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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

For the fiscal year ended December 31, 2003

Commission File No. 1-16805

RCN CORPORATION

(Exact name of registrant as specified in its charter)

105 Carnegie Center, Princeton, New Jersey 08540

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number including area code: 609-734-3700

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $1.00 per share

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Number of shares of the registrant’s Common stock ($1.00 par value) outstanding at February 27, 2004: 110,279,006 Common Stock; 11,424,810 Class B Common Stock.

Aggregate market value of registrant’s voting and non-voting common stock held by non-affiliates at December 31. 2003, the last business day of the registrant’s most recently completed fiscal quarter, computed by reference to closing price as reported by NASDAQ for Common Stock of $0.68 per share on December 31, 2003 was approximately $40,758,015.

Indicate by check mark whether the registrant is an accelerated filer as defined by Rule 12b-2 of the 1934 Securities and Exchange Act:    x  Yes    ¨  No

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Part I

This Annual Report (the “Report”) of RCN Corporation (the “Company” or “RCN”) on Form 10-K is for the year ended December 31, 2003. The Report modifies and supersedes previously filed documents. The SEC allows the Company to incorporate, by reference, information filed with them, which means the Company can disclose this information by referring directly to those documents. Information incorporated by reference is considered part of the Report. Dollar amounts expressed herein are in thousands, except as otherwise noted.

RCN has adopted a Code of Business Conduct, which applies to all directors, officers and employees, including the Company’s principal executive officers. The Code of Business Conduct has been posted on the Company’s web site. The web site address is http://www.rcn.com/investor/financialinfo.php.

As a reporting company, RCN is subject to the informational requirements of the Exchange Act and accordingly files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the SEC. You may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room. As an electronic filer, the Company’s public filings are maintained on the SEC’s Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is http://www.sec.gov. In addition, since November 15, 2002 all SEC filings and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act may be accessed free of charge through the Company’s website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The address of that website is http://www.rcn.com/investor/secfilings.php.

The Company is negotiating a financial restructuring of its balance sheet with certain of its senior secured lenders (the “Senior Secured Lenders”), an ad hoc committee of certain holders (“the Noteholders’ Committee”) of its outstanding senior notes and senior discount notes (“Senior Notes”) and others. No agreement on such a restructuring has yet been reached. The Company intends that the continuing negotiations will lead to agreement on a consensual financial restructuring plan in the near term, although there is no assurance this will occur. The Company expects any financial restructuring to be implemented through a reorganization of the Company under Chapter 11, title 11 of the United States Code (“Chapter 11”). The Company believes that a consensual financial restructuring pursuant to a Chapter 11 reorganization would achieve the most successful financial outcome for the Company and its constituents.

The Company anticipates that a Chapter 11 filing would include RCN Corporation, the holding company, and does not intend that its material operating subsidiaries be included, although there is no assurance this will occur. Since financial restructuring negotiations are ongoing, the treatment of existing creditor and stockholder interests in the Company is uncertain at this time. However, the restructuring as currently contemplated will likely result in a conversion of a substantial portion of the Company’s outstanding Senior Notes into equity and an extremely significant, if not complete, dilution of current equity.

Available cash, temporary cash investments and short-term investments in 2003 decreased to $18,395 at December 31, 2003. In addition, at December 31, 2003 approximately $199,000 of cash was restricted under the terms of the Company’s Senior Secured Credit Facility. Because the Company’s available cash, cash equivalents and short-term investments at December 31, 2003, and projected 2004 cash flows from operations are not sufficient to meet its anticipated cash needs for working capital, capital expenditures and other activities for the next twelve months, there is substantial doubt about the Company’s ability to continue as a going-concern.

In connection with its financial restructuring negotiations, the Company did not make an approximately $10,300 interest payment due January 15, 2004 on its 10 ¹/8% Senior Notes due 2010 (the “10 ¹/8% Senior Notes”) within the 30-day grace period provided under the indenture governing the 10 ¹/8% Senior Notes. The Company also did not make an approximately $14,200 interest payment due February 15, 2004 on its 9.8% Senior Discount Notes Due 2008 (the “9.8% Senior Notes”) within the 30-day grace period provided under the indenture governing the 9.8% Senior Notes.

On February 14, 2004, the Company announced that it, the Senior Secured Lenders and members of the Noteholders’ Committee entered into forbearance agreements under which the Senior Secured Lenders and members of the Noteholders’ Committee agreed not to declare any Events of Default, which they would be entitled but not required to do, under the Company’s senior credit facilities or Senior Notes, respectively, as a result of the Company not making the interest payment on the 10 ¹/8% Senior Notes prior to the end of the applicable grace period. The initial forbearance agreements were set to expire on March 1, 2004. On March 1, 2004, the Company announced that the Senior Secured Lenders and members of the Noteholders’ Committee had agreed to extend the forbearance agreements to March 15, 2004, and on March 15, 2004, the Company announced that the forbearance agreements had been further extended to April 1, 2004 and expanded to cover the interest payment default on the 9.8% Senior Notes and other defaults.

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The Company’s objective is to reach agreement on a consensual financial restructuring plan during the current forbearance period. If financial restructuring negotiations were to proceed beyond that period or were to end, however, additional forbearance, waiver and/or amendment agreements would be needed to support the Company’s continuing operations. In addition, in the absence of an agreement on a consensual financial restructuring upon expiration of the forbearance agreements, the Senior Secured Lenders and members of the Noteholders’ Committee who hold 10 ¹/8% Senior Notes and 9.8% Senior Notes would be entitled, but not required, to declare the Company’s senior credit facilities and the outstanding 10 ¹/8% Senior Notes and 9.8% Senior Notes, respectively, immediately due and payable.

Any acceleration of amounts due under the Company’s senior credit facilities or the 10 ¹/8% Senior Notes or the 9.8% Senior Notes would, due to cross default provisions in the Company’s indentures governing its other senior notes, entitle, but not require, the holders of other senior notes to declare the Company’s other senior notes immediately due and payable if they so choose. Holders of 10 ¹/8% Senior Notes or the 9.8% Senior Notes that are not members of the Noteholders’ Committee are not subject to the terms of the forbearance agreements. If acceleration of the Company’s senior credit facilities and 10 ¹/8% Senior Notes or the 9.8% Senior Notes were to occur, RCN would not, based on current and expected liquidity, have sufficient cash to pay the amounts that would be payable.

Although the Company is actively pursuing discussions towards a final agreement on a consensual financial restructuring, there can be no assurance that such an agreement will ultimately be reached, that the Company will be able to obtain further extensions of its forbearance agreements with the Senior Secured Lenders and members of the Noteholders’ Committee, or that holders of 10 ¹/8% Senior Notes or the 9.8% Senior Notes that are not members of the Noteholders’ Committee will not declare an Event of Default under the 10 ¹/8% Senior Notes or the 9.8% Senior Notes (which would terminate the forbearance agreement with Lenders), or seek other remedies available under applicable law or the terms of the 10 ¹/8% Senior Notes or the 9.8% Senior Notes, prior to such time. The Company will continue to apply substantial effort and resources to reaching a formal agreement on a consensual financial restructuring while also continuing to evaluate the best alternatives for the Company under current circumstances and as discussions and events unfold.

As result of the current financial position of the Company, there are a number of material risks and uncertainties surrounding its operating results, including those associated with a possible reorganization of RCN and certain of its subsidiaries under Chapter 11. There are also numerous material operational risks inherent in the telecommunications industry. Each of these risks and uncertainties could have a material adverse impact on RCN’s financial condition and operating results. The information contained in the Report should be carefully reviewed, particularly the risk factors, subsequent events and other documents filed with the SEC. Some of the statements and information contained in the Report are “forward-looking,” outlining future expectations or projections of results of operations or financial conditions. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those outlined in the Report. The forward-looking information is based on information currently available to Management. The risks and uncertainties described below are those that the Company believes are material and, if they occurred, would have an adverse impact on RCN’s financial position and operating results. These risk and uncertainties can be summarized into three main areas: the Company’s present financial condition, operational issues inherent in the telecommunication industry and managing through the restructuring process. Actual results could differ materially from anticipated results contained in any forward-looking statements in the Report if the Company fails to do any of the following:

Present Financial Position

Operational Issues

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Restructuring Process

The Company is not obligated to publicly update any forward-looking statement due to new information or as the result of future events.

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ITEM 1. Business

Overview

The Company delivers bundled communication services, including local and long distance telephone, video programming (including digital cable and high definition television), and data services (including cable modem, high speed and dial-up Internet access) primarily to residential customers over a broadband network predominantly owned by the Company. The Company reports its results as one reportable segment based on the manner in which it manages the business.

ResiLink^SM and Essentials^SM are the brand names of the bundled service offerings of cable television, phone and high-speed Internet available to residential customers for a flat monthly rate. In addition to bundled service offerings, the Company sells cable television, phone, high-speed cable modem and dial-up Internet to residential customers on an a-la-carte basis. The Company also provides communication services to commercial customers using the broadband network in markets where it serves residential customers. The Company’s current operating plan focuses on improvements to customer profitability by a concerted effort to migrate customers to the Company’s higher margin products and services.

The Company delivers its services over a predominantly owned high-speed, high-capacity, fiber-optic network. The network is a hybrid broadband fiber-optic platform. This architecture brings the Company’s broadband network within approximately 900 feet of customers, with typically fewer electronics than existing incumbent cable companies. The network has generally been designed with sufficient capability to add new communication services more efficiently and effectively than the incumbents or other competitors.

Employees

As of December 31, 2003, the Company employed approximately 2,537 employees, including approximately 42 in discontinued operations. This includes approximately 53 part-time employees, of which 3 were in the discontinued operation.

Recent Developments

The Company is negotiating a financial restructuring of its balance sheet with its Senior Secured Lenders, the Noteholders’ Committee and others. No agreement on such a restructuring has yet been reached. The Company intends that the continuing negotiations will lead to agreement on a consensual financial restructuring plan in the near term, although there is no assurance this will occur. The Company expects any financial restructuring to be implemented through a reorganization of the Company under Chapter 11. The Company believes that a consensual financial restructuring pursuant to a Chapter 11 reorganization would achieve the most successful financial outcome for the Company and its constituents.

The Company anticipates that a Chapter 11 filing would include RCN Corporation, the holding company, and does not intend that its material operating subsidiaries be included, although there is no assurance this will occur. Since financial restructuring negotiations are ongoing, the treatment of existing creditor and stockholder interests in the Company is uncertain at this time. However, the restructuring as currently contemplated will likely result in a conversion of a substantial portion of the Company’s outstanding Senior Notes into equity and an extremely significant, if not complete, dilution of current equity.

Available cash, temporary cash investments and short-term investments in 2003 decreased to $18,395 at December 31, 2003. In addition, at December 31, 2003 approximately $199,000 of cash was restricted under the terms of the Company’s Senior Secured Credit Facility. Because the Company’s cash, cash equivalents, and short-term investments at December 31, 2003 and projected 2004 cash flows from operations are not sufficient to meet its anticipated cash needs for working capital, capital expenditures and other activities for the next twelve months, there is substantial doubt about the Company’s ability to continue as a going-concern.

In connection with its financial restructuring negotiations, the Company did not make an approximately $10,300 interest payment due January 15, 2004 on its 10 ¹/8% Senior Notes due 2010 (the “10 ¹/8% Senior Notes”) within the 30-day grace period provided under the indenture governing the 10 ¹/8% Senior Notes. The Company also did not make an approximately $14,200 interest payment due February 15, 2004 on its 9.8% Senior Discount Notes Due 2008 (the “9.8% Senior Notes”) within the 30-day grace period provided under the indenture governing the 9.8% Senior Notes.

On February 14, 2004, the Company announced that it, the Senior Secured Lenders and members of the Noteholders’ Committee entered into forbearance agreements under which the Senior Secured Lenders and members of the Noteholders’ Committee agreed not to declare any Events of Default, which they would be entitled but not required to do, under the Company’s senior credit facilities or Senior Notes, respectively, as a result of the Company not making the interest payment on the 10 ¹/8% Senior Notes prior to the end of the

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applicable grace period. The initial forbearance agreements were set to expire on March 1, 2004. On March 1, 2004, the Company announced that the Senior Secured Lenders and members of the Noteholders’ Committee had agreed to extend the forbearance agreements to March 15, 2004, and on March 15, 2004, the Company announced that the forbearance agreements had been further extended to April 1, 2004 and expanded to cover the interest payment default on the 9.8% Senior Notes and other defaults.

The Company’s objective is to reach agreement on a consensual financial restructuring plan during the current forbearance period. If financial restructuring negotiations were to proceed beyond that period or were to end, however, additional forbearance, waiver and/or amendment agreements would be needed to support the Company’s continuing operations. In addition, in the absence of an agreement on a consensual financial restructuring upon expiration of the forbearance agreements, the Senior Secured Lenders and members of the Noteholders’ Committee who hold 10 ¹/8% Senior Notes and 9.8% Senior Notes would be entitled, but not required, to declare the Company’s senior credit facilities and the outstanding 10 ¹/8% Senior Notes and 9.8% Senior Notes, respectively, immediately due and payable.

Any acceleration of amounts due under the Company’s senior credit facilities or the 10 ¹/8% Senior Notes or the 9.8% Senior Notes would, due to cross default provisions in the Company’s indentures governing its other senior notes, entitle, but not require, the holders of other senior notes to declare the Company’s other senior notes immediately due and payable if they so choose. Holders of 10 ¹/8% Senior Notes or the 9.8% Senior Notes that are not members of the Noteholders’ Committee are not subject to the terms of the forbearance agreements. If acceleration of the Company’s senior credit facilities and 10 ¹/8% Senior Notes or the 9.8% Senior Notes were to occur, RCN would not, based on current and expected liquidity, have sufficient cash to pay the amounts that would be payable.

Although the Company is actively pursuing discussions towards a final agreement on a consensual financial restructuring, there can be no assurance that such an agreement will ultimately be reached, that the Company will be able to obtain further extensions of its forbearance agreements with the Senior Secured Lenders and members of the Noteholders’ Committee, or that holders of 10 ¹/8% Senior Notes or the 9.8% Senior Notes that are not members of the Noteholders’ Committee will not declare an Event of Default under the 10 ¹/8% Senior Notes or the 9.8% Senior Notes (which would terminate the forbearance agreement with Lenders), or seek other remedies available under applicable law or the terms of the 10 ¹/8% Senior Notes or the 9.8% Senior Notes, prior to such time. The Company will continue to apply substantial effort and resources to reaching a formal agreement on a consensual financial restructuring while also continuing to evaluate the best alternatives for the Company under current circumstances and as discussions and events unfold.

On February 11, 2004, the Company retained AlixPartners, LLC, an internationally recognized leader in corporate turnarounds and financial restructuring, to support its financial restructuring efforts. Mr. John Dubel, a principal in the restructuring firm AlixPartners, LLC, was appointed president and chief operating officer, to help the Company operate its business and further develop its long-term business plan as it continues negotiating with its Senior Secured Lenders and the Noteholders’ Committee towards a financial restructuring.

On February 14, 2004, the Company announced that it, the Senior Secured Lenders and members of the Noteholders’ Committee entered into forbearance agreements under which the Senior Secured Lenders and members of the Noteholders’ Committee agreed not to declare any Events of Default, which they would be entitled but not required to do, under the Company’s senior credit facilities or Senior Notes, respectively, as a result of the Company not making the interest payment on the 10 ¹/8% Senior Notes prior to the end of the applicable grace period. The initial forbearance agreements were set to expire on March 1, 2004. On March 1, 2004, the Company announced that the Senior Secured Lenders and members of the Noteholders’ Committee had agreed to extend the forbearance agreements to March 15, and on March 15, 2004, the Company announced that the forbearance agreements had been further extended to April 1, 2004 and expanded to cover the interest payment default on the 9.8% Senior Notes and other defaults.

On March 3, 2004, the Company made its scheduled $20,681 interest and principal payment to its Senior Secured Lenders under its senior secured credit facility. In connection therewith, such lenders agreed on March 1, 2004, that the minimum balance requirement in the cash collateral account established pursuant to the Fifth Amendment to the Credit Agreement could be reduced by the aggregate amount of principal, interest and fees paid under the Credit Agreement.

On March 11, 2004, the Company retained the Blackstone Group as financial advisor in connection with its continuing negotiations toward a financial restructuring, replacing Merrill Lynch, Pierce, Fenner & Smith Incorporated, (“Merrill Lynch”) in this capacity. Merrill Lynch was hired on October 7, 2003 as a financial advisor to review the Company’s financial alternatives and explore potential new sources of capital. Mr. Douglas Bradbury, who was hired on October 7, 2003 to lead the financial restructuring negotiations on the Company’s behalf, and immediately prior to this worked as a consultant to the Company, left the Company on March 11, 2004 and Mr. John Dubel was given the responsibility for continuing the financial restructuring negotiations.

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On December 24, 2003, NSTAR and certain of its subsidiaries (“NSTAR”) notified the Company that it voluntarily and unconditionally waived, surrendered and discharged any and all ownership interest in both RCN-BecoCom LLC (“RCN-BecoCom”), the joint venture between the Company and NSTAR, and in the shares of the Company’s stock held by NSTAR. On December 23, 2003, Thomas J. May, Chairman, President and Chief Executive of NSTAR, resigned from the Company’s Board of Directors.

On December 31, 2003, Vulcan Ventures, Inc. (“Vulcan”) notified the Company that it elected to convert 705,507 shares of Series B Preferred Stock into 11,424,810 shares of Class B Common stock and simultaneously sold such common shares, along with an additional 247,009 shares of the Series B Preferred stock.

