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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

or

For the transition period from                      to                     .

Commission File Number: 000-50780

TELEGLOBE INTERNATIONAL HOLDINGS LTD

(Exact name of registrant as specified in its charter)

P.O. Box HM 1154, 10 Queen Street

Hamilton HM EX, Bermuda

(Address of principal executive office, including zip code)

(441) 296-4856

(Registrant’s telephone number, including area code)

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

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

Indicate by checkmark 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.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

At February 25, 2005, there were 39,102,213 shares of Common Stock, par value $.01 per share, outstanding.

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TELEGLOBE INTERNATIONAL HOLDINGS LTD

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Cautionary Statement Regarding Forward-Looking Statements

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the Company’s business, operations and financial condition. “Forward-looking statements” consist of all non-historical information, and the analysis of historical information, including any references in this Annual Report to future revenue growth, future expense growth, future credit exposure, future profitability, anticipated cash resources, anticipated capital expenditures, capital requirements, and the Company’s plans for future periods. In addition, the words “could”, “expects”, “anticipates”, “objective”, “plan”, “may affect”, “may depend”, “believes”, “estimates”, “projects” and similar words and phrases are also intended to identify such forward-looking statements.

Actual results could differ materially from those projected in the Company’s forward-looking statements due to numerous known and unknown risks and uncertainties, including, among other things, (i) challenges in integrating Teleglobe and ITXC and, as a result, may not realize all of the expected benefits of the merger or the expected benefits of the merger may take longer to realize than originally expected (ii) other risks, including the volatile and competitive environment for telecommunications; changes in domestic and foreign economic, market and regulatory conditions; the inherent uncertainty of financial estimates and projections; uncertainty inherent in litigation; unanticipated technological difficulties; the risk that the Company may not be able to access sufficient capital; the creditworthiness of and relationship with our customers; the Company’s debt level and the inherent lack of flexibility resulting therefrom; future transactions and risks inherent in being subject to significant regulation. All such forward-looking statements are current only as of the date on which such statements were made. The Company does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

PART I

Item 1. Business

Company Overview

Teleglobe International Holdings, Ltd. (“Teleglobe” or the “Company”) is a leading provider of international voice, data, Internet and mobile roaming services and owns and operates one of the world’s most extensive telecommunications networks, reaching over 240 countries and territories. We are a “carrier’s carrier” providing services to approximately 1,400 wholesale customers representing the world’s leading telecommunications companies. Our global network is designed to deliver integrated voice, data and mobile roaming services of the highest quality by seamlessly combining our international terrestrial, submarine cable and satellite systems. As a company focused on the global wholesale market, we provide our customers with the essential international transport and connectivity between the local point of origination and the international point of termination. After more than 50 years in business, Teleglobe currently maintains approximately 197 direct interconnection links and 219 bilateral relationships with international telecommunications providers, many of which are the incumbent carriers within their countries or large international wireless service providers, including Bell Canada, Telecom Italia and British Telecom. We own interests in over 80 submarine and terrestrial fiber systems and we are one of the largest providers of satellite capacity connecting to the Internet with 5 dedicated satellite earth stations. We also currently operate one of the world’s largest VoIP networks and through our network are the world’s leading VoIP wholesaler, routing approximately 20% of calls on the Internet. In addition, as a result of our extensive signaling network, we maintain interconnectivity with more than 90% of the worldwide GSM subscriber base and have more than 380 mobile operator customers globally. We believe that our global network, which was constructed with an estimated $2.0 billion of investment since January 1, 1990, will enable us to continue to deliver high quality service on a cost efficient basis without significant incremental capital investment.

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We offer a broad portfolio of services that take advantage of our network, our infrastructure and our long-standing customer relationships. Our service offering consists of transport services and value-added services for fully integrated voice and data services, including:

Annually, on a pro forma basis, we carry over 13 billion minutes of international voice traffic, 60 Gigabits of IP traffic, which we believe represents a significant portion of the world’s IP transit, and more than 15 billion message signaling units of value-added signaling services. Our information and network management systems, a large portion of which are based upon proprietary technology, enable us to continually optimize our network for high-quality and efficient service, apply least cost routing techniques and manage to specific customer service requirements.

