The Williams Companies
1996 Annual Report

Williams Communications Group
	Williams Communications Group provides businesses with end-to-end enterprise network solutions, services and advanced applications. The group includes: WilTel - communications solutions and network integration services for data, voice, video and Internet applications; Vyvx - terrestrial fiber-optic and satellite multi media transmission services; Global Access - broadcast fax, video and audio conferencing services, as well as business television broadcast services; and Williams Learning Network - technical skills training and services.
Stephanie Frazier Vyvx major account manager, midAtlantic region Stephanie Frazier, pictured on the individually purchased bricks paving Atlanta's Centennial Park, was nearby when a bomb exploded during the Summer Olympics. Knowing that her customer, the NBC News Channel, was covering the games for its affiliates, Stephanie went to work. "NBC turned out hundreds of live shots and tape feeds every hour. I just pitched in where they needed me and enjoyed being able to help," says Stephanie, Vyvx's Eastern Area Salesperson of the Year. Planned 1997 capital expenditures and investments - $380 million Williams Communications Group's resources include a customer base of 49,000; more than 4,200 employees, including 1,400 technicians; an 11,000-mile multimedia fiber-optic network; five U.S. teleports; capacity on 19 domestic and international satellite transponders; 53 TV switching centers in the United States and access to more than 40 internation ally; 5.1 million customer ports under maintenance; 120 sales and service locations; international offices serving Europe, South Amer ica and the Pacific Rim; 280 dial-up and more than 100 dedicated Internet points of presence; media conferencing services via satellite and fiber-optics; and the nation's largest training content library for the chemical, refining, utility and manufacturing industries.	Operating profit declined as we invested in management information systems, process improvement, people, start-up ventures, and new and improved offerings to broaden and better serve our customer base. Demand for our products and services increased, reflecting strong internal growth as well as the effect of recent acquisitions, several of which will contribute a full-year's impact for the first time in 1997. In October, we announced we were merging our communications subsidiaries, WilTel and The WilTech Group, into Williams Communications Group to introduce the combined customer base to our full slate of networking products and services, control future overhead expense associated with the aggressive growth, and more clearly convey our vision and capabilities to the investment community and Williams shareholders. We completed eight acquisitions during the past two years, broadening and strengthening our ability to serve the business communications user. Acquisitions in 1996 included: Massachusetts-based Comlink, in January, and California-based SoftIRON Systems, in September. Each adds importantly to our nationwide data networking integration capability within the enterprise network solutions component of our business. Global Access, the second largest U.S. reseller of worldwide satellite video transmission services, with offices in the United Kingdom and Singapore, in May. This acquisition, coupled with the March 1996 acquisition of satellite teleports in Atlanta, Denver, Los Angeles and New York, enabled Vyvx to become a full-service fiber-optic and satellite video transmission provider with international capabilities. The Global Access name has been adopted by ITC mediaConferencing. The remaining 78 percent of Denver-based ITC mediaConferencing (now renamed Global Access), in August. The original 22 percent ownership was purchased in October 1995. Cycle-Sat in November and MGS Services at year-end, both distributors of television advertising, launching Vyvx into this marketplace. In addition to making Vyvx a leader in this market, these acquisitions provide instant connectivity to more than 550 television broadcast stations around the country. We are positioned to gain efficiencies with the trend to quicker and more efficient satellite-based transmission of advertisements, coupled with utilization of the Vyvx network at times when traffic is the lightest. Under an agreement entered at year-end with IXC Communications, we will build a 1,600-mile fiber-optic network from Houston to Washington, D.C., near Williams-owned pipeline right of way. We then will exchange rights to use the unlit fiber for usage rights on IXC's existing 6,000-mile Los Angeles-to-New York route. It is estimated that by mid-1998, we will have added 7,600 miles of new, unrestricted network to our existing 11,000-mile system, which is limited to multimedia applications. This will bring our access to a total of 80 major metropolitan areas across the country. We also have the right and expect to expand our multimedia capacity by participating in portions of WorldCom's announced 9,000 miles of fiber network expansion for multimedia applications. Late in 1996, we formalized an alliance with the Public Broadcasting System to create The Business Channel, LLC. This partnership, which builds upon PBS' satellite-delivered Business Channel, will utilize our Internet technology, fiber-optic network, and satellite capability to deliver interactive, video-based continuing education on demand. In January 1996, we signed a multiyear contract with Time Warner to provide an array of video and multimedia services. In February 1996, WilTel opened its National Technical Resource Center, a remote network monitoring, technical assistance, training and call-processing facility. The center and its capabilities raise the threshold for our competition as well as the standard for customer service. With our broad resources and plans to strengthen our network-services and enterprise-network solutions platforms, we are positioning ourselves to participate fully in the exciting and explosive growth of the communications and technology industry. Although 1997 will be another important building year, we expect operating profit to improve significantly. Our goal is to become a significant contributor to Williams' earnings as rapidly as possible and to create $3 billion in incremental shareholder value by the year 2000. Realizing this goal will require expanding the network, fully integrating and leveraging our existing assets, and continuing to acquire key building blocks that will strengthen and broaden our ability to serve customers. We are intent on becoming a leading communications technology company that businesses seek to help them thrive in this era of accelerated technological change. We want to change the way business does business. Selected Financial Data (dollars in millions) 1996 1995(2) 1994(2) Revenues $711.30 $538.90 $416.60 Operating profit 6.6 25 7.6 Identifiable assets(1) 670.6 401 315.7 Operating profit as % of average assets 1.20% 7.00% 3.00% Capital expenditures 66.9 32.4 12.9 Depreciation 21.3 14.2 12.7 Operating Statistics Occasional service: Fiber billable minutes (thousands) 4,598 3,969 1,889 Dedicated service: Voice-grade equivalent miles at December 31 (millions) 24 25.5 17 Number of ports at December 31 (millions) 5.1 4.7 4.1 Employees (December 31) 4,228 3,180 2,619 (1)Defined in Note 16 of the Notes to Consolidated Financial Statements. (2)Reclassified as described in Note 1 of the Notes to Consolidated Financial Statements .