On January 24, 2004 PEPCO Holdings, Inc. (“PEPCO”), announced its intention to sell its fifty (50%) percent interest in its joint venture with the Company, Starpower Communications LLC (“Starpower”), as part of the ongoing efforts to redirect its focus on energy related investments. While the Company will attempt to ensure the continued operation of Starpower without adverse impact to customers or overall financial results of the joint venture, it can provide no assurances that a suitable buyer, willing to continue to operate the joint venture on a comparable level, will be identified.

On March 8, 2004, the Company completed the sale of its Carmel, NY, cable system assets and customers serviced by this network for $120,000, subject to certain post closing adjustments. Approximately $62,400 of the net proceeds will be applied as a partial pay-down of the Company’s senior secured bank facility. In addition, approximately $44,900 of the net proceeds were placed into a collateral account that is restricted to prepay term loans under the Company’s senior secured credit facility or for the purchase of telecommunication assets, by the terms of the senior secured bank facility. In accordance with SFAS No. 144, the results of operations for Carmel are reported as discontinued operations.

On March 16, 2004, RCN Corporation announced the promotion of Patrick T. Hogan to the position of Executive Vice President and Chief Financial Officer and Michael J. Angi to Senior Vice President of Operations.

Services

The Company provides services in Boston, including 18 surrounding communities, New York City, the Philadelphia suburbs, Chicago, San Francisco and several of its suburbs, along with two communities in the Los Angeles area. The Company also serves the Lehigh Valley in Pennsylvania, and until March 8, 2004, served the communities in and around Carmel, NY. The Company holds 50% LLC membership interest in Starpower which serves the Washington, D.C. metropolitan market. RCN was also the incumbent franchised cable operator in many communities in central New Jersey until these operations were sold on February 19, 2003.

In 2003, RCN MegaModem^SM, originally launched in 2002 with 3Mbps capacity, was enhanced to provide 5Mbps of speed for customers looking to download movie videos, MP3 music files and other web-based forms of entertainment. The Company believes MegaModem is the fastest Internet connection available to residential customers in its markets. Additionally in 2003, Video-on-Demand (“VOD”), Subscription Video-on-Demand (“SVOD”) and high-definition television (“HDTV”) were launched in most markets.

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The following table summarizes the Company’s and Starpower’s service connections, by product, excluding Carmel, NY, which is being accounted for as a discontinued operation.

The following is a description of RCN’s current service offerings:

Bundled Services: ResiLink and Essentials are the brand names of the bundled service offerings of cable television, phone and high-speed Internet available to residential customers for a flat monthly rate. The Company provides customers with various combination plans of these core services. Bundling encourages customers to subscribe to additional services as incremental savings per product are realized with the purchase of additional services. Revenues and related costs from the bundled products are reported in the supplemental financial information based on the service offerings of phone, video, cable television and high-speed data.

Phone: The Company offers a full range of local calling plans to meet the needs of residential customers across the markets. The phone plans compete with the incumbent local exchange carrier (“ILEC”) and competitive local exchange carriers (“CLEC”) providers. Phone calling plans generally include an unlimited local calling plan, an unlimited local and regional plan and a phone bundle of local, regional and long distance calling with features. RCN’s phone features include voicemail, Caller ID, Call Waiting, Call Forwarding, 3-Way Calling, 911 access, operator services, and directory assistance. Bundled feature packages are available to offer additional savings.

RCN’s local voice products are included in ResiLink and Essentials packages, which increases overall penetration and revenue. As of December 31, 2003, approximately 69% of RCN’s voice customers were also subscribers to one of the Company’s bundled service offerings.

Long Distance, Toll-Free, and Calling Card services are also offered and priced to compete with inter-exchange carriers (“IXCs”) across the country. The pricing plans include monthly fees, no monthly fees, specialized international plans and bundle-of-minute plans that allow high volume users to pay a single rate per month for high volume calling at one rate. Customers who subscribe to ResiLink or Essentials are offered long distance services at discounted rates.

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Cable television: A diverse line-up of basic, premium and pay-per-view video programming is available in most markets. The basic video-programming package provides extensive channel selection featuring all major cable and broadcast networks. Premium services include HBO, Cinemax, Showtime/The Movie Channel and Starz!/Encore. Pay-per-View (“PPV”) is also available, which allows instant ordering of movies and special events directly from the customer’s remote. “Music Choice” offers 31 to 45 different commercial-free music channels delivered to the customer’s stereo in digital CD quality sound.

Digital cable television subscribers can elect to receive a package of digital video services referred to as a “digital tier.” The digital tier provides a mix of additional cable television networks, multiplexed premium channels from HBO, Showtime and STARZ, an interactive program guide and “Music Choice”. There is also additional PPV programming, such as more frequent showings of the most popular films that customers can pay for on a per purchase basis.

VOD and SVOD services are available in Boston, New York City, Lehigh Valley, Philadelphia, Chicago and San Francisco, and in Washington, D.C. as part of Starpower. Additionally, HDTV, a digital television service that displays sharp, lifelike images that surpass regular analog television images, was launched in 2003 in Boston, New York City, Lehigh Valley, Philadelphia and San Francisco, and in Washington, D.C. as part of Starpower.

The Company pays a monthly fee per subscriber, per channel, for cable network programming. Programming costs are directly impacted by the number of subscribers, the number of channels provided to subscribers, channel placement and increases in contract rates from programming suppliers. The Company attempts to secure long-term programming contracts with volume and penetration discounts, marketing support and other incentives from program suppliers. Programming contracts are subject to negotiated renewal. The Company is a member of the National Cable Television Co-op (“NCTC”), which provides volume discounts on programming services obtained through NCTC. The cost of programming continues to increase year to year, and it is anticipated that future contract renewals will result in higher programming costs, particularly for sports programming. In addition, as multi-system cable operators and direct broadcast satellite operators, with whom we compete, merge, their negotiating leverage and control of programming could make it more difficult to obtain programming or competitive programming rates and access to new program networks owned by merged companies.

High-Speed Data: RCN’s high-speed data (Internet) service, utilizing the Company’s broadband network, is capable of delivering much greater bandwidth to the customer than traditional dial-up services. RCN high-speed data customers receive an always on connection, with the following standard features: four e-mail addresses, web-mail and 10 megabytes of web space.

RCN’s traditional high-speed data service lets the customer experience the vast resources of the Internet at speeds up to 1.5 million bits per second (“Mbps”). In 2002, RCN launched MegaModem cable modem services, providing Internet speeds of up to 3.2 Mbps, in four markets. The access speed of MegaModem cable modem service was enhanced to 5 Mbps in 2003 and availability was expanded to all residential markets the Company serves with its broadband network.

The content of RCN’s broadband portal was expanded in 2003. Virus Protection and Internet Firewall services were launched as additional pay-per-use products through an agreement with McAffee. These services join a music-on-demand service through an agreement with Listen.com and a parental control service through an agreement with Net Nanny. The portal, which began operation in November 2002, enables high-speed data customers to access customizable broadband content.

Dial-up Internet: Customers can also connect to the Internet through RCN’s 56K dial-up service. Dial-up customers have the advantage of connecting to the Internet through a network of points-of-presence routers that are connected to the Company’s broadband network. In addition to reliable Internet access, customers receive two mailboxes, web-mail and 10MB web space. In certain markets, RCN’s dial-up service allows customers to receive an incoming call while remaining connected to the Internet. Dial-up service can also be bundled with any of RCN’s on-net cable, phone and Internet offerings.

Commercial Services: The Company provides switch-based resale long-distance services and local telephone services to customers on its broadband network. High-speed data services, T1, OC3, DS3, dial-up Internet access and web-hosting as well as other services are also provided to certain commercial accounts.

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Joint Ventures

RCN-BecoCom

Prior to December 24, 2003, RCN was one of the two members of RCN-BecoCom. NSTAR, pursuant to an agreement with RCN, converted its ownership interest in RCN-BecoCom into shares of the Company’s Common stock. On December 24, 2003 NSTAR notified the Company that it voluntarily and unconditionally waived, surrendered and discharged any and all ownership interest in both RCN-BecoCom and in the shares of the Company’s Common stock held by NSTAR. On December 23, 2003, Thomas J. May, Chairman, President and Chief Executive of NSTAR resigned from the Company’s Board of Directors. Prior to NSTAR surrendering of its interest, it held a total of 11,597,193 shares, or 10.33%, of the Company’s Common stock. NSTAR’s profit and loss sharing ratio in RCN-BecoCom was reduced to zero in 2002 upon the completion of the third exchange. However, NSTAR retained its investment percentage and the right to invest in future capital calls by RCN-BecoCom as if it owned a 29.76% interest. The investment percentage was also subject to decrease to the extent NSTAR failed to meet future capital calls or NSTAR disposed of any such RCN Common stock. In connection with the exchange, NSTAR on behalf of itself and controlled affiliates, agreed to “standstill” restrictions for the period of one year from June 19, 2002, including refraining from further acquisitions of the Company’s Common stock beyond 10.75% in aggregate of the total number of voting shares and refraining from activities designed to solicit proxies or otherwise influence shareholders or management of RCN.

RCN-BecoCom and NSTAR entered into a Construction and Indefeasible Right to Use (“IRU”) Agreement dated as of June 17, 1997 and amended June 19, 2002. Under the agreement, NSTAR provides construction and construction management services to RCN-BecoCom and access to and use of portions of NSTAR’s broadband network, rights of way and certain equipment sites in the Boston metropolitan area. The cost of such services provided to RCN-BecoCom by NSTAR are believed to be equivalent to those that would be obtained from third party contractors. NSTAR’s contractual relationship with the Company under the IRU Agreement remains in effect.

Despite NSTAR’s surrendering its ownership interest in the Company’s Common stock, the shares of RCN Common stock previously held by NSTAR are treated as issued and outstanding as of December 31, 2003, since NSTAR has not specifically assigned them to the Company.

The financial results of RCN-BecoCom are consolidated in the Company’s financial statements, and since June 19, 2002 the Company’s profit and loss sharing ratio in the joint venture has been 100%. NSTAR’s portion of the operating losses in RCN-Becocom prior to June 19, 2002 are reported in the line item, minority interest in the loss of consolidated entities. NSTAR’S share of losses in RCN-Becocom was $36,650 for the twelve months ended December 31, 2002. RCN continues to own and operate RCN-Becocom as a wholly owned subsidiary.

Starpower

RCN and PEPCO are each 50% owners of Starpower, which constructs and operates a broadband network and telecommunications business in the Washington, D.C. metropolitan area, including parts of Virginia and Maryland. Through other subsidiaries, PEPCO is engaged in regulated utility operations and in diversified competitive energy and telecommunications businesses. The Starpower joint venture is accounted for in the financial statements under the equity method of accounting and the Company’s pro-rata portion of Starpower’s operating results is included in the equity loss of unconsolidated entities line.

On January 24, 2004, PEPCO announced its intention to sell its fifty (50%) percent interest in Starpower as part of its ongoing efforts to redirect its focus on energy related investments. While the Company will attempt to ensure the continued operation of Starpower without adverse impact to customers or the overall financial results of the joint venture, it can provide no assurances that a suitable buyer, willing to continue to operate the joint venture on a comparable level, will be identified. In 1997, Starpower and PEPCO entered into an agreement for the lease of certain portions of PEPCO’s fiber system and under which PEPCO provides construction and construction management services to Starpower. The costs of such services provided by RCN and PEPCO to Starpower are believed to be equivalent to those that would be obtained from third party contractors. Starpower’s agreement with PEPCO remains in effect.

Other Investments

In January 1995, the Company purchased a 40% equity interest in Megacable, S.A. de. C.V., the largest cable television provider in Mexico, from Mazon Corporativo, S.A. de. C.V. (“Mazon”). In July 1999, RCN’s ownership interest in Megacable increased to approximately 48.93%. Megacable operates cable systems in Mexico, principally on the Pacific and Gulf coasts and including Guadalajara, the second largest city in Mexico; Hermosillo, the largest city in the state of Sonora; and Veracruz, the largest city in the state of Veracruz. At December 31, 2003, their systems passed approximately 1,965,000 homes and served approximately 540,000 video subscribers and 133,000 high-speed Internet subscribers.

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Separately, RCN presently holds a 48.93% interest in Megacable Comunicaciones de Mexico S.A. (“MCM”). MCM, which was spun off from Megacable in November 2001, has a license from the Mexican government to operate a broadband network in Mexico City, Monterrey and Guadalajara. MCM has activated its network in Mexico City and is providing local voice and high-speed data service in that city, principally to commercial customers.

The Company does not have management control over Megacable’s or MCM’s operations and presently does not receive cash dividends from these entities.

In 1999, the Company acquired a 47.5% stake in JuniorNet for approximately $47,000 in cash. Concurrent with that transaction, JuniorNet purchased the Company’s Lancit Media subsidiary for approximately $25,000 in cash. In 2000, the Company wrote down approximately $24,400, which represented the Company’s full investment in JuniorNet. During 2001, the Company made secured loans to JuniorNet. Subsequently, the assets of JuniorNet were foreclosed upon by the secured creditor group, which included RCN. The secured creditor group sold the assets and intellectual property relating to the on-line business of JuniorNet to J2 Interactive, LLC (“J2”) for cash proceeds and 30.6% of J2’s initial equity. The Company owns 23.5% of the equity in J2. Additionally, in the foreclosure, RCN received 100% of the assets of JuniorNet’s subsidiary Lancit. Those assets were used to start RCN’s wholly-owned subsidiary, RCN Entertainment. RCN Entertainment produces children’s/family programming.

Agreements with Significant Shareholders

Vulcan made a $1,650,000 investment in RCN on February 28, 2000, in the form of 1,650,000 shares of mandatory convertible cumulative preferred stock (the “Series B Preferred stock”). The Series B Preferred stock is to be converted into Common stock or Class B Common stock, at the holder’s election, no later than seven years after it was issued, and the Company has the option of redeeming it at any time after August 28, 2003. Class B Common stock is identical in all respects to the Company’s outstanding Common stock, except that the Class B Common stock has no voting rights. The Series B Preferred stock has a liquidation preference of $1,000 per share, is convertible at a price of $61.75 per share and has a dividend rate of 7% per annum. All dividends are paid in additional shares of Series B Preferred stock. At December 31, 2003, Vulcan was paid cumulative dividends in the amount of approximately $503,744 in the form of additional shares of Series B Preferred stock. On December 31, 2003, Vulcan notified the Company that it was electing to convert 705,507 shares of Series B Preferred Stock into 11,424,810 shares of Class B Common stock and simultaneously selling such common shares, along with an additional 247,009 shares of the Series B Preferred stock. At December 31, 2003 the number of shares that would be issued upon conversion of the remaining Series B Preferred stock was 23,452,403. Under the terms of the agreement between Vulcan and the Company, Vulcan may designate for election up to two directors to the Company’s Board of Directors. Although no Vulcan designee currently serves on the Board, Edward Harris served on the board from February 28, 2000 to March 28, 2003 and William Savoy, from February 28, 2000 to October 7, 2003. Vulcan is limited to a 15% vote, in most cases. Certain other important terms of the Series B Preferred stock can be found in the Certificate of Designations relating to such Series B Preferred stock, previously filed as Exhibit 4.15 and incorporated herein by reference. Pursuant to a stock purchase and voting agreement, Vulcan has certain additional rights and obligations, including relating to preemptive rights to purchase additional shares of common equity, registration rights, restrictions on transfer of shares, limitations on acquiring additional shares, voting arrangements, and other matters. Upon a change of control prior to the Series B Preferred stock being converted or redeemed or transferred, the Company is required to offer to repurchase 50% of the Preferred stock equal to: (a) if prior to July 1, 2003, 110% of the value of such Preferred stock (plus accrued and unpaid dividends); and (b) if on or after July 1, 2003, the Liquidation Preference (plus accrued and unpaid dividends). RCN is not required to make any change of control payment until it has repurchased all debt securities required to be repurchased upon such change of control under the Company’s credit and financing agreements.

In addition to its investment in the Series B Preferred Stock, Vulcan also held 3,407,100 shares of the Company’s Common Stock as of December 31, 2003. That Common stock was subject to certain restrictions on sale under Vulcan’s agreement with the Company. On March 1, 2004, at Vulcan’s request, the restricted legend on that Common stock was removed.

On September 30, 1997, C-TEC Corporation (“C-TEC”), the predecessor to Commonwealth Telephone Enterprises, Inc (“CTE”), spun-off to its shareholders the stock of RCN and Cable Systems of Michigan, Inc. In connection with the restructuring and as a result of the conversion of certain shares of C-TEC held by Level 3, Level 3 owns 21.79% of the outstanding shares of RCN’s Common

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stock as of December 31, 2003. The Company provided CTE with certain legal and tax services during 2002, for $100 per month. On or about July 18, 2002, the Company entered into a four-year Master Computer Services Agreement with (i)Structure, LLC, a Delaware limited liability company that is wholly owned by Level 3. Pursuant to this outsourcing agreement, (i)Structure performs data center operations, monitoring, administration and management services for the Company’s open and main-frame systems in (i)Structure data centers in Tempe, Arizona and Omaha, Nebraska. The Company paid (i)Structure $2,151 in 2003 for contracted services. The Company may, from time-to-time, incur additional non-recurring costs for equipment purchases and configuration services. In the third year of the agreement, the Company has the right to terminate it with a one-time cancellation payment of approximately $1,500, which decreases monthly to approximately $60 at the beginning of the final month of the term. In addition, in 2003 the Company paid Level 3 approximately $1,240 for network construction and approximately $3,161 for circuit costs.