History of the Company’s Predecessor Business

Teleglobe traces its origins to the formation in 1950 of the Canadian Overseas Telecommunications Corporation, or COTC, a Crown Corporation owned by the Government of Canada. During the company’s first twenty years, COTC which later became Teleglobe Canada, Inc., evolved into a leader in international telecommunications, successfully deploying and managing state-of-the-art telecommunications technologies and partnerships around the world. Until the deregulation of the Canadian telecommunications market in October 1998, Teleglobe Inc. was the exclusive provider of long distance services to and from Canada. COTC and its successor companies developed extensive relationships with incumbent PTTs worldwide, many of which Teleglobe continues today. In 1987, the Government of Canada privatized Teleglobe Canada, Inc. shortly after the privatization, Bell Canada purchased 23% share in Teleglobe Inc., the parent company of Teleglobe Canada, Inc.

In February 2000, BCE announced its intention to purchase all remaining outstanding shares of Teleglobe Inc. and its affiliates (“Consolidated Old Teleglobe”) and consummated the transaction on November 1, 2000. Following the acquisition, Consolidated Old Teleglobe continued to expand internationally, focusing on content distribution, hosting and enterprise markets. Consolidated Old Teleglobe expended approximately $1.8 billion to build its GlobeSystem network, an integrated voice and data network, through the second quarter of 2002.

In April 2002, negative developments in the telecommunications industry, continuing losses at Consolidated Old Teleglobe and substantial ongoing capital expenditure requirements related to the build-out of the GlobeSystem platform caused BCE to withdraw all financial support for Consolidated Old Teleglobe.

On May 15, 2002, Consolidated Old Teleglobe filed a voluntary petition with the Ontario Superior Court of Justice for creditor protection under the Canadian Companies’ Creditors Arrangement Act (CCAA). In May 2002, Consolidated Old Teleglobe also filed a petition for relief with the U.S. Bankruptcy Court for the District of Delaware under Chapter 11 of the U.S. Bankruptcy Code and a petition for administration orders with the Chancery Division of the High Court of Justice under the UK Insolvency Act.

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Teleglobe’s Acquisition of the Business and Merger with ITXC Corp.

On September 19, 2002, Consolidated Old Teleglobe entered into a Purchase Agreement with TLGB Acquisition LLC (“TLGB”), an affiliate of Cerberus Capital Management LP (“Cerberus”). On December 1, 2002, TLGB assumed management control of the core voice, data, Internet and mobile global roaming business’s of Consolidated Old Teleglobe pursuant to an interim Management Agreement. During this interim period prior to the closing of the acquisition transaction, TLGB conducts a thorough review of profitability and utilization of the core network assets and took the following significant actions:

TLGB designated Teleglobe Bermuda Holdings Ltd (“Teleglobe Parent”) and its subsidiaries as its designated affiliates pursuant to the Purchase Agreement to consummate the acquisition of the core voice, data and Internet and mobile global roaming businesses of Consolidated Old Teleglobe (the “Acquired Businesses”). Following approval from the Canadian and U.S. bankruptcy courts and other regulatory approvals, TLGB and its designees including Teleglobe Bermuda Holdings Ltd and its subsidiaries completed the purchase of the Acquired Businesses for $125.0 million plus acquisition costs and assumed certain liabilities on May 30, 2003. TLGB did not acquire certain assets and business lines of the Consolidated Old Teleglobe, including its Internet Data Centers, any material voice, data and mobile roaming operations outside of the U.S., Canada, United Kingdom, Australia, Hong Kong and Spain or any of the minority equity investments in other companies.

Teleglobe Parent entered into an Agreement and Plan of Merger, dated as of November 4, 2003 (the “Merger Agreement”) with ITXC Corp., a leading wholesale provider of voice over Internet protocol transmission services. On May 31, 2004, we consummated the acquisition of ITXC Corp. (“ITXC”), a provider of Voice over Internet Protocol (VolP) wholesale services, by merging a merger subsidiary with and into ITXC whereby ITXC became the surviving corporation and a wholly owned indirect subsidiary of Teleglobe. Prior to or contemporaneously with the consummation of the merger, Teleglobe International Holding Ltd (incorporated on February 3, 2004), a wholly owned direct subsidiary of Teleglobe Parent, became the parent of the Teleglobe group as a result of the contribution by Teleglobe Parent of substantially all of its assets to Teleglobe International Holdings Ltd. As a result, Teleglobe International Holdings Ltd became publicly traded on the Nasdaq exchange. The resulting company, on a pro forma basis, as reported by industry sources, became the third largest international long distance carrier in the world based on minutes of international calling. The merger enabled Teleglobe to combine a broad range of wholesale telecommunications services with ITXC’s high-quality Voice over IP technology and to serve over 1,400 customers.

