOME / (LOSS) BEFORE INCOME TAXES        (6,982)                 143
PROVISION FOR INCOME TAXES                    164                  619
                                              ---                  ---
NET (LOSS) / INCOME                        (7,146)                (476)
                                          -------                -----
Net (loss)/income per share
  attributed to common shareholders         (0.05)               (0.01)
Weighted average common shares
  outstanding                         133,977,574           69,709,935

EBITDA 2                                    1,609               36,497
Adjusted for Non-Cash Items:
-  Movement in deferred revenue            44,973                8,570
-  Non-cash stock compensation              1,340                    -
ADJUSTED EBITDA                            47,922               45,067
CASH REVENUES 3                            72,300               62,483


                                             FTHL                 FTHL
                                Nine months ended    Nine months ended
                               September 30, 2000   September 30, 1999
                                      (Unaudited)          (Unaudited)

REVENUES 1                                 71,200              147,995

OPERATING COSTS:
Network Expenses                            8,288                    -
Operations & Maintenance                   24,574               21,329
Sales & Marketing                           9,942                7,972
General and Administrative                 27,564               17,612
Depreciation / cost of capacity sold 1     59,596               57,546
                                           ------               ------
OPERATING INCOME (LOSS)                   (58,764)              43,536
Income from Affiliates                      3,326                    -
Interest Expense                          (74,417)             (41,022)
Foreign Exchange Gain                      18,870                    -
Interest Income                            48,925                6,749
Minority Interest                               -               (1,919)
                                           ------               ------
INCOME / (LOSS) BEFORE INCOME TAXES       (62,060)               7,344
PROVISION FOR INCOME TAXES                    935                1,269
                                              ---                -----
NET (LOSS) / INCOME                       (62,995)               6,075
                                         --------                -----
Net (loss)/income per share
  attributed to common shareholders         (0.49)                0.09
Weighted average common
  shares outstanding                  129,751,360           69,709,935
EBITDA 2                                      832              101,082
Adjusted for Non-Cash Items:
-  Movement in deferred revenue           122,004                5,417
-  Non-cash stock compensation              5,890                    -
ADJUSTED EBITDA                           128,726              106,499
CASH REVENUES 3                           193,204              153,412


FLAG TELECOM HOLDINGS LIMITED

Balance Sheet as at September 30, 2000 and December 31, 1999

(Numbers in $ thousands)
                    As at September 30, 2000   As at December 31, 1999
                            (Unaudited)               (Audited)

Current Assets
- Cash                       1,089,320                  3,191
- Other                        111,697                 95,525
Fixed Assets 1               1,060,794                299,743

Capacity available for sale 1        -                774,366

Funds held by collateral
  trustees or in escrow        256,868                134,066
Other Assets                    32,006                 18,840

TOTAL ASSETS               $ 2,550,685            $ 1,325,731
                            ==========             ==========
Current Liabilities            142,566                103,901

Deferred revenue - current      53,909                 48,501
Deferred revenue - long term   217,320                100,724
Senior Notes                   978,310                425,270
Long term debt                 125,000                190,000
Other Liabilities                3,581                  3,973
TOTAL LIABILITIES            1,520,686                872,369
MINORITY INTEREST 4                  -                154,817
SHAREHOLDERS' EQUITY         1,029,999                298,545
                           $ 2,550,685            $ 1,325,731
                             =========              =========

Segmental Information for the Three Months ended September 30, 2000

      Details of the financial results of the two business segments for
the three months ended September 30, 2000 are summarized below
reconciled to the totals for the Group as a whole. Substantially all
the revenues and operating results in earlier periods arose from
Capacity Sales and Operations. Management reviews financial results of
the Group on the basis of two business segments: Capacity Sales and
Operations and Network Services.