On June 28, 2001, Red Basin, LLC, an entity formed by Walter Scott, Jr. together with certain family members and trusts, purchased $50,000 worth of Common stock and warrants of RCN. Under the terms of the private placement, Red Basin purchased approximately 7,661,000 shares of Common stock and warrants to acquire approximately 3,831,000 shares of Common stock, for $50,000. The purchase price of the common stock and accompanying warrants is approximately $6.53 per share of common stock, which was based on the average of the closing prices of RCN Common stock for the 5 trading days ending on Friday, May 25, 2001. The warrants have a term of 4 ¹/2 years and an exercise price equal to $12.928 per share. The private placement is subject to certain conditions, including the purchase of $50,000 in debt securities and other customary conditions. The Company used the proceeds to complete a tender offer of certain Senior Notes in July 2001. Mr. Scott is Vice-Chairman of the board of directors of RCN and is Chairman of Level 3, one of RCN’s largest shareholders. Pursuant to a stock purchase agreement, Red Basin has certain other rights and obligations, including preemptive rights to purchase additional shares of common equity, registration rights, restrictions on transfer of shares, limitations on acquiring additional shares, and other matters.

On April 7, 1999, Hicks Muse Fund IV (“HMF IV”) purchased 250,000 shares of Series A Preferred stock, par value $1 per share, (the “Series A Preferred Stock”) for gross proceeds of $250,000. The Series A Preferred stock is convertible into Common stock at any time and is subject to a mandatory redemption on March 31, 2014 at $1.00 per share, plus accrued and unpaid dividends, but may be called by the Company after four years. The Series A Preferred stock is cumulative and has an annual dividend rate of 7% payable quarterly in cash or additional shares of Series A Preferred stock and has a conversion price of $38.71 per share. At December 31, 2003, the Company had paid cumulative dividends in the amount of approximately $97,213 in the form of additional shares of Series A Preferred Stock. At December 31, 2003, the number of common shares that would be issued upon conversion of the Series A Preferred Stock was 8,969,844. In connection with the investment, HMF IV has the right to designate one member for election to the Company’s Board of Directors. HMF IV has designated Peter Brodsky to the Company’s Board of Directors.

History

Prior to September 30, 1997, RCN operated as a wholly-owned subsidiary of C-TEC, the predecessor to CTE. On September 30, 1997, RCN was spun off to C-TEC shareholders in a transaction in which each holder of record of C-TEC Common equity received one share of RCN Common stock for every one share of C-TEC owned.

COMPETITION

RCN competes with a wide range of service providers in each market, including ILECs, incumbent cable providers, CLECs, Direct Broadcast Satellite (“DBS”), IXCs and other dial-up service providers. These companies represent RCN’s primary competition in the delivery of “last mile” connections for voice, video and Internet services.

RCN’s principal competitors are larger, better-financed incumbent local telephone carriers and cable companies with better access to capital resources. These incumbents have numerous advantages, which result from their historically monopolistic control of their respective markets, economies of scale and scope, and control of limited conduit and pole space, ownership of content and well-established customer and vendor relationships. In order to successfully compete, RCN must provide competitively priced bundled services, excellent technical performance and quality customer care.

Advances in communications technology and changes in the regulatory and legislative environment are constantly occurring. RCN cannot predict the effect that ongoing or future developments might have on the phone, cable television and Internet industries, or RCN’s operations/financial condition.

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Phone

The Company competes with the ILECs for the provision of local telephone services, as well as alternative service providers including CLECs. Cable operators are also entering the local exchange market in some locations. Other sources of competitive local and long distance telephone services include: commercial mobile radio service providers, including cellular carriers (such as Verizon Wireless Services), personal communication service carriers (such as Sprint PCS), and enhanced specialized mobile radio service providers (such as NexTel).

Landline local phone service continues to be the most widely used medium for voice services. However, wireless technology provides growing competition to landlines and long distance usage via landlines.

Long distance competition continues to come from traditional IXC’s like AT&T and MCI, newer entrants like Verizon, wireless companies like Verizon Wireless and Cingular, and new bundlers using UNE-P or Voice over Internet Protocol (VOIP), such as IDT and Vonage.

The Company expects to continue to face significant competition in all markets from the ILECs for both local and long distance service. The ILECs include Verizon in the northeast corridor, and SBC in California and Chicago (both of which currently dominate their respective local telephone markets).

RCN anticipates the entry of more cable companies into the voice service marketplace within 6 to 12 months, further adding to the competitive nature of the market. Similarly, the traditional ILECs are adding video solutions to their phone packages.

Cable Television

The Company’s cable television service competes primarily with incumbent multiple system franchised cable operators (“MSOs”) in all markets.

All video services providers face competition from a variety of methods of receiving and distributing television signals, and from alternative sources of news, information and entertainment, including newspapers, radio, movie theatres and live theatre, sports, and music. Competitive programming sources include over-the-air television digital and analog broadcast programming, DBS, interactive online computer services, and home video products. Home video products include videotape cassette recorders, DVD players, and streaming PC applications.

RCN faces additional competition from private satellite master antenna television systems that serve condominiums, apartment and office complexes and private residential developments. Congress and the FCC have adopted policies providing a more favorable operating environment for new and existing technologies that compete, or may compete, with various video distribution systems.

The Company’s video programming services will continue to face growing competition from current and new DBS service providers and multi-channel digital program distributors utilizing unused digital bandwidth allocated to local broadcast stations. Additionally, while Multi-Channel Multi-Point Distribution Service license holders, who use wireless, low-power microwave frequencies to transmit video programming over-the-air to subscribers, are scaling back their deployments, those remaining in the market continue to focus on the technology mainly as a platform for delivery of high-speed Internet service.

In addition, certain local telephone companies provide, or have announced plans to provide, video services within and outside of their telephone service areas through a variety of methods, including cable networks, satellite program distribution, and wireless transmission facilities.

Direct costs associated with providing a robust line-up of programming content are escalating at rates far surpassing the cost of living. Cable network rate cards are based on volume, leaving smaller cable operators with significantly higher costs than the top 3 MSOs. Two of the main drivers are the high cost of sports programming passed along to cable operators and the leverage of Retransmission Consent, granted by the Communications Act of 1992, permitting content providers cross-owned by broadcast communications giants to force additional network carriage.

Internet

The Internet access market is highly competitive and increasingly price-sensitive. Competition in this market has intensified, specifically among cable operators and ILECs who continue to make significant progress penetrating this market.

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Current competitors include local, regional and national Internet Service Providers (“ISPs”); national and international telecommunications companies, cable operators, and ILECs.

With the recent consolidation among ISPs, competition is becoming concentrated to the larger national and regional providers of Internet access. While the Company does not expect significant new entrants into the Internet access market in the near future, new technologies are being introduced which will provide customers other choices for Internet access. Many competitors have broader brand recognition and spend significantly more marketing dollars for customer acquisition. RCN competes directly or indirectly with:

Competition could intensify with the availability of wireless ISPs, both in the licensed and unlicensed spectrums. Diversified competitors may bundle other services and products with Internet connectivity services, potentially placing the Company at a competitive disadvantage.

Advances in communications technology, as well as changes in the marketplace and the regulatory and legislative environment, are constantly occurring. In addition, a continuing trend toward business combinations, such as the acquisition of AT&T Broadband by Comcast, and alliances in the telecommunications industry, may also create significant new competitors.

REGULATION

Overview The Company’s telephone and video programming transmission services are subject to federal, state and local government regulation.

Regulation of Telephone Services

Federal Regulation The use of the Company’s networks for interstate and international telephone services, including the local component of any interstate or international call, is regulated by the Federal Communications Commission, or “FCC,” under the Communications Act of 1934. RCN provides domestic interstate telephone services nationwide, and has been authorized by the FCC to offer worldwide international services. Under recent FCC decisions, the rates, terms, and conditions of these services are no longer regulated, although the Company remains subject to the FCC’s jurisdiction over complaints regarding these services. RCN must also comply with various FCC rules regarding disclosure of billing rates, content and format of invoices, payment of various regulatory fees and contributions, and the like.

In addition, the Telecommunications Act of 1996, or “1996 Act,” gives the Company important rights to connect with the networks of the incumbent local telephone companies in the areas where it operates (primarily Verizon and SBC). This law introduced widespread changes in the regulation of the communications industry, including the local telephone, long distance telephone, data services, and video programming services. It was intended to eliminate many of the pre-existing legal barriers to competition in these businesses, promote competition and decrease regulation of these segments of the industry. The 1996 Act also has allowed the RBOCs, once they satisfied a 14-point “checklist” of competitive requirements, to enter the long distance market within their own local service regions. The law delegates regulatory administrative authority to implement the 1996 Act to the FCC and state boards.

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The 1996 Act, among other things, requires ILECs to provide nondiscriminatory access and interconnection to potential competitors, such as cable operators, wireless telecommunications providers and long distance companies. These obligations include the following:

Regulations promulgated by the FCC under the 1996 Act require ILECs to negotiate with other carriers in good faith when any of the above arrangements are requested. If the negotiating carriers cannot reach agreement within a prescribed time, either carrier may request binding arbitration of the disputed issues by the state regulatory commission.

The FCC has revised these regulations several times since 1996, and many of the FCC’s decisions under the 1996 Act have been subject to court appeals. Effective October 2, 2003, the FCC adopted significant changes to its rules requiring ILECs to offer unbundled access to network elements to competing carriers like RCN. Because RCN built its own networks rather than relying on the ILECs’ facilities, these changes may affect the Company less than they do some of its competitors. The new rules did, however, increase RCN’s cost for accessing certain databases used in providing local telephone service (such as the calling party name database used to provide Caller ID with Name service on calls received from the ILECs). Depending on how the new rules are interpreted by the FCC and State regulatory agencies, the Company may incur increased costs for some of the facilities used to exchange local telephone calls with the ILECs. The FCC rules are the subject of a current court proceeding, which could result in further changes in the Company’s access to network elements. The FCC has also given notice of a proposed rulemaking that may change the way prices for interconnection and network elements are determined. While the timing or outcome of this rulemaking cannot be predicted, changes in the FCC’s pricing rules could lead to material changes in the cost to interconnect with ILECs. In addition, other regulatory and court decisions could affect the Company’s ability to interconnect with ILECs or the terms of such interconnection.

The Company has interconnection agreements with Verizon, SBC, and other ILECs serving the markets where it provides telephone service. These agreements are usually effective for terms of two or three years. As a general matter, these agreements provide for service to continue without interruption while a new agreement is negotiated. Most of the agreements also provide for amendments in the event of changes in the law, such as the regulatory and court decisions described above. RCN cannot provide assurance that it will be able to obtain or enforce future interconnection agreements, or obtain renewal of existing agreements, on acceptable terms.

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State Regulation State regulatory commissions have jurisdiction over intrastate communications (i.e., those that originate and terminate in the same state). Intrastate telephone services are regulated by the public service commissions or comparable agencies of the various states in which the Company provides these services. The Company’s subsidiaries or affiliates have received authority to offer intrastate telephone services, including local exchange service, in all states where it provides telephone service. RCN also has authority to provide in-state long distance services in all states except Alaska and Hawaii. To date, none of the applications for state authorizations has been rejected.

In addition, under the Telecommunications Act of 1996, state commissions have authority to arbitrate the terms of interconnection between the Company and the ILECs, and to determine the rates the ILECs may charge for interconnection and access to network elements. The state commissions must apply FCC rules in making these decisions.

Local Regulation Municipalities may regulate limited aspects of RCN’s voice business by, for example, imposing various zoning requirements. In some instances, they require telecommunications licenses, franchise agreements and/or installation permits for access to local streets and rights-of-way. In New York City, for example, RCN obtained a telephone franchise in order to provide voice services using the Company’s broadband network facilities located in the streets of New York City.

Reciprocal Compensation The interconnection agreements with ILECs entitle RCN to collect reciprocal compensation payments from them for local telephone calls that terminate on its facilities. The Company makes similar payments for outbound local calls delivered to the ILECs. Some ILECs have disputed whether their obligation to pay reciprocal compensation (to RCN and other competitive carriers under similar agreements) encompasses local telephone calls placed by their customers to Internet service providers served by RCN.

On April 27, 2001, the FCC adopted new rules governing compensation for dial-up Internet traffic. Under these rules, the maximum rate that RCN can collect for termination of this class of traffic was reduced in a series of steps to its current level of $.0007 per minute, which will remain in effect until further action by the FCC. The rules also limit the total number of minutes on which the Company can collect this compensation each year, using a formula based on the number of minutes that were entitled to compensation in the first three months of 2001. The rate caps imposed by the FCC rules are, in most states, considerably lower than the rates that RCN was collecting under existing interconnection agreements. In May 2002, the United States Court of Appeals for the District of Columbia Circuit remanded the FCC’s April 2001 decision for lack of an adequate legal justification for the rules adopted, but did not vacate those rules. The FCC has not yet taken any action in response to the Court’s remand, so the April 2001 rules remain in effect.

Prior to 2003, one ILEC disputed their obligations to pay reciprocal compensation for local calls placed by the incumbent carrier’s customers to Internet service providers served by competing carriers. This ILEC claimed that this traffic was interstate in nature and therefore should be exempt from compensation arrangements applicable to local, intrastate calls. The Company contended that the interconnection agreements provided no exception for local calls to Internet service providers and reciprocal compensation is therefore applicable. During November 2003, the Company entered into a settlement agreement with this ILEC to resolve issues related to reciprocal compensation.

Regulation of Video Services

Open Video Systems At various times between February 1997 and December 2002, the Company’s subsidiaries and affiliates were certified by the FCC to operate OVS networks in Northern New Jersey, Cook County, Illinois, and other key metropolitan markets, such as New York City, Boston, Washington, D.C., Philadelphia, Los Angeles, and San Francisco, among others. Initiation of OVS services is subject to completion of an open enrollment period that permits unaffiliated video programmers to seek capacity on the systems. Negotiation of certain agreements with local governments is also a prerequisite to initiating service. The initial open enrollment period for Boston, Northern New Jersey, New York City, San Francisco, Washington, D.C., and Philadelphia was completed. The open enrollment period was never initiated for the remaining markets, as the Company did not elect to operate as an OVS in those jurisdictions. In 2002, the Company obtained new OVS certifications for Boston and San Francisco and, in 2003, completed a new open enrollment period for Boston. In Boston, the Company has entered into an OVS agreement with the City and terminated its cable franchise. It is in ongoing negotiations with San Francisco to do the same conversion there and, if the Company is permitted to enter into an OVS agreement with the City and terminate its cable franchise, will initiate an open enrollment period for San Francisco at that time.

OVS networks are subject to a certain degree of local regulation for use of local streets and rights-of-way, but not to the same extent as traditional cable systems. The terms and conditions of OVS agreements vary from jurisdiction to jurisdiction. Generally, they

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contain provisions governing gross receipts fees, term, public, educational and governmental channel requirements, and other standard right-of-way management requirements. Gross receipt fees for OVS operators, such as the Company, are required to match the gross receipts fees paid by the incumbent cable operator. These fees are limited by the Communications Act to a maximum of 5 percent of gross revenues derived from the provision of cable services.

The Company is required to make up to two-thirds of the system’s channel capacity available to Video Programming Providers (“VPPs”) in areas where it offers video programming services as an OVS operator. The FCC’s rules permit RCN to retain up to one-third of the system capacity for its own (or its affiliate’s) use. OVS regulations require that during the initial open enrollment period, RCN must offer at least two-thirds of its capacity to unaffiliated parties, if demand for such capacity exists during the open enrollment period. Where the Company has conducted open enrollment periods for operational OVS systems, the required data has been provided to various potential VPPs, but to date none have requested carriage on RCN’s systems.

In a decision released in January 1999, the U.S. Court of Appeals for the Fifth Circuit approved some portions of the FCC’s OVS rules but struck down other portions. Although a number of the Court’s rulings were favorable to OVS operators, others have had a potential adverse impact on RCN’s OVS operations and planning. The Court’s most significant decision was to strike down the FCC’s rule terminating the right of a local authority to require a franchise of OVS operators. In many instances, RCN, at the insistence of local authorities, has negotiated a cable television franchise agreement in lieu of an OVS agreement. In other instances the Company has agreed to provisions in OVS agreements, which to some extent erode the differences between the two modes of operation. In Boston, where the Company has sought to terminate its cable franchise and operate as an OVS instead, the Company has been required to assume virtually the same obligations in its OVS agreement as were imposed in the cable franchise, with the exception of commitments as to the scope and timing of its network construction. Similarly, in the event that its cable franchise in San Francisco or any other jurisdiction is subsequently converted to an OVS agreement, the Company anticipates that it will be required to assume many of the obligations contained in the cable franchise.

The FCC’s rules require OVS operators to make channel capacity on their facilities available to unaffiliated VPPs on a non-discriminatory basis, with certain exceptions. One such exception is that a competing in-region cable operator is not entitled to become a VPP on an OVS except in certain limited circumstances. Notwithstanding this limitation, incumbent cable operators in the Company’s Boston, New York and Washington, D.C. area markets have sought proprietary OVS system information to analyze the possibility of becoming a VPP on RCN’s network. Such requests were submitted by Time Warner Cable Co., which then operated franchised cable systems in many suburban Boston communities included within RCN’s Boston-area OVS certification, and operates the franchised cable system in a portion of New York City within the Company’s OVS service area, and Media General Cable, which then operated cable systems in a portion of Starpower’s Washington, D.C. OVS service area. All requests were denied based on the Company’s belief that the cable companies are ineligible under the FCC’s rules. Time Warner and Media General Cable subsequently filed separate complaints with the FCC against RCN seeking the imposition of fines or canceling of RCN’s OVS authority. Media General Cable’s systems were subsequently transferred to a new operator, and Media General Cable has voluntarily withdrawn its complaints.