The principal executive offices of Teleglobe International Holdings Ltd, the principal holding company for the consolidated Teleglobe group, are located at P.O. Box HM 1154, 10 Queen Street, Hamilton, HM EX Bermuda (telephone 441-296-4856). Teleglobe also maintains corporate offices at 1000 rue de la Gauchetiere Ouest, Montreal, Quebec, Canada H3B 4X5 (telephone 514-868-7272) and in Reston, Virginia at 1 Discovery Square, 4th floor, 12010 Sunset Hills Road, Reston, Virginia 20190 (telephone 703-766-3100).

Teleglobe International Holdings Ltd has many subsidiaries. For convenience and simplicity, in this report the terms we, us, our, Teleglobe, the Company, and the Corporation refer to Teleglobe International Holdings Ltd and its subsidiaries.

Network

Our network is supported by extensive management and monitoring systems principally located at the international network operating center in Montreal, Canada.

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Terrestrial and Subsea Network

International Gateways and Switching Exchanges. Our major voice switching facilities include international switching centers, or gateways, in Montreal, New York City, Newark (New Jersey), Los Angeles, Toronto, Vancouver, London and Madrid. These switching centers use Nortel DMS-GSP and Ericsson AXE-10 reliable switching equipment for handling our international voice traffic. Enhanced services platforms, Signaling transfer points (STPs), Signaling control points (SCPs) and other switching platforms are located primarily at Montreal, Toronto and New York.

We also operate a global VoIP network based on Cisco switches and routers and Nextone session border controllers with an open network architecture connecting to those of our customers, suppliers and partners desiring or capable of utilizing this newer technology. This equipment is located in our facilities around the world.

International Network Sites. Our international network facilities include 59 sites located around the globe:

These network sites primarily use transmission, router, switching and other interconnection equipment from Nortel, Cisco, Alcatel, Marconi, ECI and other leading global telecommunication equipment manufacturers to collect, aggregate, multiplex, switch, connect and transport Time Division Multiplex, or TDM, communication channels or IP packets. Customers have access to our global voice, data and signaling networks from approximately 80% of these sites.

Terrestrial and Subsea Cable Fiber Systems. Our terrestrial and subsea network is built over a combination of wavelength indefeasible-rights-of-use, or IRUs, and ownership or participation in over 80 subsea and terrestrial cable fiber systems, which includes over 60 gigabits of subsea capacity. Our cable station at Pennant Point in Nova Scotia serves as a landing point for the private GlobeSystem Atlantic^™ fiber cable system. The core network is fully redundant and operates predominately on high bandwidth transmission facilities with additional capacity on higher usage segments.

We own certain assets related to the private GlobeSystem Atlantic^™ fiber cable system, which comprises the Canada-Europe (CANTAT 3) and Canada-US (CANUS) cables. We currently own 70% of CANTAT 3 and 100% of CANUS. In addition, we have ownership interests in numerous other cable systems in the Atlantic, Indian and Pacific Oceans and the Caribbean, Mediterranean and North Seas. The following table provides additional details about our global terrestrial and subsea cable, IRU and fiber assets by capacity within each region.

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The following is a table, organized by global region, identifying the subsea and terrestrial cable fiber systems over which we run our network:

GLOBAL TERRESTRIAL AND SUBSEA CABLE, IRU AND FIBER ASSETS

IP Network

We believe that we possess one of the most extensive global Internet and broadband networks in the industry, connecting customers in more than 90 countries. Our core IP network is comprised of MultiProtocol Label Switching, or MPLS, enabled Cisco Gigabit Switch Routers which are scalable and we believe the most reliable. The core network is fully redundant, with no single points of failure and operates predominately on a high-bandwidth OC-192 network segment.

