1998 Capital Expenditures and Investments — $765 million

As the three-year non-compete agreement expired on Jan. 5, 1998, we announced our re-entry into the wholesale market on a new emerging network, supplemented by our existing multimedia network. At the same time, we announced approximately $1 billion of new, long-term multimedia and Internet-related business, and signed anchor tenants U S WEST, Intermedia and Concentric Networks.

Key Points
*Network initiated fiber construction projects in 1997 that will push our total network to 18,000 route miles by late 1998.

Project highlights include:

We broke ground in July for a Houston-to-Washington, D.C., fiber network linking cities across the South. The entire 1,800-mile route, which utilizes Williams’ rights of way, should be in service by late 1998.

We agreed to exchange capacity on the Houston-to-Washington route for capacity on a fiber route from Los Angeles to New York. Segments of this 4,500 mile route are scheduled for service by late 1998.

In November, we and two other companies began building a 1,600-mile fiber network linking Portland and Los Angeles by way of Salt Lake City and Las Vegas. This entire network should be in service by early 1999.

*By selling and exchanging “dark” (unused) fiber on our own system, we are significantly reducing our system costs.

*To equip our new and existing fiber networks with the latest technology and assure that the fiber delivers maximum capacity, we signed a five-year, $300 million agreement with Nortel in September to purchase high-capacity transport equipment. We also plan to purchase some $150 million of Ascend’s latest core ATM switches to support our wholesale products. By riding the technology curve, our network can stay ahead of demand with growing capacity and flexibility.

*In March, we acquired Critical Technologies to address the needs of sophisticated network customers. The St. Louis-based company provides wholesale customers with
complete solutions for integrated network design, installation and network management.

*We acquired an interest in Concentric Network, a leading provider of Internet protocol (IP) based networking services. The agreement allows us to provide and manage Concentric’s network.

Outlook
Of the $909 million in capital expenditures and investments planned in 1998 by Williams’ communications group, $765 million is earmarked for network projects. Network business should increase revenues and become profitable in the latter part of 1998 as the new fiber comes on line. Significant operating profit is expected from this unit beginning in 1999.

Plans call for the network to reach 22,000 miles by year-end 1999, 25,000 miles by year-end 2000 and 32,000 miles by the end of 2001. Total estimated costs are $2.7 billion.

We will pursue opportunities in the wholesale market, with the goal of re-establishing ourselves as the premier carrier network.

Demand for network capacity is exploding. Data network traffic, driven by web-based applications and distributed corporate computing, has more than doubled in the last two years. Independent research predicts a doubling of bandwidth demand each year over the next five years. There is no indication that this thirst for more capacity will slow, because more powerful networks will enhance the use of network applications such as multimedia, interactive games and web television. We intend to be the high-quality, most efficient provider of wholesale network capacity by:

*Breaking the compromise between low price and high quality.

*Leveraging our strong skill set and customer reputation earned from previous success in this business; tapping Williams’ extensive construction experience and nationwide pipeline rights of way, an edge enjoyed by no competitors; exchanging our “dark” fiber capacity with that of other facilities-based carriers.

*Increasing service flexibility and reducing costs through market-leading technology and systems.

Our entire approach is to under promise and over deliver. We left this market three years ago with a well-earned reputation. We re-enter it stronger and more capable than ever, with one of the fastest growing networks in the country.