In the Time Warner proceedings, one aspect of which is still pending, the FCC adopted a standard under which eligibility to obtain the information sought by the cable companies is based on whether the in-region cable competitor is franchised within the “technically integrated service area” of the OVS certificate holder. RCN submitted information to the FCC regarding its Boston and New York OVS systems to enable the Commission to make a determination as to whether Time Warner is eligible to receive confidential information under this new standard. RCN requested confidential treatment of such information. The FCC has not yet ruled on that request. Subsequently, in February 2000, after the sale of its Boston area cable operations to MediaOne, Time Warner renewed its request for Boston area OVS data from RCN alleging that it was no longer an in-region cable competitor. The Company again declined to provide such data based upon Time Warner’s affiliations and possible contractual arrangements with MediaOne. Time Warner filed another petition with the FCC renewing its earlier allegations that RCN was not adhering to certain OVS rules and was not operating a truly “open” OVS system. Time Warner sought an order compelling RCN to provide the OVS data to Time Warner, and for the imposition of forfeitures on RCN for allegedly failing to comply with Commission orders. The Company opposed the petition and the FCC has not yet acted on it. Neither Time Warner nor MediaOne requested information from the Company during the 2003 open enrollment period for the Boston OVS.

The Company believes that it is operating in strict conformity with all applicable provisions of the law and will continue to defend OVS rollouts against what it believes are anti-competitive requests for data or carriage by competing in-region cable operators. RCN believes that Time Warner’s request for data regarding the Boston system in connection with the Company’s initial OVS open enrollment period has been rendered moot by the subsequent open enrollment period, in which Time Warner did not renew its claim. However, there is no assurance that the FCC will resolve the pending Time Warner request for OVS data in favor of RCN, or that

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other incumbents will not file similar requests in other markets during any subsequent open enrollment periods. If the FCC were to grant such a request, and require the Company to share such system data with local competitors, such an action could have a material adverse affect on the Company and its business plan.

Wireless Video Services The Company provides wireless video services primarily in New York City, using a 18GHz microwave system. While this system is being phased out, the Company cannot be assured that it will be able to obtain or retain all necessary authorizations needed to construct broadband network facilities, to convert wireless video subscribers to an broadband network or to offer wireless video services under its own FCC licenses.

Cable Television Systems RCN’s cable television systems, including those systems where it has entered a cable television franchise with the local government in lieu of an OVS agreement and those areas where it operates cable network cable systems, are subject to regulation under the 1992 Cable Act. The 1992 Cable Act regulates rates for cable services in communities that are not subject to “effective competition,” certain programming requirements, and broadcast signal carriage requirements that allow local commercial television broadcast stations to require a cable system to carry the station. Local commercial television broadcast stations may elect once every three years to require a cable system to carry the station (“must-carry”), subject to certain exceptions, or to withhold consent and negotiate the terms of carriage (“retransmission consent”). A cable system generally is required to devote up to one-third of its activated channel capacity for the carriage of local commercial television stations whether under the must carry or retransmission consent requirements of the 1992 Cable Act. The Communications Act also permits franchising authorities to require cable operators to set aside certain channels for public, educational and governmental access programming. Cable systems with 36 or more channels must designate a portion of their channel capacity for commercial leased access by third parties to provide programming that may compete with services offered by the cable operator. Local non-commercial television stations are also given mandatory carriage rights.

The FCC has issued rules establishing standards for digital television (“DTV”). The FCC’s rules require television stations to simulcast their existing television signals and DTV signals for a period of years prior to the expected cutover to full digital broadcasting in 2006. During this simulcast period, it is unclear whether must-carry rules will apply to DTV signals. The FCC has undertaken a rulemaking proceeding seeking comment on the carriage of broadcast DTV signals by cable and OVS operators during the transitional period to full digital broadcasting. The FCC’s proceeding addresses the need for the digital systems to be compatible and changes to the mandatory carriage rules, and explores the impact carriage of DTV signals may have on other FCC rules. The cable industry has generally opposed many of the FCC’s proposals, on the grounds that they constitute excessively burdensome obligations on the industry. Several of the largest MSOs, however, have agreed to limited carriage of digital signals during the transition process.

Because a cable communications system uses local streets and rights-of-way, such cable systems are generally also subject to state and local regulation, typically imposed through the franchising process. The terms and conditions of state or local government franchises vary materially from jurisdiction to jurisdiction. Generally, they contain provisions governing cable service rates, franchise fees, franchise term, system construction and maintenance obligations, customer service standards, franchise renewal, sale or transfer of the franchise, territory of the franchisee, use and occupancy of public streets, and types of cable services provided. Local franchising authorities may award one or more franchises within their jurisdictions and prohibit non-grandfathered cable systems from operating without a franchise. The Cable Act also provides that, in granting or renewing franchises, local authorities may establish requirements for cable-related facilities and equipment, but not for video programming or information services other than in broad categories. The Cable Act limits franchise fees to 5% of gross revenues derived from the provision of cable services and permits the cable operator to seek modification of its franchise requirements through the franchise authority or by judicial action if changed circumstances warrant.

The Company, like most if not all other cable providers, currently does not pay a 5% franchise fee on its cable modem Internet access services on the basis that the FCC has determined that such Internet services are not “cable services” as defined in the Communications Act. The Company’s position has been challenged by the City of Chicago, which has brought suit against the Company, as well as AT&T Broadband (now Comcast), the incumbent cable operator in the Company’s franchise service area, and the other franchised cable television operator in the City of Chicago (together the “Defendants”). The Defendants removed the action to federal court and succeeded in obtaining dismissal of the action on the ground that cable modem service, as a matter of law, is not a “cable television service” within the scope of the Franchise Agreements and therefore cannot be subject to the Agreements’ franchise fee provision, which by its express terms is to be interpreted and applied in accordance with the federal Communications Act. The City of Chicago has appealed both the removal to federal District Court and the District Court’s dismissal of its case to the U.S. Seventh Circuit Court of Appeals. The Company will continue to vigorously defend its position in this action but can provide no assurances that the Defendants will prevail on appeal. If the City of Chicago prevails on appeal, it would mean that the City’s complaint would be remanded for further proceedings, to either the U.S. District Court for the Northern District of Illinois or the

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Circuit Court for Cook County, Illinois. In the event the City were ultimately to prevail on its complaint, the Company would need to pay the 5% franchise fee on its cable modem revenues and therefore to pass through the additional fees to its cable modem Internet service customers. However, because any adverse result will affect all of the Company’s cable competitors in the Chicago market, such a ruling would likely not have a disproportional effect on the Company’s ability to compete in the Chicago market. The Company also notes that this question is one of nationwide significance to local franchising authorities and cable television franchisees, and is the subject of litigation between other local franchising authorities and cable providers in other jurisdictions. Consequently, the ultimate result of all of these actions, including the action brought by the City of Chicago, will likely determine whether the Company’s cable modem Internet service fees are required to be included as cable service revenues for purposes of franchise fee payments.

RCN’s ability to provide franchised cable television services depends largely on its ability to obtain and renew franchise agreements from local government authorities on generally acceptable terms. The Company cannot be assured that such agreements will be reached in every instance, and the failure to do so in a particular local jurisdiction could have a material effect on its ability to enter or continue to operate in that local area. In the City of Philadelphia, significant delays were experienced in securing authorization from the city to provide cable or OVS service on commercially reasonable terms. As a result, RCN withdrew from negotiations with the city and has no present plans to build out its system in Philadelphia. The Company continues to operate in certain of the Philadelphia suburbs.

RCN has numerous franchise agreements relating to systems where it has entered into cable franchises in lieu of OVS agreements. The Company also has franchise agreements relating to cable network system in Pennsylvania. All of the cable franchises typically contain many conditions, such as time limitations on commencement and completion of construction, conditions of service, including the number of channels, the provision of free service to schools and certain other public institutions, liquidated damages and the maintenance of insurance and indemnity bonds. These franchises provide for the payment of fees to the issuing authorities and generally range from 3% to 5% of gross revenues.

In light of current economic conditions in the communications industry and limitations on the Company’s ability to raise capital, it is likely that the Company will continue to substantially decrease the amount it is spending on capital expenditures. The Company decreased year over year capital expenditures in 2001, 2002 and 2003, and expects 2004 spending to be below 2003 levels. As result, it is probable that the Company will not be able to meet all of the construction and system build-out requirements contained in some of the cable franchises arrangements it has entered into with certain local governments in lieu of OVS agreements. In certain communities in the Boston area, South Florida, the Pacific Northwest, the Chicago area, Northern New Jersey, Arlington, Virginia, and Eastern Pennsylvania, the Company has agreed with the franchising authorities either to terminate the franchise without penalty or prejudice to entering a new franchise in the future, or to postpone indefinitely any build-out obligations. In Boston, the Company has entered into an OVS agreement with the City and terminated its franchise. The Company is seeking to do the same in San Francisco. It has recently completed an amendment of its cable franchise in Arlington, Virginia to eliminate any network build-out obligations. In other cases, the Company is attempting to negotiate with franchising authorities to extend or modify the terms of the applicable franchise to avoid any breaches and related penalties, terminate the applicable franchise without penalty or prejudice to entering a new franchise in the future, to convert the franchise to an OVS agreement in order to relax build-out obligations, or to postpone indefinitely any build-out obligations under the franchise. Although in many cases the local government and franchising authorities have indicated that they are willing to work with the Company to reach agreements as to such amendments or modifications, the Company can make no assurances that it will be able to reach a satisfactory resolution of these issues, or that the municipalities involved will not seek to invoke the liquidated damages and other penalties to which they may claim to be entitled pursuant to the franchise agreements. Several jurisdictions are seeking damages or other remedies for the Company’s current or expected future non-compliance with construction and system build-out requirements, as detailed in the legal proceedings section of this document. If one or more franchising authorities with which the Company has agreements were to prevail in such efforts, the Company could be subject to aggregate penalties in an amount that would have a material adverse effect on its operations. The Company has recorded a liability for obligations to certain franchising authorities where it has determined it will not be able to meet build-out and other requirements contained in the agreements.

For a discussion of specific pending legal proceedings involving regulatory matters, see Item 3, Legal Proceedings, below.

Right-of-Way Access As in the case of traditional franchised cable systems, OVS operators must have access to public rights-of-way for a substantial portion, if not all, of their distribution plant. In a number of jurisdictions local authorities have attempted to impose rights-of-way fees on RCN over and above the gross revenues fees paid pursuant to the Company’s cable franchises or OVS agreements or which are not imposed on the incumbent local telephone companies, which it believes are in violation of federal law. A number of FCC and judicial decisions have addressed the issues posed by the imposition of rights-of-way fees on competitive LECs

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and on video distributors. To date the state of the law is uncertain and may remain so for some time. In New York City, the Company and other competitive telecommunications carriers have entered into agreements that provide for the payment of a percentage of their gross telecommunications revenues to the City of New York. Similar fees are not paid by Verizon, which is the incumbent local telephone company in the City. This has had a negative impact on the Company’s ability to provide local telephone service in competition with Verizon. If the Company were required to pay local rights-of-way fees that are excessive or discriminatory in other cities, this could have similar adverse effects on its local telephone business activities in those markets.

Pole and Conduit Attachments Under the Pole Attachment Act, the FCC is required to regulate the rates, terms and conditions imposed by utilities, ILECs and CLECs for cable systems’ and telecommunications providers’ use of utility pole and conduit space unless state authorities can demonstrate that they adequately regulate pole attachment rates, terms and conditions. In the absence of state regulation, the FCC administers pole attachment rates on a formula basis. RCN is subject in some instances to pole attachment practices and fees which it believes are in violation of applicable federal law. The Company has attempted to resolve certain of these matters informally. In some cases, utility companies have increased pole attachment fees for cable systems that have installed fiber-optic cables and that are using these cables for the distribution of non-video services. The 1996 amendments to the Pole Attachment Act modified the prior pole attachment provisions by establishing a new formula for setting rates for attachment of telecommunications wiring, and requires that utilities provide cable systems and telecommunications carriers with nondiscriminatory access to any pole, conduit or right-of-way, owned or controlled by the utility if the facility is carrying cable or telecommunications wires already. The FCC adopted regulations to govern the charges for pole attachments used by companies providing telecommunications services, including cable operators. These regulations became effective on February 8, 2001 and any increase in attachment rates for telecommunications companies resulting from the FCC’s new regulations is being phased-in in equal annual increments over a period of five years beginning on the effective date of the new FCC regulations. A number of pole-owning utilities challenged the new rules, raising constitutional and other issues. The FCC strongly asserted its jurisdiction to regulate pole attachment fees, including those charged to companies providing broadband services. The United States Supreme Court and Court of Appeals for the District of Columbia Circuit both issued rulings in 2002 upholding aspects of the FCC’s pole attachment rules favorable to the Company. In a ruling of particular importance to the Company, the Supreme Court held that broadband service providers who co-mingled video, telecommunications, and Internet services over their networks are entitled to the protections of the Pole Attachment Act. This ruling ensures that RCN will have the benefit of the FCC’s rate formula for pole attachments.

In the Philadelphia suburbs, RCN encountered delays and high costs in gaining access to poles owned by PECO, an electric utility that owns the majority of the poles in the suburban Philadelphia communities in which RCN is currently operating its network. PECO sought to impose significantly increased pole attachment licensing fees on RCN and engaged in a number of practices concerning the preparation of the poles (“make ready”), which RCN believed were contrary to the law. After trying to resolve these issues informally with PECO, RCN filed a formal pole attachment complaint against PECO and certain of its affiliates at the FCC. In December 2002, the FCC Enforcement Bureau granted RCN’s complaint with respect to PECO’s pole attachment fees, and ordered PECO to reduce its fees and reimburse RCN the excessive fees paid from the date of the complaint going forward. PECO subsequently appealed the ruling. The FCC held pending RCN’s complaint regarding PECO’s make ready practices. In October 2003, RCN settled the make ready complaint with PECO on terms favorable to the Company. In January 2004, PECO and RCN reached a settlement that resulted in dismissal of PECO’s appeal of the FCC decision with respect to past pole attachment fees, and which resulted in PECO’s rates for such attachments remaining significantly reduced from the initial amounts charged.

Program Access. The 1992 Act, the 1996 Act and FCC regulations preclude any cable operator or satellite video programmer affiliated with a cable company, or with a common carrier providing video programming directly to its subscribers, from favoring an affiliated company over competitors. In certain circumstances, these programmers are required to sell their programming to other multi-channel video distributors. The provisions limit the ability of program suppliers affiliated with cable companies or with common carriers providing satellite delivered video programming directly to their subscribers to offer exclusive programming arrangements to their affiliates. The FCC’s Cable Service Bureau, however, has ruled that, except in limited circumstances, these statutory and regulatory limitations do not apply to programming which is distributed other than by satellite. Although the Company typically has been able to negotiate viable agreements to carry such programming, absent a change in the law pertaining to programming which is distributed other than by satellite, RCN will not have guaranteed access to certain non-satellite delivered programming, which could impact its ability to compete effectively in those markets.

Certain important provisions of the Cable Act of 1992 that restrict exclusivity in the distribution of certain video programming were scheduled to lapse in 2002 but were extended by the FCC for an additional five years. The extension of these rules ensures that RCN will continue to have access to important satellite delivered programming until at least 2007.

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Other Regulatory Issues

The terms of RCN’s existing franchises presently vary up to the year 2015. To date, all cable franchises that have reached their expiration date have been renewed or extended, generally at or before their stated expirations and on acceptable terms. Due to reduced capital spending and curtailed expansion of new homes within existing markets, the Company can make no assurances that franchise agreements will be renewed at expiration with comparable terms and performance conditions. Furthermore, the Company cannot assure that it will be in compliance with those franchises at the time of renewal or that it will be able to renew these or other franchises on acceptable terms.

Cable television systems, where effective competition has not been demonstrated to exist, are subject to rate regulation of the basic service tier. None of the municipalities in which the Company holds a cable franchise have attempted to impose rate regulation on the Company. As required by the 1996 Act, rates were deregulated for all cable programming services except limited basic service on March 31, 1999. In the event that a municipality in which the Company holds a cable franchise were to attempt to impose rate regulation, it would be necessary for the Company to demonstrate that effective competition exists in its franchise area. RCN believes that effective competition can be demonstrated as to the Company with respect to all of the Company’s cable franchises, since in each case there is an existing incumbent cable operator serving the area.

In addition to the FCC regulations previously discussed, there are other FCC cable regulations covering areas such as:

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The FCC has the authority to enforce its regulations by imposing substantial fines, issuing cease and desist orders and/or imposing other administrative sanctions, such as revoking FCC licenses needed to operate certain transmission facilities often used in connection with cable operations.

RCN has had difficulty gaining access to the video distribution wiring in certain multiple dwelling units (“MDUs”) in the City of Boston. In some buildings the management will not permit RCN to install its own distribution wiring and the incumbent cable company has not been willing to permit use of the existing wiring on some equitable basis when RCN attempts to initiate service to an individual unit previously served by the incumbent. Similar problems have been encountered in New York City and Washington, D.C., where RCN provides service as an OVS operator and it is unsettled whether the Company has the protection of the mandatory access laws that entitle franchised cable television operators to gain entry to MDU buildings. The Company sought a ruling from the FCC that existing FCC inside wiring rules required incumbent Cablevision to cooperate and make such wiring available to RCN in Boston. By Order released on January 29, 2003, the FCC granted the request, ruling that where cable wiring is located behind sheet rock walls or ceilings, the designated point at which RCN is allowed to access the wires must be demarcated at a physically accessible location that does not require disturbing the sheet rock. The order applies to all markets, not just Boston. In the same order, the FCC also clarified and upheld other aspects of its existing rules providing for access to cable inside wiring. The order also clarified that the FCC’s rules apply to both OVS operators and franchised cable television providers. Upon appeal of the order by the National Cable & Telecommunications Association, the U.S. Circuit Court for the District of Columbia held that the FCC did not adequately support its earlier ruling on the specific point of inaccessibility of wiring behind sheet rock. The matter has been remanded back to the FCC for further consideration consistent with the judgment. RCN will participate in any new rulemaking process that the FCC may undertake in this matter.