Dedicated access to our IP network is available at a range of bandwidth speeds from T1 (1.54 Mbps) and E1 (2.048 Mbps) to 10GE (10Gbps). Access to the network is usually achieved through in-country local-access circuits, although the network can also be accessed through satellite and submarine cable facilities. Our data/IP access facilities include 52 POPs throughout North America, Asia, Europe, Australia and the Middle East. In addition, our Internet backbone has established connections to major Internet core exchanges and neutral Internet exchanges in the U.S., Europe and Asia to provide direct local connectivity to leading ISPs worldwide.

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We provide DVB/IP services over satellite to customers in more than 20 countries with a network footprint covering over 150 countries.

Our satellite network is primarily provided pursuant to transponder capacity under operating leases. We also own and operate three North American earth stations with more than 40 antennas for accessing the Atlantic and Pacific Ocean regions at:

We also use earth stations for the Indian Ocean Region access at:

Peering agreements with ISPs are necessary in order for us to exchange traffic with those ISPs without having to pay transit costs. We are considered a Tier 1 Internet Service Provider and have settlement free peering arrangements with ISPs in North America, Europe and Asia. In the U.S., we have peering arrangements with all Tier 1 ISPs. We have over 70 peering arrangements and more than 100Gbps of peering connectivity worldwide.

We are currently negotiating settlement free peering arrangements with the remaining significant ISPs. The basis on which large ISPs make peering available or impose settlement charges is evolving as the provision of Internet access and related services has expanded.

Management Centers. Our network and equipment is monitored on a 24 hour-a-day, 7 days-a-week, 365 days-a-year basis by our Global Network Management Center, or our network management center, located in Montreal, Canada. Our Global Customer Service Center, or our customer service center, operates in conjunction with our network management center to ensure customer satisfaction with our network performance and products. In addition, we have an IP Network Operations Center, or IP NOC, in Montreal, Canada in order to better serve our IP-based customers. Faults diagnosed as IP-based by our customer service center are relayed directly to the IP engineers at the IP NOC for immediate resolution. Fault management is centrally coordinated by our customer service center through the use of the automated fault management system. Our network management center provides the following primary services:

Teleglobe Service Offerings

We offer a broad portfolio of services that take advantage of our network, our infrastructure and our substantial long-standing customer relationships. Our service offering consists of transport services and value-added services for fully integrated voice and data services. The following table summarizes our key service offerings:

Voice – Transport Services

International Switched Transit

Virtual Transit

Premium Virtual Transit

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Data – Transport Services

IP Transit (Local and International Internet Access)

DVB/IP Satellite Access

International Private Leased Circuits

Hard Patched Transit

Broadcast

Indefeasible Rights of Use

Value-Added Services

Mobile Global Roaming and Signaling

Managed Roaming

SCCP (Signaling Transport)

International Toll-Free

Inbound collect

Voice Transport Services

Our portfolio of voice services is comprised of several product lines:

International Switched Transit Service. International Switched Transit Service, or IST, is a product that provides carriers with global reach beyond their own network by offering access to countries where no direct connectivity may be available or where alternative or overflow routing is needed. IST traffic originates and terminates outside of our domestic network. Once switched to our facilities, it is transported to specified destination correspondents via bilateral facilities. We provide termination to more than 90 countries via both fiber and satellite. The calling party is billed by the originating carrier, who pays us a transit fee and pays a settlement charge to the destination carrier for each minute of traffic sent.

Virtual Transit Services (VTS, VTS Economy, VTS Mobile Premium). Our Virtual Transit Service, or VTS, is intended for international carriers’ voice traffic. VTS offers customers an “instant voice network” and affords local telephone companies, interexchange carriers and global telecom carriers the opportunity to purchase network capacity quickly and cost effectively. VTS provides a good quality voice call completion service consistently to anywhere in the world at competitive prices for customers that manage a limited number of suppliers and lack sophisticated routing capabilities. The VTS Economy service provides an aggressively-priced voice call completion service to select destinations for wholesale customers that manage many suppliers and have sophisticated routing capabilities. Our Premium or VTS Mobile Premium Service gives customers access to the highest quality routes on our network with guaranteed Caller Line Identification, which allows our customers to offer Caller ID services.

Data Transport Services

Our portfolio of data services is comprised of the following main product lines: IP transit, broadband services, bandwidth services and broadcast services.

