Letter to Shareholders

In 1997, we focused on building the world's most advanced communications network. In 1998, we created a company that can deliver what that network promises. In 1999, we intend to change the industry.

We are guided by the belief that the future of communications belongs to those who can do three things: Supply the bandwidth to handle a massive surge in traffic that will continue to strain the networks built for an age of voice communication; offer Internet Protocol-based solutions enabled by bandwidth and a full range of traditional telecom services; and accomplish it from a low-cost position in the market.

That is the company we are building. Our progress — and our potential — are clear in our results. In the last year, our revenues have jumped from $700 million to a pro forma $3 billion. We have invested heavily in our future, and we have still met our aggressive growth targets. Market capitalization has soared from $2 billion to more than $20 billion.

Our external profile continues to grow. In recent months, we have been ranked among the top U.S. firms for growth or technology by leading business publications including Business Week, Time Digital, Forbes ASAP, Financial Times, and Upside.

FIRST, THE NETWORK

The first step in creating Qwest was to build a network custom-made to the demands of the 21st century. In 1997 we introduced our Macro Capacitysm Fiber network. I am pleased to report that we are on schedule for completion of the 18,500-mile, 150-city system in mid-1999. With 315 additional miles announced early in 1999, the network will now reach 18,815 miles by the end of this year. Our network also extends 1,400 miles into Mexico, and undersea cables in the Atlantic Ocean take us into Europe — where we are part of a joint venture building a network within Europe. We are also part of a consortium building undersea fiber links to Japan and the Asia Pacific region.

The Qwest network is defined in impressive technical terms: 10 gigabits, OC-192 speed; "self-healing" SONET ring architecture; 2.4 gigabit (OC-48) Internet Protocol architecture. The terms mean this: We are about to complete a network that will move more information faster, more securely and more reliably than any other network on earth.

Our network is the first built to the exact specifications of the new era of the Internet. It allows us to give customers the two things they want most in network technology — reliability and the scalability that enables technology to evolve with their needs. The Qwest network is a core advantage that competitors with deeply embedded legacy systems will find very difficult — and very expensive — to match.

QWEST AT THE CONVERGENCE

Building the world's most advanced network is just a first step. If you want to understand Qwest in 1999, don't just look at what we have put in the ground. Look at all that we are doing with it.

That is where you will see one of the most exciting stories in communications — from what we can do for our customers to the value we create for our shareholders to the opportunity we can offer our employees. Our network is the enabler and the customer magnet. Our applications are the future.

We are positioning Qwest at the convergence of voice, data and image communications. Whether it is the most advanced applications in Internet access and imaging, Web hosting and e-commerce or getting e-mail, faxes and voice-mail through a single Internet gateway — our goal is to make it all as easy as a phone call.

The most powerful technologies and advanced applications alone are not enough. We are blending technology with new capabilities driven by customer demand.

A year ago, we had 200,000 customers. Today, we have more than 3 million. We are serving our growing customer base with a full range of voice, data and image products — with 50 new or enhanced products added in 1998 alone, and more to come in 1999. We have created first-to-market speed, which keeps us on the leading edge of demand. We have also built a world class sales force to be where our customers are, and to back what we offer with the highest levels of customer service.

PIECE BY PIECE

The confidence investors and industry partners have shown in Qwest has allowed us to put together the critical pieces of our company through strategic acquisitions, alliances and investments. In the last year, we carried out four acquisitions, a key joint venture, and several major alliances.

The business components we have added create a company that can now embrace the full potential of an amazing market.

In three to five years, applications enabled by bandwidth and network management is expected to be a $100 billion market. Internet Protocol-based transport services has a $20 billion potential. Traditional local and long-distance telecommunications is about $120 billion. While the U.S. is leading the world in market opportunity, the European Internet Protocol-based services market is expected to be as large as the U.S. market, and the Japan and Asia-Pacific opportunity larger still. In addition, developing countries in all regions of the world will be plugging into the global information grid.

In the past year, we have concentrated on assembling the capabilities through mergers and alliances to address the communications opportunity around the world.