The Company is also at times precluded from serving an MDU, because the owner has entered into an exclusive agreement with another provider. In some instances, these exclusive agreements are perpetual. The FCC, in its January 29, 2003 order, declined to ban such exclusive and perpetual contracts for the provision of video service in MDUs.

Other bills and administrative proposals pertaining to cable television have previously been introduced in Congress or considered by other governmental bodies over the past several years. There will likely be legislative proposals in the future by Congress and other governmental bodies relating to the regulation of communications services.

Cable television systems are subject to federal compulsory copyright licensing covering the retransmission of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their basic revenues to a federal copyright royalty pool, cable operators can obtain blanket licenses to retransmit the copyrighted material on broadcast signals.

Numerous jurisdictions have imposed or attempted to impose so-called “open access” requirements in connection with the grant or transfer of a cable franchise and others may do so. As used in this context, “open access” refers to the requirement that a broadband operator permit unaffiliated entities to provide Internet services over the cable television operator’s broadband facilities. While the Company believes that its business interests may be served by such open access, it opposes further regulations or government intervention in regard to such matters.

The FCC has determined that cable modem Internet access services are not “cable services” as defined in the Communications Act. Based on this determination, the Company, like most if not all other cable providers, currently does not pay a franchise fee on such services. The appropriate classification of cable modem service, and the right of municipalities to impose franchise fees on such service, is the subject of litigation in several jurisdictions, including in the case between the Company and the City of Chicago described in Item 3, Legal Proceedings, below. The FCC is addressing the scope of the FCC’s jurisdiction to regulate cable modem service, the role of state and local franchising authorities with respect to such service, and the question of “open access,” discussed above, in a pending Notice of Proposed Rulemaking. The outcome of that rulemaking could have a material affect on the Company’s business, but the affect is not expected to be adverse insofar as the Company’s similarly situated competitors also would be subject to any new rules applicable to the Company.

Responding to pressure principally from direct broadcast satellite (“DBS”) companies, Congress passed the Satellite Home Viewer Improvement Act in late fall of 1999. The principal purpose of this legislation, known as “SHVIA” was to amend the copyright law to

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permit the DBS companies to carry more local broadcast programming in their programming packages (so-called “local-into-local”). At the same time the legislation directed the FCC to develop new regulations concerning retransmission consent and mandatory access. The retransmission consent provision of SHVIA covers all multiple video program distributors (“MVPDs”) as well as DBS providers. The Commission has adopted retransmission consent rules as required by SHVIA. These new regulations establish an obligation on the part of broadcasters to bargain in good faith and define good faith by reference to certain prohibited bargaining tactics or positions. The regulations also bar exclusive retransmission agreements but do permit broadcasters to enter into varying terms with MVPDs carrying their signal based on normal competitive criteria. To the extent that RCN will need to negotiate such retransmission consent agreements in the future, these regulations should help to strengthen its negotiating position.

Data Services The data services business, including Internet access, is largely unregulated at this time apart from federal, state and local laws and regulations applicable to businesses in general. Some federal, state, local and foreign governmental organizations are considering a number of legislative and regulatory proposals with respect to Internet user privacy, infringement, pricing, quality of products and services and intellectual property ownership. It is uncertain how existing laws will be applied to the Internet in areas such as property ownership, copyright, trademark, trade secret, obscenity and defamation. Additionally, some jurisdictions have sought to impose taxes and other burdens on providers of data services, and to regulate content provided via the Internet and other information services. The Company expects that proposals of this nature will continue to be debated in Congress and state legislatures in the future. Additionally, the FCC is now considering a proposal to impose obligations on some or all providers of Internet access services to contribute to the cost of federal universal service programs, which could increase the cost of Internet access. The adoption of new laws or the modification of existing laws to the Internet may decrease the growth in the use of the Internet, which could in turn have a material adverse effect on RCN’s Internet business.

The Company has provided a summary of present and proposed federal, state, and local regulations and legislation affecting the telephone, video programming and data service industries. Other existing federal regulations, copyright licensing, and, in many jurisdictions, state and local franchise requirements, are currently the subject of judicial proceedings, legislative hearings and administrative proposals that could change, in varying degrees, the operations of communications companies. The ultimate outcome of these proceedings, and the related impact of the 1996 Act or any final regulations adopted there under on the Company’s businesses, cannot be determined at this time.

RISK FACTORS

The risks and uncertainties described below are those that the Company believes are material and, if they occurred, would have an adverse impact on RCN’s financial condition and operating results. These risk and uncertainties can be summarized into three main areas: the Company’s present financial condition, operational issues inherent in the telecommunication industry and managing through the restructuring process. Actual results could differ materially from anticipated results in any forward-looking statements in the Report if the Company fails to do any of the following:

Present Financial Condition

In connection with its financial restructuring negotiations, the Company did not make an approximately $10,300 interest payment due January 15, 2004 on its 10 ¹/8% Senior Notes due 2010 (the “10 ¹/8% Senior Notes”) within the 30-day grace period provided under the indenture governing the 10 ¹/8% Senior Notes. The Company also did not make an approximately $14,200 interest payment due February 15, 2004 on its 9.8% Senior Discount Notes Due 2008 (the “9.8% Senior Notes”) within the 30-day grace period provided under the indenture governing the 9.8% Senior Notes.

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On February 14, 2004, the Company announced that it, the Senior Secured Lenders and members of the Noteholders’ Committee entered into forbearance agreements under which the Senior Secured Lenders and members of the Noteholders’ Committee agreed not to declare any Events of Default, which they would be entitled but not required to do, under the Company’s senior credit facilities or Senior Notes, respectively, as a result of the Company not making the interest payment on the 10 ¹/8% Senior Notes prior to the end of the applicable grace period. The initial forbearance agreements were set to expire on March 1, 2004. On March 1, 2004, the Company announced that the Senior Secured Lenders and members of the Noteholders’ Committee had agreed to extend the forbearance agreements to March 15, 2004, and on March 15, 2004, the Company announced that the forbearance agreements had been further extended to April 1, 2004 and expanded to cover the interest payment default on the 9.8% Senior Notes and other defaults.

The Company’s objective is to reach agreement on a consensual financial restructuring plan during the current forbearance period. If financial restructuring negotiations were to proceed beyond that period or were to end, however, additional forbearance, waiver and/or amendment agreements would be needed to support the Company’s continuing operations. In addition, in the absence of an agreement on a consensual financial restructuring upon expiration of the forbearance agreements, the Senior Secured Lenders and members of the Noteholders’ Committee who hold 10 ¹/8% Senior Notes and 9.8% Senior Notes would be entitled, but not required, to declare the Company’s senior credit facilities and the outstanding 10 ¹/8% Senior Notes and 9.8% Senior Notes, respectively, immediately due and payable.

Any acceleration of amounts due under the Company’s senior credit facilities or the 10 ¹/8% Senior Notes or the 9.8% Senior Notes would, due to cross default provisions in the Company’s indentures governing its other senior notes, entitle, but not require, the holders of other senior notes to declare the Company’s other senior notes immediately due and payable if they so choose. Holders of 10 ¹/8% Senior Notes or the 9.8% Senior Notes that are not members of the Noteholders’ Committee are not subject to the terms of the forbearance agreements. If acceleration of the Company’s senior credit facilities and 10 ¹/8% Senior Notes or the 9.8% Senior Notes were to occur, RCN would not, based on current and expected liquidity, have sufficient cash to pay the amounts that would be payable.

Although the Company is actively pursuing discussions towards a final agreement on a consensual financial restructuring, there can be no assurance that such an agreement will ultimately be reached, that the Company will be able to obtain further extensions of its forbearance agreements with the Senior Secured Lenders and members of the Noteholders’ Committee, or that holders of 10 ¹/8% Senior Notes or the 9.8% Senior Notes that are not members of the Noteholders’ Committee will not declare an Event of Default under the 10 ¹/8% Senior Notes or the 9.8% Senior Notes (which would terminate the forbearance agreement with Lenders), or seek other remedies available under applicable law or the terms of the 10 ¹/8% Senior Notes or the 9.8% Senior Notes, prior to such time. The Company will continue to apply substantial effort and resources to reaching a formal agreement on a consensual financial restructuring while also continuing to evaluate the best alternatives for the Company under current circumstances and as discussions and events unfold. Accordingly, the value of RCN Common stock is highly speculative. We urge that appropriate caution be exercised with respect to existing and future investments in any of the Company’s debt obligations and/or its Common stock.

Operational Issues

Advances in technology and changes in the regulations (see ITEM 1. Business – Regulation section) directly impact the Company’s ability to effectively compete. New technologies could render existing platforms and products obsolete, or significantly reduce the pricing of products and services. To effectively compete, the Company needs to continue to upgrade its network and services, as appropriate, which may not be possible with the reduced capital spending levels that are planned.

The Company’s ability to provide telephone and video programming transmission services was made possible by changes in government regulations, which have been subsequently challenged and may be subject to change in the future. These regulations have a direct impact on the Company’s costs of operating its network, and therefore the profitability of its services. The Company is also subject to other regulations at the federal, state and local levels, all of which may change in

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the future. The costs of complying with these regulations, delays or failures to receive required regulatory authorizations, changes in existing regulations or the enactment of new regulatory requirements, may have a material adverse effect on the Company’s ability to obtain or retain authorizations necessary to continue providing telephone and video services. The Company can offer no assurances that it will be able to retain or obtain all of the authorizations necessary to operate the business, nor can it predict if additional regulations will be adopted that materially adversely impact operating results.

NSTAR – On December 24, 2003, NSTAR announced that it was abandoning its participation and interest in the venture between NSTAR and the Company in the greater Boston area, and in the RCN Common stock, which it owned. While the IRU Agreement remains in effect for NSTAR’s construction services, right-of-way access and use of certain portions of NSTAR’s broadband network, the Company cannot be assured that the level of operational cooperation experienced in the past will remain in effect.

PEPCO – In January 2004, PEPCO announced plans to sell its 50% interest in Starpower. While the Company will attempt to ensure the continued operation of Starpower without adverse impact to customers or overall financial results of the joint venture, it can provide no assurances that a suitable buyer, willing to continue to operate the joint venture on a comparable level, will be identified. Additionally, the Company can provide no assurances that it will continue to receive the same level of cooperation from PEPCO concerning network construction and maintenance once PEPCO disposes of its interest.

Retransmission consent, cross-ownership of cable and broadcast networks, and MSO ownership of cable networks are other factors that hamper the Company’s ability to control programming costs. The Cable Act of 1992 gave broadcasters the right to grant permission to cable operators for carrying their local broadcast stations in exchange for value. This has resulted in broadcast cross-owned cable networks demanding what programs the Company must carry, inhibiting its ability to choose

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content based on appeal to the customer base. Additionally, many networks are owned by competing cable MSO’s, like Time Warner and Comcast. Although program access rules require these content owners to offer satellite delivered networks to multi-channel video providers, RCN is not able, in some cases, to provide its customers with added value services like the network’s programming in high definition or on demand replays. The Company can not assure that it will continue to have availability of sufficient programming and added value features, delivered on a timely basis at competitive prices.

As a result of the September 30, 1997 spin-off of RCN shares to holders of common equity of C-TEC, the predecessor to CTE, relationships exist that may lead to conflicts of interest. In addition, David McCourt is a director and executive officer of CTE. James Q. Crowe, Richard R. Jaros, Eugene Roth, Walter Scott, Jr. are directors of both CTE and the Company. The Company manages potential conflicts of interest on a case-by-case basis taking into consideration relevant factors including the requirements of the United States Securities and Exchange Commission, NASDAQ and prevailing corporate practices.

Since February 1999, the Company has had construction and cross-country capacity (that enable RCN customers to connect to major Internet connection points in the United States) agreements with Level 3. Although these agreements are designed to reflect similar arrangements entered into by parties negotiating arm’s length, the Company cannot provide assurance that it would not be able to obtain better terms from an unrelated party.

As of December 31, 2003, Vulcan owns of record 3,407,100 shares of RCN Common stock and is deemed beneficially to own 22,859,499 shares of RCN Common stock by virtue of its ownership of record of 1,201,228 shares of RCN Preferred stock, which is convertible into an aggregate of 19,452,399 shares of RCN Common stock. Paul G. Allen is the sole stockholder of the common stock of Vulcan and may be deemed to be the beneficial owner of RCN Common stock that is beneficially owned by Vulcan.

Restructuring Process

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ITEM 2. Properties

Overview of the RCN Network

RCN’s broadband network is designed to support phone, cable television and Internet services via a fiber-rich network architecture. The multi-service network is presently operating in the Boston, New York City, Lehigh Valley, Pennsylvania, San Francisco, Chicago, Los Angeles and Philadelphia markets, and in Washington, D.C. as part of Starpower. The broadband network typically consists of fiber-optic transport facilities; local and long distance telephone capability; video head-ends; voice, video and data transmission and distribution equipment; and Internet routing and wide-area-network equipment and the associated network wiring and termination equipment. The Company’s telephone switching network typically utilizes the Lucent 5ESS-2000 switching platforms as the local switching element, and the network is generally designed to provide local telephony service.

The network’s common backbone signal transport medium, for both digital (phone, video and Internet) and analog (video), is normally broadband cable, either RCN-owned, or leased from other providers. Generally, the digital broadband backbone transport network utilizes a seal-healing synchronous optical network ring architecture (“SONET”) and other technologically advanced transport methods to provide high-speed, redundant connections for the delivery of voice, video and data services. Facility connections from the backbone network to individual buildings, residential and commercial services are typically provided via RCN-owned broadband facilities.

The majority of the Company’s network is built using fiber-optic cable as the predominant transport medium. Broadband systems are suitable for transmission of phone, cable television and Internet information, or a combination of these types of signals. The main benefits resulting from the deployment of fiber-optic cable versus traditional coaxial cable or copper wire are greater network capacity, increased functionality and decreased requirements for periodic amplification of the signal. These factors contribute to lower maintenance costs, and increase the capacity for and quality of the service offerings. Fiber-based networks provide a superior platform for delivering phone, cable television and high-speed, high-capacity Internet services, when compared to traditional legacy systems that rely more heavily on copper wire or coaxial cable.

RCN’s network is designed and built to provide the capacity necessary for the transport and delivery of high bandwidth data and video transmission requirements. The fiber optic cable used contains up to 864 individual strands of optical fiber. Each strand of fiber is capable of providing a large number of high-bandwidth telecommunications channels that can each be used to reliably transport a high volume of voice, video and data signals. Although the ILECs commonly use copper wire in their networks, they are currently deploying fiber cable to upgrade portions of their copper based network, particularly in areas served by RCN. The Company expects that continued developments and enhancements in communications equipment will increase the capacity of each optical fiber, thereby providing even more capacity at relatively low incremental cost.

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Phone Plant & Equipment

Voice Networks

The voice network is capable of supporting both switched and non-switched (private line) services. In metropolitan areas, individual buildings are connected to the network backbone via fiber extensions that are generally terminated on high-speed transport equipment, which provides redundant and fail-safe interconnection between the building and the RCN central switch location. In limited situations where fiber extensions are not available, leasing special access facilities from MCI, ILECs or other service providers, can provide interim facility connections. As the network expands to reach more areas within a target market, subscribers served by these temporary connections are migrated to the RCN broadband network. Within large multiple dwelling unit (“MDU”) buildings in metropolitan areas, generally a voice service hub is established by installing Integrated Digital Loop Carrier (“IDLC”) equipment, which acts as the point of interface between the backbone facility and the intra-building wiring. Each IDLC is installed with a standby power system and is capable of serving up to 2,048 lines. RCN’s voice offerings include a full suite of features and services including custom calling and custom local access signaling services features. The network is built with excess capability to meet the anticipated requirements of future subscriber demand.

Generally, in new and rebuilt residential situations, RCN provides a fiber-rich architecture capable of delivering voice services to the residential or commercial subscriber. Fiber optic backbone facilities using SONET transport electronics typically provide interconnection from the RCN local telephony switch to the telephony distribution electronics. The telephony distribution electronics support up to 2,048 lines and serve as the interconnection point between the telephone switch and the local distribution fiber. Broadband facilities are utilized to transport the telephony signals to a residential service area node, a point typically within 900 feet from the furthest subscriber. The residential service node encompasses on average approximately 150 homes. The distribution facilities between the node and the subscriber are typically coaxial cable. The Company’s voice network provides primary line service with full interconnection to the local emergency 911 centers and is fully powered with reserve batteries to provide backup power in the event of a commercial power failure.

Broadband Video

The Company’s video head-ends typically consist of optical transmitters, optical receivers, satellite receivers, signal processors, modulators, encoding equipment, digital video transport equipment, network status monitoring and other ancillary equipment. From the head-end, the video signals are transported to secondary hub sites in either digital or analog signal format. Once the signal is received at the secondary hub site, the signal is conditioned, processed and interconnected to the local broadband transport facilities for distribution to the video subscribers. Typically, the video signals are distributed to individual fiber nodes or receivers via the broadband cable used to deliver the voice and data service. The local distribution fiber cable terminates in a broadband receiver within an individual building or video service area. From the fiber node, coaxial cable and related distribution equipment is used to distribute the video signals to the customer premises. The bandwidth of the video distribution is generally 50-860 MHz, which is capable of supporting between 90 and 110 analog video channels and a substantial number of digital video channels. The distribution plants are designed to be predominantly fiber-based, which increases the capacity, reliability and the quality of the services delivered as compared to traditional cable television distribution architectures.

Wireless Video

The Company also owns and operates a “wireless video” television system (which was formerly operated as Liberty Cable Television of New York and acquired by RCN in 1996) using point-to-point 18 GHz microwave technology. This system is utilized in New York City as an alternate means to deliver video programming to buildings that are not yet connected to the broadband network.