IP Transit Service. We are a Tier 1 ISP and have a global IP backbone with 27 communication nodes in North America, four in Asia, 19 in Europe and two in the Middle East. Our POPs are located at Internet exchanges or carrier hotels to simplify interconnection to our IP backbone. We also operate five earth stations for satellite connections to the IP backbone. We have over 70 peering arrangements with other Tier 1 carriers providing over 100G of direct connectivity. We connect more than 90 countries to the Internet.

Our core network is fully MPLS enabled, which allows the information to traverse the network more quickly, reducing latency and the amount of accompanying required but non-revenue producing data and creating additional capacity to carry more traffic. We are also prepared for the next version of the IP protocol, IP version 6 or IPv6, which is expected to eventually replace the current protocol IPv4. We offer IP transit with a service level agreement that guarantees set levels for round-trip delays, packet loss, reachability and mean time to repair.

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IP transit via our Internet backbone is available from virtually any region in the world with bandwidths ranging from 64K to 10 Gbps. We offer a choice of usage-based or fixed rate billing.

Bandwidth Services. Our bandwidth services, also known as International Private Leased Circuits or IPLCs, provide customers with dedicated high-speed connections between our network POPs over which they can transport voice, data, facsimile, messaging and video conferencing. Our bandwidth services provide customers with capacity to meet their transport needs. The services may be sold as IRU or other services with terms of one to 15 years.

Broadcast Services. Teleglobe’s broadcast services deliver high quality multi-media content from overseas locations to local, national and international customers.

Value-Added Services.

Our value-added services are comprised mainly of our Mobile Services. Tailored to specific needs of the mobile operators, these services provide them with the ability to seamless interconnect to other networks, as well as to leverage their interconnection to Teleglobe’s network to access innovative offerings offered in Application Service provider mode.

Wireless Global Roaming. Our Wireless Global Roaming Service, or WGR, is our flagship signaling offering intended for mobile network operators. It allows for the interconnection of signaling between different operating standards such as American National Standards Institute, or ANSI, and International Telecommunications Union-Technical, or ITU-T. While this service is predominantly used for the purpose of international roaming of subscribers between networks using either GSM or iDEN^™ technologies, it is also utilized for the termination of SMS traffic between networks operating in regions using different signaling standards. For SMS traffic terminating to the USA, the WGR service resolves wireless number portability.

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SCCP Service. Short for Signaling Connection Control Part, SCCP is an inter-carrier signaling transport service, which relies on global titles of the layer 3 of the SS7 protocol layer to route SS7 traffic. Reliable, secure and full-featured, our SCCP service is designed for GSM and ESMR/iDEN^™ mobile operators who wish to use Teleglobe’s far-reaching signaling network to interconnect to other mobile network to allow roaming and SMS delivery. As an option, our SCCP service provides for the ITU/ANSI signaling conversion of the stand-alone WGR service, allowing seamless connectivity to and from North America.

Cross Standard SMS Termination. This service is an expansion of our basic Wireless Global Roaming offering. It provides ITU-T based mobile operators with the necessary translation of GSM SMS messages and its delivery to most North American Code Division Multiple Access, or CDMA, operators. It also provides reach, conversion and termination of SMS to the Chinese specific China Mobile peer-to-peer 2.0, or CMPP 2.0, SMS message format.

Signaling Monitoring, Alarming and Reporting Tool. This service, which we refer to as SS7 SMART, allows mobile operators to monitor the signaling traffic they exchange with carriers worldwide in order to monitor and block potential fraud and unsolicited use of their network. SS7 SMART imbedded reporting tools also allow operators to generate traffic reports for the purpose of billing and reconciliation of their SMS interconnection agreements.

Managed Roaming. Enables mobile operator to preferentially select which network their outbound roaming subscribers will log onto, offering them an opportunity to better control their cost as well as their user’s experience. Centrally operated on Teleglobe’s premises and offered as Application Service Provider, mobile operators can utilize all the features and benefit of such a solution without any incremental capital expenditure.