The Microsoft alliance creates a relationship that will produce advanced applications for business — e-commerce, Web hosting, and software that will be marketed and distributed online. We will have access to more than 88,000 sales distribution points that provide Microsoft products. The revenue potential is estimated at $3 billion over the next five years. In March of 1999, we introduced the alliance's first product: Q.Commercesm-Retail, a turnkey solution for the retail industry to create Web-based store-fronts.

The Netscape alliance makes Qwest the provider of advanced communications services to the Netscape Netcenter portal to the Internet. The alliance enables customers to access their communications needs — Internet access, paging, e-mail, fax, voice mail — all from a single Web site.

The Icon CMT acquisition makes us an immediate player in providing end-to-end Internet solutions to businesses. Now doing business as Qwest Internet Solutions, the unit is deploying Qwest CyberCenterssm across the country to provide Web hosting and IP-based Internet solutions.

The EUnet acquisition gives us a leading European Internet service provider operating in 14 countries and makes us a major player in Europe's exploding data market.

The KPNQwest joint venture allies us with KPN, the Dutch telecommunications company, in building a high-capacity IP-based network that will reach 40 European cities and connect to the Qwest network. The high-capacity, fiber optic, IP-based network currently covers more than 2,100 miles, and will span 9,100 miles when completed in 2001. We are contributing EUnet to the joint venture with KPN to provide a full range of broadband and IP-based multimedia services that will interconnect with Qwest's U.S. network.

The LCI International, Inc. acquisition adds national scale in voice and data services; a network of sales offices across the country; and one of the best customer service, provisioning and billing platforms in the industry.

The Covad Communications investment in early 1999 gives us local connectivity and a solid position in Digital Subscriber Line (DSL) technology. The DSL service will increase the speed of Internet connections for business and consumer customers in 22 markets by the end of 1999.

GROWTH ACCESS MARKETS

The company we are creating in 1999 is growing across Qwest business, consumer and wholesale markets.

In business markets, we had good success in 1998 in our core strategy of reaching large customers who have a growing need for bandwidth. We added thousands of business customers in 1998. As we grow market share in traditional voice and data, we are also creating a base of relationships on which to add IP services — e-commerce, Internet access, Web hosting, remote access, and other services that define the new Web-centric era of communications.

One indication of our progress and growing profile is the list of marquee accounts we have attracted — names such as Ford, IBM, Boeing and Microsoft. Early in 1999, we were selected to provide more than $1 billion in advanced communications to the U.S. Treasury Department.

In consumer and home-based business, strong revenue and earnings were driven by the popularity of a complete suite of telecommunications products offered in simple terms at competitive prices.

In 1999, we are energizing consumer services with the power of the Internet. We have already launched Web-based paging, conference calling and online faxing.

Our wholesale customers are telecommunications and Internet service providers such as Cable and Wireless Inc., Verio Inc., CAIS Internet, Electric Lightwave, and Star Telecommunications. We are driving increased revenue and earnings in this market through a shift from resold switched traffic to broadband private line, which makes available a full range of high-quality broadband and managed data services.

As we entered 1999, we also turned to providing the critical broadband connectivity that will bring the power of our network and applications into the homes and businesses of our customers. The Covad investment was a pivotal step, and we followed with plans to build our own local networks in key cities across the country. As this report is being published, we have set an initial target of 19 major metropolitan areas for 1999. Our local connectivity strategy will continue to evolve during the year.

THE NEXT STEPS

Our priorities in 1999 are clear:

We will complete our network construction, expand our leadership in IP/multimedia convergence and grow share in traditional telecom services. We will also cement KPNQwest's leadership position in Europe and seek business opportunities in Japan and the Asia Pacific region. We will forge more partnerships and alliances, and continue the expansion of our high-speed connections in local markets.

Our agenda is full and challenging. But we have all the critical success factors in place to complete it. We have a seasoned and deep management team. We have cutting-edge technology and abundant capacity. We have a solid and growing customer base. We have the organization and market presence to move quickly with market opportunity. And we have shown the world that we are a company that can execute against our vision.

Our thanks to you and our other shareowners for supporting our vision, and to the more than 8,000 Qwest employees who are making it a reality.

Sincerely,

Joseph P. Nacchio

Chairman and Chief Executive Officer