Internet Plant & Equipment

The primary Internet product is a high-speed data connection over RCN’s broadband network. RCN’s high-speed data connection offers speeds up to 5.0 Mbps to the individual cable modem user. Future developments will further increase the speed of the cable modem service. RCN also provides Internet access via dial-up modems. This product is available in all service areas as well as all metropolitan markets across the United States.

The Internet network consists of all the networking and computer equipment required to provide full and complete ISP services to both our cable modem and dialup customers. These Internet services include unlimited access to the World Wide Web, personal email addresses, access to news services, personal web pages and file transfer capability. Additionally, RCN Internet users are able to access other popular Internet-based services such as Instant Messaging, on-line electronic gaming and Chat facilities. The underlying RCN network is comprised of a state-of-the-art TCP/IP network including core, border and edge routers, servers, switches, and the necessary high-speed transport and interconnection network. The Company has also designed and deployed a long haul, high-bandwidth broadband transport facility that interconnects Boston, New York, Philadelphia and Washington, D.C. This facility is used to provide high-speed connectivity between each of RCN’s points of presence in the northeast United States.

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RCN relies on a combination of copyright, trademark and trade secret laws and contractual restrictions to establish and protect its proprietary technology. There can be no assurance that this technology will not be misappropriated or that equivalent or superior technologies will not be developed. In addition, there can be no assurance that third parties will not assert that RCN’s services or users’ content infringe upon their proprietary rights. The Company has obtained authorization, typically in the form of a license, to distribute third-party software incorporated in the RCN access software product for Windows 3.1, Windows 95, Windows NT, Windows 2000 and Macintosh platforms. The Company plans to maintain or negotiate renewals of existing software licenses and authorizations, and may desire or need to license other applications in the future.

Real Estate

As of December 31, 2003, the Company leased approximately 160 facilities including 128 technical and 32 non-technical facilities, which encompass 929,970 and 1,285,044 square feet, respectively, to support its operations under various non-cancelable leases with terms ranging from 1 to 25 years. The Company is actively seeking to sublease or buyout the leases of 21 facilities including 5 technical and 16 non-technical facilities, which contain 34,405 and 772,449 square feet, respectively. RCN also currently owns 7 technical facilities, which encompass 143,021 square feet and is looking to sell 2 facilities, which contain 69,650 square feet.

During 2003, due to reduced growth plans, the Company terminated and subleased 18 facilities, including 10 technical and 8 non-technical, which encompass 64,840 and 235,217 square feet, respectively. In addition, 2 facilities were sold, both technical facilities, consisting of 24,915 square feet.

ITEM 3. Legal Proceedings

City of Chicago v. AT&T Broadband, et al.

The Company, like most if not all other cable providers, currently does not pay a franchise fee on its high-speed data services on the basis that the FCC has determined that such Internet services are not “cable services” as defined in the Communications Act. The Company’s position has been challenged by the City of Chicago, which has brought suit against the Company, as well as AT&T Broadband (now Comcast), the incumbent cable operator in the Company’s franchise service area, and the other franchised cable television operator in the City of Chicago (together the “Defendants”). The Defendants removed the action to federal court and succeeded in obtaining dismissal of the action on the ground that high-speed data service, as a matter of law, is not a “cable television service” within the scope of the Franchise Agreements and therefore cannot be subject to the Agreements’ franchise fee provision, which by its express terms is to be interpreted and applied in accordance with the federal Communications Act. The City of Chicago has appealed both the removal to federal District Court and the District Court’s dismissal of its case to the U.S. Seventh Circuit Court of Appeals. The Company will continue to vigorously defend its position in this action but can provide no assurances that the Defendants will prevail on appeal. If the City of Chicago prevails on appeal, it would mean that the City’s complaint would be remanded for further proceedings, to either the U.S. District Court for the Northern District of Illinois or the Circuit Court for Cook County, Illinois. In the event the City were ultimately to prevail on its complaint, the Company would need to pay the franchise fee on its high-speed data revenues and therefore to pass through the additional fees to its high-speed data service customers. However, because any adverse result will affect all of the Company’s competitors in the Chicago market, such a ruling would likely not have any material adverse effect on the Company’s ability to compete in the Chicago market. The Company also notes that this question is one of nationwide significance to local franchising authorities and cable television franchisees, and is the subject of litigation between other local franchising authorities and cable providers in other jurisdictions. Consequently, the ultimate result of all of these actions, including the action brought by the City of Chicago, will likely determine whether the Company’s high-speed data service fees are required to be included as cable service revenues for purposes of franchise fee payments.

Newtown Township, PA

Newtown Township, Pennsylvania served notice on the Company’s subsidiary, RCN Telecom Services of Philadelphia, Inc. (“RCN-Philadelphia”), alleging breach of the cable television franchise agreement between RCN-Philadelphia and the Township on the ground that RCN-Philadelphia failed to complete construction and fully activate the cable system within the time required pursuant to Section 6.1 of the agreement and also failed to complete an Institutional Network pursuant to Section 25A of the agreement. As a result of the alleged breach, the Township’s Board of Supervisors entered a judgment against RCN-Philadelphia in the amount of

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$2,192, representing the Township’s alleged damages through the end of the franchise term. RCN-Philadelphia then filed a petition for review and appeal of the Township’s judgment in the Court of Common Pleas for Bucks County, Pennsylvania. On July 2, 2003, the Court of Common Pleas denied the petition for review and affirmed the judgment against RCN-Philadelphia. RCN-Philadelphia has appealed that decision to Commonwealth Court and oral argument on that appeal was held on March 3, 2004. While RCN-Philadelphia has raised numerous points on appeal, and believes that the issues raised warrant a reversal of the judgment in favor of Newtown Township, the law in this area is uncertain and the Company can make no assurances that RCN-Philadelphia will be successful in overturning the judgment. In addition to the appeal of the judgment in Newtown Township, RCN-Philadelphia has filed a proceeding in the U.S. District Court for the Eastern District of Pennsylvania, seeking a modification of the Newtown Township franchise agreement. The District Court entered summary judgment in favor of the Township on February 11, 2004. On March 3, 2004, RCN-Philadelphia filed an appeal of that decision with the U.S. Third Circuit Court of Appeals.

Newtown Borough, PA

Newtown Borough, Pennsylvania has also served notice on RCN-Philadelphia alleging breach of the cable television franchise agreement between RCN-Philadelphia and the Borough, on the ground that RCN-Philadelphia failed to complete construction and fully activate the cable system within the time required pursuant to Section 6.1 of the agreement and also failed to complete an Institutional Network pursuant to Section 25A of the agreement. As a result of the alleged breach, the Borough Council entered a judgment against RCN-Philadelphia in the amount of $2,530, representing the Borough’s alleged damages through the end of the franchise term. RCN-Philadelphia then filed a petition for review and appeal of the Borough’s judgment in the Court of Common Pleas for Bucks County, Pennsylvania. That petition is now pending. While RCN-Philadelphia has raised numerous points in that petition, and believes that the issues raised warrant a reversal of the judgment in favor of Newtown Borough, the law in this area is uncertain and RCN-Philadelphia can make no assurances that it will be successful in overturning the judgment. In addition to the petition for review of the Newtown Borough judgment, RCN-Philadelphia has filed a proceeding in the U.S. District Court for the Eastern District of Pennsylvania, seeking a modification of the Newtown Borough franchise agreement. That proceeding is currently pending. While RCN-Philadelphia has raised numerous points in that proceeding, the Company can make no assurances that RCN-Philadelphia will be successful in obtaining the relief sought.

City of Chicago, IL

In December 2003, the Company’s subsidiary, RCN Cable TV of Chicago, Inc. (“RCN – Chicago”), filed a modification petition under the provisions of Section 625 of the Communications Act of 1934, 47 U.S.C. Section 545, with the City of Chicago’s Cable Television Commission seeking modification of certain of the franchise agreements with the City of Chicago. No decision on that petition has been rendered. In the event that the modification is not granted, the Company intends to seek relief in federal court, as permitted under the federal Communications Act. Notwithstanding the filing of the modification petition, in February 2004, the Commission declared the Company in default of the obligations of the franchise agreements for failure to construct in certain areas of the City and to make certain payments to the Chicago Access Corporation. As a result of these alleged defaults, and notwithstanding federal court cases holding that a local municipality may not impose sanctions on a cable operator for alleged violations of obligations that are the subject of a modification petition, the Commission assessed multiple fines of $1 per day per alleged offense and per affected customer, some retroactive to January 7, 2004, and some continuing through the end of the franchise term in the year 2015. Although the precise calculation of the assessments is impossible to discern from the Commission’s resolutions, it has been reported that the City believes that they amount to approximately $1,000 per day in the aggregate. In connection with these claims, the City has drawn down the Company’s letters of credit and demanded payment in full on the Company’s performance bonds posted pursuant to the franchise agreements. Negotiations with the City to resolve these alleged defaults and fines are ongoing. The Company cannot provide assurances that it will reach a satisfactory resolution with the Commission or that, if it does not obtain satisfactory relief as a result of the petition to the Commission, such relief would be obtained from the federal court proceedings. To the extent that the City is ultimately successful either in asserting a right to penalties at the level imposed by the Commission or in obtaining a judgment requiring RCN-Chicago to complete construction of the remaining areas of the City, such result(s) would have a material adverse effect on RCN-Chicago.

Edward T. Joyce, as representative of former stockholders and warrant holders (including LaSalle options holders) of 21^st Century Telecom Group, Inc. v. RCN Corporation and RCN Telecom Services of Illinois, Inc. Edward T. Joyce, as representative of the former stockholders and warrant holders of 21st Century Telecom Group, Inc. (“21st Century”) has sued RCN Corporation in the Delaware Court of Chancery. Mr. Joyce is a former member of the Board of Directors of 21st Century. RCN acquired the stock of 21st Century pursuant to an Agreement and Plan of Merger that closed in April 2000 (the “Merger Agreement”). Pursuant to the Merger Agreement, RCN held back 10% of its common stock consideration (the “10% Holdback”) for a period of one year to allow for any indemnity claims. The Merger Agreement stated that the 10% Holdback would be based upon RCN’s stock price at the time the

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Merger Agreement was executed. The suit seeks reformation of the Merger Agreement to reflect what Plaintiffs allege was actually negotiated and agreed to: that the 10% Holdback would be based upon RCN’s stock price as of the end of the one year holdback period. Because RCN’s stock had fallen in value during this period, if Plaintiffs prevail RCN would have to distribute approximately 5 million additional shares in consideration of the Merger Agreement. RCN has filed a motion to dismiss this matter.

The Village of Northbrook, Illinois, brought legal action against the Company for breach of franchise agreement commitments, which was settled by the Company’s surrendering the franchise and paying a sum, which was not material, to the Village.

The Company or its subsidiaries are defendants in numerous personal injury, employment law and other matters in various jurisdictions, none of which individually or in the aggregate is expected to be material.

ITEM 4. Submission of Matters to a vote of Security Holders

No matters were submitted to a vote of the security holders of the Registrant during the fourth quarter of the Registrant’s 2003 fiscal year.

PART II

ITEM 5. Market for the Registrant’s Common Stock and Related Shareholder Matters

The Company’s Common Stock is traded on the NASDAQ stock exchange. There were approximately 4,419 holders of Registrant’s Common Stock on February 27, 2004. The Company maintains a no cash dividend policy. The Company does not intend to alter this policy in the foreseeable future. Other information required under Item 5 of Part II is set forth in Note 18 to the consolidated financial statements included in Part IV Item 15(a)(1) of this Form 10-K.

On March 29, 2004, the NASDAQ Stock Market (“NASDAQ”) notified the Company that because the bid price of its stock had closed below the minimum of $1.00 per share for the last 30 consecutive business days, the Company did not meet the NASDAQ SmallCap rules for continued inclusion. NASDAQ provided the Company a 180 day period, which expires on September 27, 2004, to comply with NASDAQ’s rules for continued inclusion, which require the bid price of its stock to close at $1.00 per share or more for 10 consecutive business days. The Company can provide no assurance that it will become compliant with the NASDAQ SmallCap rules for inclusion during this period.

ITEM 6. Selected Financial Data

Information required under Item 6 of Part II is set forth in Part IV Item 15(a)(1) of this Form 10-K.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Information required under Item 7 of Part II is set forth in Part IV Item 15(a)(1) of this Form 10-K.

ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk.

Information required under Item 7 of Part II is set forth in Part IV Item 15(a)(1) of this Form 10-K.

ITEM 8. Financial Statements and Supplementary Data.

The consolidated financial statements and supplementary data required under Item 8 of Part II are set forth in Part IV Item 15(a)(1) of this Form 10-K.

ITEM 9. Disagreements on Accounting and Financial Disclosure.

During the two years preceding December 31, 2003, there has been neither a change of accountants of the Registrant nor any disagreement on any matter of accounting principles, practices or financial statement disclosure.

ITEM 9a Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company has performed an evaluation of disclosure controls and internal controls over financial reporting. Given the impending restructuring and associated employee turnover, significant deficiencies in internal controls in the areas of non-customer payment processing, capital labor and customer

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adjustments were recently identified and communicated to the Company’s Audit Committee as reportable conditions. The Company is in the process of putting in place enhanced policies and procedures to address these issues. The known and estimable financial impact of these reportable conditions has been recorded in the financial statements for the period ended December 31, 2003.

(b) Changes in Internal Controls

During the period covered by this report, the Company migrated information technology software essential to the financial reporting process. The Company notes this as a change in internal controls.

PART III

ITEM 10. Directors and Executive Officers of the Registrant

Pursuant to General Instruction G (3) of Form 10-K, the following list is included as an un-numbered Item in Part I of this Report in lieu of being included in the definitive proxy statement relating to the Registrant’s Annual Meeting of Shareholders to be filed by Registrant with the Commission pursuant to Section 14(A) of the Securities Exchange Act of 1934 (the “1934 Act”).

Board of Directors of the Registrant

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Thomas J. May, who resigned from the Board of Directors on December 23, 2003, served as the Financial Expert for the Audit Committee. The Company currently does not have a Financial Expert on the Audit Committee and is seeking to replace this position.

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Executive Officers of the Registrant

David C. McCourt, 47, has been Chairman and Chief Executive Officer of the Company as well as a Director since September 1997. Mr. McCourt’s current term on the Board of Directors expires in 2006. In addition, he has been a Director of CTE since October 1993, and served as the Chairman of CTE from October 1993 until December 2003. Mr. McCourt served as a Director and Chairman and Chief Executive Officer of Cable Michigan from September 1997 to November 1998. Mr. McCourt was Chief Executive Officer of CTE from October 1993 to November 1998. Mr. McCourt is also a Director of Level 3 and Cable Satellite Public Affairs Network (“C-SPAN”). Mr. McCourt has also been President and Chief Executive Officer, and remains a Director of Level 3 Telecom Holdings, Inc. formerly Kiewit Telecom Holdings, Inc.

John S. Dubel, 45, joined RCN February 11, 2004 as President and Chief Operating Officer. Mr. Dubel, a Principal with the financial-advisory and turnaround firm AlixPartners LLC since April 2002, has over 20 years experience providing turnaround, crisis management and restructuring services. While at AlixPartners LLC, Mr. Dubel served as Chief Executive Officer of Cable & Wireless America, a leading provider of hosting and IP transport services, Chief Restructuring Officer of Acterna Corporation, a provider of communications test equipment to the telecom and cable industry and Chief Financial Officer at WorldCom, Inc., a global communications provider for the digital generation. Prior to joining AlixPartners, Mr. Dubel ran his own turnaround firm where his roles included Chief Operating Officer and CRO at CellNet Data Systems, Inc., a leading provider of data and information management services in the telemetry industry and was the fourth largest domestic wireless carrier based on subscriber endpoints.

Michael A. Adams, 46, was named Chief Strategy Officer in September 2002. He has served as Chief Network Officer from June 2002 to September 2002. Mr. Adams has also served as President, Wholesale and New Product Development Group from January 2001 to June 2002. Prior to that he served as President and Chief Operating Officer of the Company, from October 1999 to January 2001. Previously, he was President of the Technology and Network Development Group from September 1997 to October 1999. Prior to that he served as Vice President of Technology with C-TEC Corporation from November 1993 to September 1997. On March 18, 2004, Mr. Adams announced his intention to resign from the Company effective April 19, 2004.

Michael J. Angi, 52, joined the Company as Chief Network Officer in September 2002 and was promoted to Senior Vice President, Operations in November 2003, responsible for overseeing the operations of Chicago, New York and California markets. In March 2004, Mr. Angi’s role was expanded to include all of the Company’s markets. Prior to joining RCN, Mr. Angi served from September 1997 to July 2002 as COO of Utilicom.

Patrick T. Hogan, 36, was appointed Executive Vice President and Chief Financial Officer of RCN Corporation in March 2004. Mr. Hogan joined RCN in April 2003 as Senior Vice President of Finance and became the Executive Vice President, Principal Financial Officer and Treasurer in November 2003. Prior to RCN, Mr. Hogan served as Vice President of Finance at Vornado Realty Trust in New York City from February 2001 until April 2003. In addition, from February 2001 through June 2002 Mr. Hogan served as Vice President and Chief Financial Officer of Vornado Operating Company and Alexander’s Inc. From February 1998 to February 2001, Mr. Hogan was Vice President, Chief Financial Officer, Secretary and Treasurer of Correctional Properties Trust, a Maryland UPREIT he formed and led through an initial public offering.

Anthony M. Horvat, 47, joined RCN February 12, 2004 as Treasurer. Mr. Horvat, a Senior Associate with the financial-advisory and turnaround firm AlixPartners LLC since June 1999, has over 20 years experience providing turnaround, crisis management and restructuring services. While at AlixPartners LLC, Mr. Horvat has lead the international restructuring efforts of Acterna Corporation, a provider of communications test equipment to the telecom and cable industry during its Chapter 11 case, lead operating cost reduction efforts at WorldCom, Inc., a global communications provider for the digital generation and provided CFO services to the Beloit division of Harnischfeger Industries during its Chapter 11 case. Prior to joining AlixPartners, Mr. Hovat was President and Chief Operating Officer of Brammer Company LLC.