Other Value Added Services. We provide a number of other services that include operator assisted services and other services that complement or enhance our product offerings including:

Carrier Relations and Distribution Arrangements

Carrier relations and voice interconnect agreements are an essential aspect of our business. In order to provide end-to-end international telecommunications services, we carry voice traffic to any destination in the world either directly, through interconnection, direct operating agreements and bilateral operating agreements, or

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indirectly, through traditional transit agreement, “hubbing” or “resale” agreements with other carriers who have a local POP and interconnection agreements with the relevant incumbent telephone operator. We currently have over 219 bilateral operating arrangements with carriers in more than 200 countries and territories on five continents. We also have numerous traditional transit “hubbing” and “resale” arrangements that allow us to offer diversity in routing and assure the highest quality to customers.

Interconnection Agreements. We have interconnection arrangements with domestic carriers and some resellers with large volumes for the routing of their overseas switched telephone traffic in multiple countries. More specifically, we have interconnection agreements with major carriers in North America, Europe, Latin America and in the Asia/Pacific Region.

Bilateral Agreements. Bilateral operating agreements between carriers typically provide for the exchange of international long distance traffic between international long distance providers in two countries, with each carrier agreeing to terminate traffic in its country and to provide return traffic. Bilateral operating agreements are negotiated with each correspondent carrier to establish the range of services to be provided, the per-minute accounting rates to be paid by each of the carriers for each service and other technical and routing matters. To settle the fees payable under a bilateral agreement, we either make a payment to the correspondent carrier or receive a payment from the correspondent carrier based on the net volume of inbound and outbound traffic. The accounting rates in each bilateral operating agreement, which may not reflect the cost of providing services, are periodically renegotiated during the term of the agreement.

Other Agreements. Since January 1, 1997, predecessors in interest to each of Comfone AG and Teleglobe entered into a “joint venture” agreement, referred to as the Joint Venture Agreement, which, as amended by amendment No. 1, dated June 30, 2001, had governed the allocation of distributable cash derived from, and costs to be incurred in connection with, our mobile global roaming business. As a result of our purchase of the Acquired Businesses, this Joint Venture Agreement was assigned to one of our subsidiaries. The Joint Venture Agreement provided for international roaming service between PCS 1900 providers in North America and GSM900/DCS1800 operators outside North America and a PCS roaming service within North America. Each party was granted a 50.0% interest in the distributable cash of the mobile global roaming business.

The Joint Venture Agreement provided for the overall management and control of the joint venture to be vested in a management committee with each party granted the right to appoint one representative to the management committee. In addition, the Joint Venture Agreement provided that all decisions of the management committee would be unanimous. However, in the event of an impasse, the position of Teleglobe’s representative would prevail. The Joint Venture Agreement also contained a provision wherein the parties agreed that our mobile global roaming business would be the exclusive vehicle through which each party would provide North American roaming signaling service and international roaming signaling service during the term of the Joint Venture Agreement.

The initial term of the Joint Venture Agreement expired January 1, 2003 with an automatic extension unless terminated by either party on six months’ written notice any time after the initial term. In certain circumstances Comfone would be entitled, upon termination of the agreement by Teleglobe, to its share of the cash derived from the mobile global roaming business for an additional twelve months from the termination date upon the condition that Comfone shall not compete with Teleglobe in providing services comparable to the services provided in the Joint Venture Agreement during the one year period following termination.

Teleglobe served Comfone with a termination notice on July 10, 2003. Subsequent to this termination notification, Teleglobe received a response letter from a representative of Comfone alleging that Teleglobe did not comply with certain prerequisites prior to its termination of the Joint Venture Agreement and that, as a result, Comfone reserved its rights to challenge the termination of the agreement or to avail itself of any other applicable remedies. Teleglobe replied on August 15, 2003 to the letter, stating its position that these allegations have no merit. On November 20, 2003, Comfone filed a request for arbitration with the ICC seeking a declaration that the

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termination is null and void or, in the alternative, seeking damages in the amount of more than four times anticipated annual net revenue and other unspecified indirect damages. Comfone also filed a related action in the Superior Court of the District of Montreal for an order barring the effectiveness of the termination notice pending the outcome of the ICC arbitration. On January 9, 2004, the Superior Court dismissed the related action. Subsequently, on January 20, 2004, Teleglobe received notice from the ICC that Comfone had withdrawn its request for arbitration.

Customers

We currently provide services to over 1,400 customers worldwide. Our customers currently include the world’s largest telecommunication carriers, mobile operators, ISPs, content providers, and research, education and government organizations. Carriers continue to represent the majority of our customers, while ISPs and resellers are our fastest growing market segments.