(Numbers in $ thousands)
                    Capacity Sales and    Network Services     Total
                        Operations
Revenues

- Capacity Sales          11,374
- Operation &
  Maintenance             10,217                5,736          27,327
                          ------
                          21,591
Operating Loss           (15,915)              (2,074)        (17,989)
EBITDA 2                   3,462               (1,853)          1,609
Adjusted EBITDA           49,630               (1,708)         47,922
Cash Revenues 3           66,565                5,735          72,300


FLAG LIMITED

Consolidated Statement of Operations

      The following table summarizes the results for the three months
ended September 30, 2000 and the nine months ended September 30, 2000
of FLAG Limited, a 100% owned subsidiary of FLAG Telecom Holdings
Limited.

(Numbers in $ thousands, except per share amounts)

                                 FL                       FL
                         Three months ended       Three months ended
                         September 30, 2000       September 30, 1999
                            (Unaudited)               (Unaudited)

REVENUES 1                    23,566                  52,522

OPERATING COSTS:
Operations & Maintenance       7,585                   6,290
Sales & Marketing              3,091                   4,720
General and Administrative     8,183                   3,449
Depreciation / cost
  of capacity sold 1          18,697                  22,988
                              ------                  ------

OPERATING INCOME (LOSS)      (13,990)                 15,075

Interest Expense             (12,339)                (13,474)
Interest Income                2,470                   2,083

INCOME / (LOSS) BEFORE
  INCOME TAXES               (23,859)                  3,684

PROVISION FOR INCOME TAXES      (187)                    346
                               -----                     ---
NET (LOSS) / INCOME          (23,672)                  3,338
                            --------                   -----
Net (loss)/income per share
  attributed to common
  shareholders                 (0.04)                   0.01
Weighted average common
  shares outstanding     635,796,338             635,796,338
EBITDA 2                       4,707                  38,063
Adjusted for Non-Cash Items:
-  Movement in deferred
     revenue                  27,201                   8,570
-  Non-cash stock
     compensation              1,157                       -
ADJUSTED EBITDA               33,065                  46,633
CASH REVENUES 3               50,767                  61,092


                                FL                     FL
                         Nine months ended      Nine months ended
                        September 30, 2000     September 30, 1999
                           (Unaudited)             (Unaudited)

REVENUES 1                    62,830                 146,604

OPERATING COSTS:
Operations & Maintenance      24,558                  21,329
Sales & Marketing             10,028                   8,255
General and Administrative    23,319                  14,225
Depreciation / cost
  of capacity sold 1          57,858                  57,214
                              ------                  ------

OPERATING INCOME (LOSS)      (52,933)                 45,581

Interest Expense             (38,398)                (40,960)
Interest Income                5,947                   6,744

INCOME / (LOSS) BEFORE
  INCOME TAXES               (85,384)                 11,365

PROVISION FOR INCOME TAXES       (56)                    995
                                ----                     ---
NET (LOSS) / INCOME          (85,328)                 10,370
                            --------                   -----
Net (loss)/income per share
  attributed to common
  shareholders                 (0.13)                   0.02
Weighted average common
  shares outstanding     635,796,338             635,976,338
EBITDA 2                       4,925                 102,795
Adjusted for Non-Cash Items:
-  Movement in deferred
     revenue                  82,327                   5,417
-  Non-cash stock
     compensation              5,409                       -
ADJUSTED EBITDA               92,661                 108,212
CASH REVENUES 3              145,157                 152,021

1 Due to the coming into effect of a new accounting standard in

July 1999, certain sales of capacity no longer satisfy the

requirements for sales-type lease accounting. This results in

a deferral of revenue recognition for US GAAP purposes. In

addition, the remaining capacity available for sale was

reclassified to fixed assets on January 1, 2000 and is being

depreciated over the remaining economic life of the network.

These changes to the accounting treatment have no impact on

cash flow.

2 EBITDA is operating income/(loss) plus depreciation/cost of

capacity sold.

3 Cash revenues are accounting revenues plus changes in deferred

revenues.

4 On January 5, 2000, Verizon exchanged its remaining shares in

FLAG Limited for an equivalent number of shares in FLAG

Telecom Holdings Limited such that, at that time, FLAG Limited

became a wholly owned subsidiary of the Group. Accordingly no

minority interest arises thereafter.