P.K. Ramani, 47, was named General Manager of the company’s New York Market in November 2003. Prior to this, Mr. Ramani was Senior Vice President - Operations Support of the company from June 2002. Mr. Ramani also served as the Senior Vice President of Customer Care from June 1999 to May 2002. Prior to joining RCN, Mr. Ramani served as Group Vice President of Customer Operations at Primestar, Inc. from 1998 to 1999 and also served as Vice President of Business Integration from 1997 to 1998.

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Timothy J. Stoklosa, 43, was Executive Vice President of the Company from May 2002 until February 2004. Mr. Stoklosa served as Chief Financial Officer of the Company from January 2000 to May 2002. Previously, he was Senior Vice President and Treasurer of the Company from September 1997 to January 2000. Prior to that he served as Executive Vice President and Chief Financial Officer and was a Director of Mercom, Inc. from 1997 to 1998. Prior to that, Mr. Stoklosa was Treasurer of CTE from 1994 to 1997. Mr. Stoklosa left the Company on February 6, 2004.

Terry Wingfield Jr., 51, has been General Counsel and Secretary of RCN Corporation since November 2002. He was Senior Vice President and General Counsel of Velocita Corp. from October 2000 until November 2002. On May 30, 2002, Velocita Corp. filed for voluntary bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. He was Executive Vice President for Sales and Marketing for ICG Communications, Inc. from August 2000 to October 2000 and Executive Vice President for Corporate Development for ICG Communications, Inc. from March 2000 to August 2000. Prior to that he was Senior Vice President of Telephony Ventures for AT&T Broadband and Internet Services from June 1999 to March 2000. From August 1998 to March 2000, he was the Legal and Government Affairs Vice President for AT&T’s Local Services Division. Prior thereto, Mr. Wingfield was Vice President and General Counsel of the Teleport Communications Group from March 1996 until it was merged into AT&T in August 1999.

Tim Wyllie, 45, was Senior Vice President, Operations from November 2003 to March 2004. Prior to this, Mr. Wyllie was Senior Vice President, Business and Operations from June 2002, held the position of Senior Vice President, Commercial and Wholesale Group between November 2001 and June 2002 and was responsible for the Company’s construction activities between 1997 and 2001. Mr. Wyllie joined the former C-TEC Corporation in 1994 as a company director, where he was involved in managing several large construction projects. While at C-TEC, he played a pivotal role in developing the business plan that became the foundation for RCN, which was formed in September 1997. Mr. Wyllie left the Company on March 19, 2004.

The Company updated its Code of Conduct on March 5, 2004. The Code of Conduct is available on the Company’s web site http://www.rcn.com/investor/financialinfo/php

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ITEM 11. Executive Compensation

The information required under Item 11 of Part III is set forth below.

The aggregate holdings and the value of Share Units (including matching share units and share units in respect of deferred compensation) for the named participants in the ESPP as of December 31, 2003 are as follows: Mr. McCourt, 540,826 share units, aggregate value $367,762; Mr. Adams, 201,117 share units, aggregate value $136,760; Mr. Stoklosa, 109,975 share units, aggregate value $74,783; Mr. Ramani, 95,458 share units, aggregate value $64,911, and Mr. Wyllie, 151,660 share units, aggregate value $103,129. See also, footnote (1) under “Security Ownership of Certain Beneficial Owners and Management.”

The aggregate holdings and the value of restricted stock for Mr. McCourt as of December 31, 2003 was 306,875 shares, aggregate value of $208,675. One-third of the shares granted in 2001 vested on February 21, 2002, and an additional one-third vested on

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February 21, 2003. The remaining one-third of the shares granted in 2001, were originally scheduled to vest on February 21, 2004; however, on November 3, 2003, the Company’s Compensation Committee authorized Mr. McCourt and others to defer the vesting of such shares until February 21, 2005. One-half of the shares granted in 2002 vested on April 16, 2003. The remaining one-half of the shares granted in 2002 were originally scheduled to vest on April 16, 2004, however, on November 3, 2003, the Company’s Compensation Committee authorized Mr. McCourt and others to defer the vesting of such shares until April 16, 2005.

As of December 31, 2003, Messrs. Adams, Stoklosa and Wyllie had no aggregate holdings of restricted stock. One-half of the restricted stock granted to each of Messrs. Adams, Stoklosa, and Wyllie vested on April 25, 2002, and the remaining one-half vested on April 25, 2003.

As of December 31, 2003, Mr. Ramani had no aggregate holdings of restricted stock. One-third of the restricted stock granted to Mr. Ramani as a long-term incentive award in 2000 vested on March 10, 2002, which was the second anniversary of the grant. The remaining two-thirds vested on March 10, 2003, the third anniversary of the grant. One-half of the restricted stock granted to Mr. Ramani as a long-term incentive award in 2001 vested on April 25, 2002, the first anniversary of the grant, and the remaining one-half vested on April 25, 2003.

David C. McCourt: $324 - Company paid life insurance; $6,668 - 401(k) Company match; $32,959 - Company provided transportation.

Michael A. Adams: $324 - Company paid life insurance; $6,668 - 401(k) Company match.

Timothy J. Stoklosa: $324 - Company paid life insurance; $6,668 - 401(k) Company match.

PK Ramani: $324 - Company paid life insurance; $6,668 - 401(k) Company match.

Timothy Wyllie: $324 - Company paid life insurance; $6,668 - 401(k) Company match; $10,414 - Company provided temporary housing.

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Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values (1)

Aggregated OSO Grants in Last Fiscal Year and FY-End OSO Values

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Aggregated OSO Exercises in Last Fiscal Year and FY-End OSO Values (1)

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ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Set forth in the table below is information as of December 31, 2003 with respect to the number of shares of Common Stock beneficially owned by: (i) each person or entity known by the Company to own more than 5% of the Common Stock; (ii) each Director of the Company; (iii) each of the named Executive Officers below; and (iv) all Directors and Executive Officers as a group. To the Company’s knowledge, unless otherwise indicated, each person or entity has voting and investment power with respect to the shares set forth opposite the person’s or entity’s name.

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ITEM 13. Certain Relationships and Related Transactions

The Company had the following material transactions with related parties during the year. The Company believes all transactions were designed to reflect arrangements that would have been agreed upon by parties negotiating at arm’s length:

As a result of the September 30, 1997 spin-off of RCN shares to holders of common equity of C-TEC, the predecessor to CTE, relationships exist that may lead to conflicts of interest. In addition, David McCourt is a director of CTE. James Q. Crowe, Richard R. Jaros, Eugene Roth, Walter Scott, Jr. are directors of both CTE and the Company. The Company manages potential conflicts of interest on a case-by-case basis taking into consideration relevant factors including the requirements of the United States Securities and Exchange Commission, Nasdaq and prevailing corporate practices. The Company agreed to provide or cause to be provided certain specified services (management services) to CTE for a transitional period after the distribution. The total fee for 2002 and 2001 was approximately $1,200 each year. The agreement was terminated by CTE in December 2002. This transaction was not the result of an arm’s length negotiations as the Company and CTE have certain common officers and directors.

Based on the joint venture approved service agreement, which is renewed annually by Starpower, the Company allocates certain identified expenses incurred to Starpower. These expenses include network cost allocations, customer call center costs, and general administrative costs. These identifiable costs totaled approximately $18,452 for the year ended December 31, 2003. Based on the Company’s interest in the Starpower joint venture, 50% of these costs are recognized by the Company on the Equity in (loss) of unconsolidated entities line in the Consolidated Statements of Operations. The cost allocated to Starpower for the year ended December 31, 2002 was $17,782. In 1997, Starpower and PEPCO entered into an agreement for the lease of certain portions of PEPCO’s fiber system and under which PEPCO provides construction and construction management services to Starpower. The costs of such services provided by RCN and PEPCO to Starpower are believed to be equivalent to those that would be obtained from third party contractors.

In 2003, the Company paid NSTAR approximately $4,779, primarily for network construction and separately paid NSTAR approximately $3,025 for utility services. For the years ended December 31, 2002 the total costs paid to NSTAR were approximately $10,630. Construction costs are capitalized and are recorded as Property, plant, and equipment on the Company’s Balance Sheets. Thomas J. May, Chairman and Chief Executive Officer of NSTAR, was a Director of the Company until December 24, 2003. Despite NSTAR’s surrendering its ownership interest in the Company’s Common stock, the shares of RCN Common stock previously held by NSTAR are treated as issued and outstanding as of December 31, 2003, since NSTAR has not specifically assigned them to the Company.

In 2003, the Company paid Sordoni Skanska, a subsidiary of Skanska USA, as project manager, approximately $1,675 to oversee network construction and for related labor costs in several of the Company’s markets. The Company reimburses Sordoni Skanska for

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staff and administrative services, project management fees, and invoices from sub contractors. The Company also paid Barney Skanska approximately $78 for construction services relating to certain of the Company’s hub sites. For the years ended December 31, 2002 and 2001 the total costs paid were approximately $1,682 and $65,500, respectively. Construction costs are capitalized and are recorded as Property, plant, and equipment on the Company’s balance sheets. A former Director of the Company, who resigned from the Board of Directors effective December 3, 2002, was the President of Skanska USA.

In 2003, the Company paid Level 3 approximately $1,240 for network construction and approximately $3,161 for circuit costs. For the year ended December 31, 2002 the total costs paid were approximately $4,393. Level 3 owns 21.79% of the outstanding common stock in RCN as of December 31, 2003. In addition, the Company’s Chairman and Chief Executive Officer is also a Director of Level 3.

The Company has a data center outsourcing contract with (i)Structure, Inc., a subsidiary of Level 3. In 2003, the Company paid (i)Structure, Inc. $2,151 for hosting services.

The Company provided CTE local and long distance services of approximately $208 during 2003. Commonwealth Telephone Company and CTSI, Inc., each a subsidiary of CTE, provided the Company with local and long distance services of approximately $566. For the year ended December 31, 2002 and 2001 total costs paid to CTE and its subsidiaries were approximately $198 and $702, respectively.

In December 2002, the Company sold a parcel of real estate in Dallas, Pennsylvania to Commonwealth Telephone Company for proceeds of $1,974. The sale price was based on independent appraisals. As part of the sale contract, the Company paid no rent or operating costs from the date of sale until it exited the facility in 2003.

In 2003, the Company paid the Hanify and King law firm approximately $353 for legal services. In 2002 fees totaled $287. The Company’s Chairman and Chief Executive Officer and Director has a family member who is a partner with Hanify and King.

In 2003, the Company paid $200 to Liberty Mutual Insurance Company to lease office space for operations in the Boston market. Lease payments were $225 in 2002. Thomas J. May, a former Director of the Company, is also a Director of Liberty Mutual Insurance Company.

ITEM 14. Principal Accountant’s Fees and Services

The following is a summary of the fees billed to the Company by PricewaterhouseCoopers LLP for professional services rendered for the fiscal years ended December 31, 2003 and December 31, 2002 (in thousands of dollars):

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Audit Committee Pre-approval Policies and Procedures

Our audit committee has adopted a policy requiring the pre-approval of all audit and permissible nonaudit services provided by our independent public auditors. Under the policy, the audit committee is to specifically pre-approve any recurring audit and audit related services to be provided. The audit committee also may generally pre-approve, up to a specified maximum amount, any nonrecurring audit and audit related services for the following fiscal year. All pre-approved matters must be detailed as to the particular service or category of services to be provided, whether recurring or non-recurring, and reported to the audit committee at its next scheduled meeting. Permissible non-audit services are to be pre-approved on a case-by-case basis. The audit committee may delegate its pre-approval authority to any of its members, provided that such member reports all pre-approval decisions to the audit committee at its next scheduled meeting. Our independent public auditors and members of management are required to report periodically to the audit committee the extent of all services provided in accordance with the pre-approval policy, including the amount of fees attributable to such services.

In accordance with Section 10A(i)(2) of the Securities Exchange Act of 1934, as amended by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is required to disclose the approval by the Audit Committee of the Board of Directors of non-audit services to be performed by PricewaterhouseCoopers LLP, the Company’s independent auditors. Non-audit services are services other than those provided in connection with an audit or review of the financial statements. During the period covered by this filing, the Audit Committee pre-approved all audit related services and tax services performed subsequent to May 6, 2003.

PART IV

ITEM 15. Exhibits, Financial Statement Schedules and Report on Form 8-K.

On October 7, 2003 the Company announced that it had retained Merrill Lynch as a financial advisor to review its financial alternatives and capital structure and to explore possible capital raising opportunities. As previously announced, on August 18, 2003 RCN repurchased $75 million in principal amount of its publicly held senior notes for a price of $28 million pursuant to a cash tender offer for such notes. As part of its ongoing efforts to improve its capital structure and reduce the amount of its debt, RCN has begun preliminary discussions with certain holders of its publicly held senior notes and the holders of its preferred stock concerning a possible repurchase, exchange or retirement of the securities held by such holders. Such discussions are in the very preliminary stages and RCN cannot predict at this time the results of the foregoing efforts. RCN has appointed Mr. Doug Bradbury, who had been acting as a consultant to RCN, as an executive vice president to lead such discussions on behalf of RCN. Mr. Bradbury recently retired as vice chairman, and was previously chief financial officer, of Level 3. The press release with respect thereto was filed with an 8-K as Exhibit 99.1 and is incorporated herein by reference.

On November 11, 2003, the Company announced its financial results for the quarter ended September 30, 2003. The press release with respect thereto was filed with an 8-K as Exhibit 99.1 and is incorporated herein by reference.

On November 21, 2003, RCN Corporation announced the promotion of Patrick T. Hogan to Executive Vice President and Principal Financial Officer. The press release with respect thereto is attached hereto as Exhibit 99.1.

On December 9, 2003, RCN Corporation announced the launch of iT Television (iT Tv), the first true “People’s Channel,” with a direct link to the Internet for customers to submit their feedback about the channel’s programming. The press release with respect thereto is attached hereto as Exhibit 99.1.

On January 15, 2004, RCN Corporation announced that in anticipation of a successful negotiation with its Senior Secured Lenders and an ad hoc committee of holders of its Senior Notes, it has chosen to defer the decision to make an interest payment scheduled to be made on January 15, 2004, of approximately $10.3 million with respect to its 10 ¹/8% Senior Notes due 2010. The press release with respect thereto is attached hereto as Exhibit 99.1.

On February 12, 2004, RCN Corporation (“RCN”) announced that it had appointed John Dubel as President and Chief Operating Officer. The press release with respect thereto is attached hereto as Exhibit 99.1.

On February 14, 2002, RCN Corporation (“RCN”) announced that is continuing financial restructuring negotiations. The press release with the respect thereto is attached hereto as a Exhibit 99.1

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On March 1, 2004, RCN Corporation announced that negotiations with its Senior Secured Lenders (the “Lenders”), members of an ad hoc committee of holders of its Senior Notes (the “Noteholders’ Committee”) and others on a consensual financial restructuring of its balance sheet are continuing. In connection with the continuing negotiations, RCN Corporation, the Lenders and members of the Noteholders’ Committee have agreed to extend expiration of their previously announced forbearance agreements until March 15, 2004. The press release with respect thereto is attached hereto as Exhibit 99.1.

On March 9, 2004, RCN Corporation consummated the previously announced sale of its Carmel, New York cable system to Carmel Cable Television, Inc., a subsidiary of Susquehanna Communications, for $120 million. The press release with respect thereto is attached hereto as Exhibit 99.1.

On March 12, 2004, RCN Corporation announced that it retained the Blackstone Group as financial advisor in connection with its continuing negotiations with its senior secured lenders, members of an ad hoc committee of noteholders of its senior notes and others, towards a successful financial restructuring of its balance sheet and possible capital raising opportunities and that Merrill Lynch will no longer advise the company in this capacity. In addition, RCN announced that John Dubel, RCN’s President and Chief Operating Officer, will lead the continuing financial restructuring negotiations and that Douglas Bradbury, who was appointed in October 2003 to assist in the restructuring effort, has left the Company. The press release with respect thereto is attached hereto as Exhibit 99.1.

On March 15, 2004, RCN Corporation announced that negotiations with its senior secured lenders (the “Lenders”), members of an ad hoc committee of holders of its Senior Notes (the “Noteholders’ Committee”) and others on a consensual financial restructuring of its balance sheet are continuing. In connection with the continuing negotiations, RCN Corporation, the Lenders and members of the Noteholders’ Committee have agreed to extend expiration of their previously announced forbearance agreements until April 1, 2004. In addition, RCN Corporation will not make the approximately $14.2 million interest payment that was scheduled to be made on February 15, 2004 in respect of its 9.8% Senior Discount Notes Due 2008. RCN Corporation also announced that it would not file its annual report on Form 10-K for 2003 on March 15, 2004 and that it had filed a Notification of Late Filing on Form 12b-25 with the Securities and Exchange Commission. The press release with respect thereto is attached hereto as Exhibit 99.1.

On March 16, 2004, RCN announced the promotion of Patrick T. Hogan to the position of Executive Vice President and Chief Financial Officer and Michael J. Angi to Senior Vice President of Operations. The press release with respect thereto is attached hereto as Exhibit 99.1.

Item 15 (a)(1) Financial Statements:

Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001.

Consolidated Balance Sheets - December 31, 2003 and 2002.

Consolidated Statements of Cash Flows for Years Ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Changes in Common Shareholders’ Deficit for Years Ended December 31, 2003, 2002 and 2001.

Notes to Consolidated Financial Statements

Report of Independent Accountants

Item 15 (a)(2) Financial Statement Schedules:

Description

Condensed Financial Information of Registrant for the Year Ended December 31, 2003 and 2002 (Schedule I)

Valuation and Qualifying Accounts and Reserves for the Years Ended December 31, 2003, 2002 and 2001 (Schedule II)

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All other financial statement schedules not listed have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or are not applicable or required.

Item 15 (a)(3) Exhibits:

Exhibits marked with an asterisk are filed herewith and are listed in the index to exhibits of this Form 10-K. The remainder of the exhibits have been filed with the Commission and are incorporated herein by reference.

(2) Plan of acquisition, reorganization, arrangement and Report on Form 8-K

(3) Articles of Incorporation and By-laws

3.1 Form of Amended and Restated Articles of Incorporation of the Registrant are incorporated herein by reference to Exhibit 3.1 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

3.2 Certificate of Amendment to the amended and restated Articles of Incorporation Certificate of Amendment to the amended and restated of the Registrant are incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed on August 11, 1998. (Commission File No. 333-61223.)

3.3 Certificate of Amendment to the amended and restated Certificate of Incorporation of the Registrant (incorporated by reference herein to Exhibit 3.01 to RCN’s Current Report on Form 8-K dated May 22, 2001) (Commission File No. 0-22825.)

3.4 Certificate of Designations, Preferences and Rights of Series A 7% Senior Convertible Preferred Stock dated April 7, 1999 (incorporated herein by reference to Exhibit 3.1 to RCN’s Registration Statement on Form S-3 (filed February 1, 1999) (Commission File No. 333-71525) (“1999 Form S-3”)

3.5 Certificate of Designations, Preferences, and Rights of Series B 7% Senior Convertible Preferred Stock (incorporated by reference to Exhibit A of Exhibit 10.01 to RCN’s current report on Form 8-K (filed October 1,1999) (Commission File No. 0-22825.)

3.6 Form of Amended and Restated Bylaws of the Registrant are incorporated herein by reference to Exhibit 3.2 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

3.7 Amended and Restated ByLaws of the Registrant, as adopted by RCN’s Board of Directors on December 4, 2001 are incorporated herein by reference to Exhibit 3.7 to the Company’s annual report on Form 10-K filed March 29, 2002 (Commission File No. 1-16805.)

(4) Instruments defining the rights of security holders, including indentures

4.1 Credit Agreement dated as of June 3, 1999 among RCN, the borrowers named therein, the lenders party thereto, The JPMorgan Chase Bank, as Agent, Chase Securities Inc., as Lead Arranger and Book Manager, and Deutsche Bank A.G., Merrill Lynch Capital Corp. and Morgan Stanley Senior Funding, as Documentation Agents (incorporated herein by reference to Exhibit 10.01 to RCN’s Current Report on Form 8-K dated August 17, 1999 (filed August 17, 1999) (Commission File No. 000-22825.)

4.2 Form of Indenture between RCN, as Issuer, and The JPMorgan Chase Bank, as Trustee, with respect to the 10 ¹/8% Senior Notes due 2010 (incorporated herein by reference to Exhibit 4.11 to RCN’s 1999 Form S-3) (Commission File No. 333-71525.)

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4.3 Indenture dated June 24, 1998 between RCN, as Issuer, and The JPMorgan Chase Bank, as Trustee, with respect to the 11% Senior Discount Notes due 2008 (incorporated herein by reference to Exhibit 4.8 to RCN’s Registration Statement on Form S-1 (filed June 1, 1998) (Commission File No. 333-55673) (“1998 Form S-1”)

4.4 Form of 11% Senior Discount Note due 2008 (included in Exhibit 4.3) (incorporated herein by reference to Exhibit 4.9 to RCN’s 1998 Form S-1.) (Commission File No. 333-55673.)

4.5 Indenture dated as of February 6, 1998 between RCN, as Issuer, and The JPMorgan Chase Bank, as Trustee, with respect to the 9.80% Senior Discount Notes due 2008 (incorporated herein by reference to Exhibit 4.1 to RCN’s Registration Statement on Form S-4 (filed March 23, 1998) (Commission File No. 333-48487) (“1998 Form S-4”)

4.6 Form of the 9.80% Senior Discount Notes due 2008, Series B (included in Exhibit 4.5) (incorporated herein by reference to Exhibit 4.2 to RCN’s 1998 Form S-4.) (Commission File No. 333-48487.)

4.7 Indenture dated as of October 17, 1997 between RCN, as Issuer, and The JPMorgan Chase Bank, as Trustee, with respect to the 10% Senior Notes due 2007 (incorporated herein by reference to Exhibit 4.1 to RCN’s Registration Statement on Form S-4 (filed November 26, 1997) (Commission File No. 333-41081) (“1997 Form S-4”)

4.8 Form of the 10% Senior Exchange Notes due 2007 (included in Exhibit 4.7) (incorporated herein by reference to Exhibit 4.2 to RCN’s 1997 Form S-4.) (Commission File No. 333-41081.)

4.9 Indenture dated as of October 17, 1997 between RCN, as Issuer, and The JPMorgan Chase Bank, as Trustee, with respect to the 11 ¹/8% Senior Discount Notes due 2007 (incorporated herein by reference to Exhibit 4.3 to RCN’s 1997 Form S-4.) (Commission File No. 333-41081.)

4.10 Form of the 11 ¹/8% Senior Discount Exchange Notes due 2007 (included in Exhibit 4.9) (incorporated herein by reference to Exhibit 4.4 to RCN’s 1997 Form S-4.) (Commission File No. 333-41081.)

4.11 Escrow Agreement dated as of October 17, 1997 among The JPMorgan Chase Bank, as escrow agent, The JPMorgan Chase Bank, as Trustee under the Indenture (as defined therein), and RCN (incorporated herein by reference to Exhibit 4.6 to RCN’s 1997 Form S-4.) (Commission File No. 333-41081.)

4.12 First Amendment, dated as of December 3, 1999, to the Credit Agreement, dated as of June 3, 1999 among RCN, the borrowers named therein, the lenders party thereto, The JPMorgan Chase Bank, as Agent, Chase Securities Inc., as Lead Arranger and Book Manager, and Deutsche Bank A.G., Merrill Lynch Capital Corp. and Morgan Stanley Senior Funding, as Documentation Agents (incorporated herein by reference to Exhibit 10.01 to RCN’s Current Report on Form 8-K dated August 17, 1999 (filed August 17, 1999) (Commission File No. 000-22825.)

4.13 Indenture, dated as of December 22, 1999, between RCN, as Issuer, and The JPMorgan Chase Bank, as Trustee, with respect to the 10 ¹/8% Senior Discount Notes due 2010. (incorporated herein by reference to Exhibit 4.11 to RCN’s Registration Statement on Form S-3/A (filed October 6, 1999)(Commission File No. 333-71525) (“1999 Form S-3/A”)

4.14 Form of the 10 ¹/8% Senior Discount Notes due 2010 (included in Exhibit 4.11 (incorporated herein by reference to exhibit 4.11 to RCN’s 1999 Form S-3/A.

4.15 Stock Purchase Agreement dated as of October 1, 1999 between Vulcan Ventures Incorporated (incorporated by reference to RCN’s Form 8-K dated October 1, 1999, (Commission file No. 0-22825.)

4.16 Voting Agreement dated as of October 1, 1999 among RCN, Vulcan Ventures Incorporated and Level 3 Telecom Holdings, Inc. (incorporated by reference to RCN’s Form 8-K dated October 1, 1999, (Commission File No. 0-22825.)

4.17 Second Amendment, dated as of June 28, 2000, to the Credit Agreement, dated as of June 3, 1999 among RCN, the borrowers named therein, the lenders party thereto, the JPMorgan Chase Bank, as Agent, Chase Securities, Inc., as Load Arranger and Book Manager, and Deutsche Bank A.G., Merrill Lynch Capital Corp. and Morgan Stanley Senior Funding, as Documentation Agents (incorporated herein by reference to Exhibit 4.0 to RCN’s Form 10-Q for the second quarter ended June 30, 2000) (Commission File No. 0-22825.)

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4.18 Third Amendment, dated as of May 31, 2001, to the Credit Agreement, dated as of June 3, 1999, as amended among RCN, the borrowers named therein, the lenders party thereto and the JPMorgan Chase Bank, as Administrative Agent and Collateral Agent (incorporated herein by reference to Exhibit 4.1 to RCN’s Form 10-Q for the second quarter ended June 30, 2001) (Commission File No. 0-22825.)

4.19 Stock Purchase Agreement, dated as of May 28, 2001, between RCN and Red Basin, LLC (incorporated herein by reference to Exhibit 4.01 to RCN’s Current Report on Form 8-K dated May 29, 2001) (Commission File No. 0-22825.)

4.20 Instrument of Resignation, Appointment and Acceptance, dated as of August 9, 2001, among RCN, The JPMorgan Chase Bank, as Resigning Trustee, and HSBC Bank, USA as Successor Trustee with respect to the Indenture dated October 17, 1997 with respect to the 10% Senior Notes due 2007. (Incorporated herein by reference to Exhibit 4.20 to the Company’s annual report on Form 10-K filed March 29, 2002) (Commission File No. 1-6805.)

4.21 Instrument of Resignation, Appointment and Acceptance, dated as of August 9, 2001, among RCN, The JPMorgan Chase Bank, as Resigning Trustee, and HSBC Bank, USA as Successor Trustee with respect to the Indenture dated October 17, 1997 with respect to the 11 ¹/8% Senior Discount Notes due 2007. (Incorporated herein by reference to Exhibit 4.21XX to the Company’s annual report on Form 10-K filed March 29, 2002) (Commission File No. 1-6805.)

4.22 Instrument of Resignation, Appointment and Acceptance, dated as of August 9, 2001, among RCN, The JPMorgan Chase Bank, as Resigning Trustee, and HSBC Bank, USA as Successor Trustee with respect to the Indenture dated February 6, 1998 with respect to the 9.8% Senior Discount Notes due 2008. (Incorporated herein by reference to Exhibit 4.22 to the Company’s annual report on Form 10-K filed March 29, 2002) (Commission File No. 1-6805.)

4.23 Instrument of Resignation, Appointment and Acceptance, dated as of August 9, 2001, among RCN, The JPMorgan Chase Bank, as Resigning Trustee, and HSBC Bank, USA as Successor Trustee with respect to the Indenture dated June 24, 1998 with respect to the 11% Senior Discount Notes due 2008. (Incorporated herein by reference to Exhibit 4.23 to the Company’s annual report on Form 10-K filed March 29, 2002) (Commission File No. 1-6805.)

4.24 Instrument of Resignation, Appointment and Acceptance, dated as of August 9, 2001, among RCN, The JPMorgan Chase Bank, as Resigning Trustee, and HSBC Bank, USA as Successor Trustee with respect to the Indenture dated December 22, 1999 with respect to the 10 ¹/8% Senior Discount Notes due 2010. (Incorporated herein by reference to Exhibit 4.24 to the Company’s annual report on Form 10-K filed March 29, 2002) (Commission File No. 1-6805.)

4.25 Rights Agreement, dated as of December 5, 2001, between RCN and HSBC Bank USA, as Rights Agent, which includes the form of Rights Certificates (incorporated herein by reference to Exhibit 4 to RCN’s Current Report on Form 8-K dated December 5, 2001) (Commission File No. 0-22825.)

4.26 Fourth Amendment, dated as of March 25, 2002, to the Credit Agreement, dated as of June 3, 1999, as amended, among RCN, the borrowers named therein, the lenders party thereto and the JPMorgan Chase Bank, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 4.1 to RCN’s Form 8-K dated March 26, 2002) (Commission File No. 1-6805.)

4.27 Fifth Amendment, dated as of March 7, 2003, to the Credit Agreement, dated as of June 3, 1999, as amended, among RCN, the borrowers named therein, the lenders party thereto and the JPMorgan Chase Bank, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 4.1 to RCN’s Form 8-K dated March 11, 2003) (Commission File No. 1-6805.)

4.28 Commercial Term Loan and Credit Agreement dated as of June 6, 2003, among RCN, the lenders party thereto, and HSBC Bank USA as Agent and Collateral Agent (incorporated by reference to Exhibit 4.1 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

4.29 Warrant No. 2 to purchase 1,500,000 shares of RCN Common stock, issued to Evergreen High Yield Bond Fund (incorporated by reference to Exhibit 4.2 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

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4.30 Warrant No. 3 to purchase 20,000 shares of RCN Common stock, issued to Evergreen VA Strategic Income Fund (incorporated by reference to Exhibit 4.3 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

4.31 Warrant No. 4 to purchase 175,000 shares of RCN Common stock, issued to Evergreen Strategic Income Fund (incorporated by reference to Exhibit 4.4 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

4.32 Warrant No. 5 to purchase 25,000 shares of RCN Common stock, issued to Evergreen VA High Income Fund (incorporated by reference to Exhibit 4.5 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

4.33 Warrant No. 6 to purchase 2,110,000 shares of RCN Common stock, issued to Evergreen Income Advantage Fund (incorporated by reference to Exhibit 4.6 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

4.34 Warrant No. 7 to purchase 150,000 shares of RCN Common stock, issued to Evergreen Utility and Telecommunications Fund (incorporated by reference to Exhibit 4.7 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

4.35 Warrant No. 8 to purchase 20,000 shares of RCN Common stock, issued to Sentinel Capital Markets Income Fund (incorporated by reference to Exhibit 4.8 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

4.36 Warrant No. 9 to purchase 150,000 shares of RCN Common stock, issued to Sentinel High Yield Bond Fund (incorporated by reference to Exhibit 4.9 to RCN’s Current Report on Form 8-K dated June 10, 2003) (Commission File No. 0-22825)

(10) Material Contracts

10.1 Tax Sharing Agreement by and among C-TEC Corporation, Cable Michigan, Inc. and the Registrant is incorporated herein by reference to Exhibit 10.1 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

10.2 Dark Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber Systems/McCourt, Inc. and RCN Telecom Services of Massachusetts, Inc. is incorporated herein by reference to Exhibit 10.2 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

10.3 Dark Fiber IRU Agreement dated as of May 8, 1997 among Metropolitan Fiber Systems of New York, Inc. and RCN Telecom Services of New York, Inc. is incorporated herein by reference to Exhibit 10.3 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

10.4 Joint Venture Agreement dated as of December 23, 1996 between RCN Telecom Services, Inc. and Boston Energy Technology Group, Inc. is incorporated herein reference by Exhibit 10.7 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

10.5 Amended and Restated Operating Agreement of RCN-Becocom, LLC dated as of June 17, 1997 is incorporated herein by reference to Exhibit 10.8 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

10.6 Management Agreement dated as of June 17, 1997 among RCN Operating Services, Inc. and RCN-Becocom, Inc. is incorporated herein by reference to Exhibit 10.9 to the Company’s Amendment No.2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

10.7 Construction and Indefeasible Right of Use Agreement dated as of June 17, 1997 between RCN-Becocom, Inc. and RCN-Becocom, LLC is incorporated herein by reference to Exhibit 10.10 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

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10.8 License Agreement dated as of June 17, 1997 between Boston Edison Company and RCN-Becocom, Inc. is incorporated herein by reference to Exhibit 10.11 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

10.9 Joint Investment and Non-Competition Agreement dated as of June 17, 1997 among RCN Telecom Services of Massachusetts, Inc., RCN-Becocom, Inc. and RCN-BecoCom, LLC is incorporated herein by reference to Exhibit 10.12 to the Company’s Amendment No. 2 to Form 10/A filed September 5, 1997 (Commission File No. 0-22825.)

10.10 Amended and restated Operating Agreement of Starpower Communications, L.L.C. by and between Pepco Communications, L.L.C. and RCN Telecom Services of Washington, D.C. Inc. dated October 28, 1997 is incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 (Commission File No. 0-22825.)

10.11 Employment Agreement dated as of January 8, 2001, by and between RCN and Jeffrey M. White, President, Customer & Field Operations for RCN.

10.12 1997 Stock Plan for Non-Employee Directors is incorporated herein by reference to Exhibit 99 to the Company’s Form 10-Q for the First Quarter ended March 31, 2000. (Commission File No. 0-22825.)

10.13 1997 Amendments to 1997 Stock Plan for Non-Employee Directors are incorporated herein by reference to the Company’s Def 14A dated May 17, 2001. (Commission File No. 0-22825.)

10.14 2000 Employee Stock Purchase Plan is incorporated herein by reference to Exhibit 99 to the Company’s Form 10-Q for the Second Quarter ended June 30, 2000. (Commission File No. 0-22825.)

10.15 Executive Stock Purchase Plan is incorporated herein by reference to Exhibit 99 to the Company’s Form 10-Q for the Third Quarter ended September 30, 2000. (Commission File No. 0-22825.)

10.16 1997 Equity Incentive Plan is incorporated herein by reference to Exhibit 99.2 to the Company’s Form 10-Q for the Third Quarter ended September 30, 1999. (Commission File No. 0-22825.)

10.17 Amendments to 1997 Equity Incentive Plan are incorporated herein by reference to the Company’s Def 14A dated May 16, 2000. (Commission File No. 0-22825.)

10.18  2001 Chairman’s Performance and Retention Bonus Plan incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (commission File No. 0-22825).

10.19* Agreement with AlixPartners

10.20* Agreement with The Blackstone Group

10.21* Agreement with Merrill Lynch

10.22* Key Employee Retention and Severance Plan

21* Subsidiaries of Registrant

23.1* Consent of PricewaterhouseCoopers LLP with respect to RCN Corporation

24* Powers of Attorney

31.1*   Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities and Exchange Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

31.2  Certification of the Executive Vice President and Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities and Exchange Act of 1934, as amended, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2* Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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SCHEDULE I

RCN CORPORATION

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF OPERATIONS

(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)

F-1

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SCHEDULE I

RCN CORPORATION

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS

(THOUSANDS OF DOLLARS)