Carriers. Our customers include well established carriers, such as PTTs and U.S. RBOCs, as well as emerging carriers in newly deregulated or liberalized markets.

The Bell Master Wholesale Pricing and Services Coordinating Agreement (“Bell Agreement”) governs the relationship between Teleglobe and Bell Canada. Sales to Bell Canada, our largest customer, accounted for approximately 10.2% of revenue for the year ended December 31, 2004. Under the Bell Agreement, Teleglobe purchases from Bell Canada telecommunications services for delivery in Canada and Bell Canada purchases from Teleglobe international telecommunications services for delivery outside of Canada. The Bell Agreement extends through December 31, 2007, subject to customary termination rights. Each party agrees to:

The international distribution of our customer base as a percentage of our revenue during the year ended December 31, 2004 is as follows: Europe: 30%, Asia: 9%, Canada: 14%, U.S.: 32%, and Rest of the World: 15%.

Competition

The international voice and data telecommunications industry is highly competitive. The telecommunications industry has experienced a great deal of instability during the past several years. During the 1990s, forecasts of very high levels of future demand brought a significant number of new entrants and new capital investments into the industry. New global carriers were joined by many of the largest traditional carriers and built large global or regional networks to compete with the global wholesalers. However, in the last three years many of the new global carriers and many industry participants have either gone through bankruptcy or no longer exist. The networks were built primarily to meet the expected explosion in bandwidth demand from data, with specific emphasis upon Internet applications. Those forecasts have not materialized, telecommunications capacity now far exceeds actual demand, and the resulting marketplace is characterized by fierce price competition as traditional and next generation carriers compete to secure market share. Resulting lower prices have eroded margins and have kept many carriers from attaining positive cash flow from operations.

Our primary competitors are international carriers, global network providers and ISPs that provide voice and data services on a wholesale basis.

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Our voice business competes with most of the international PTTs (e.g. Belgacom SA, France Telecom) and global providers such as AT&T, MCI, IDT Corporation, Sprint, Global Crossing LTD (Global Crossing) and emerging carriers in newly deregulated markets. Our voice business competes primarily on the basis of price, network reliability, customer service and support, and transmission quality.

Our competitors in our data and Internet business include traditional fixed network operators, new global carriers who recently built high-bandwidth fiber-optic based transmission to link big cities of the developed world on a global basis, and national, regional and international ISPs. Our principal global competitors are Sprint, Level 3 Communications Inc. (Level 3), Savvis, AT&T, MCI and NTT/Verio. In addition, we also compete with certain regional incumbents, such as Open Transit (France Telecom), Royal KPN NV (Netherland) TeliaSonera AB, an incumbent in Sweden and Finland, BT Ignite and T-Systems International, a division of Deutsche Telekom in Europe, and NTT Communications Corporation (NTT), Global Crossing, Reach Ltd. (a joint venture between Telstra and PCCW Limited) and Asia Netcom Co. Ltd. in Asia. The markets in which our data and Internet services business compete are highly fragmented. Most participants specialize in specific segments of the market, such as access or backbone provisioning, managed access via intranets and extranets, application services, such as Web hosting, security services, and communication services, such as IP-based voice, fax, video services and commercial e-mail.

Our mobile global roaming business competes against companies in the specific field of international roaming signaling conversion. Known operators of similar platforms include France Telecom (FT), T-Systems Mobile, a division of Deutsche Telekom and Syniverse Technologies Inc (Syniverse). We believe that conversion capabilities of Syniverse are also being resold to ITU-T international carriers such as Singtel, British Telecom plc (BT), Swisscom AG (Swisscom) and Belgacom. Our primary competition in signaling SCCP transport is from major ANSI SS7 carriers such as Syniverse, Verisign and SNET (a subsidiary of SBC Communications Inc.), as well as ITU-T C7 carriers such as FT, BT, T-Mobile, Belgacom, C&W and Swisscom. The steady growth of SMS traffic and its applications beyond GSM networks has also attracted a series of competitors with Internet backgrounds, such as Ztango Inc. and Mobile 365. With the launch of our ASP offering, we offer mobile operators an alternative to products sold by solution providers such as Roamware or StarHome, as well as equipment manufacturers such as Alcatel, Ericsson, Siemens or LogicaCMG.

While it is possible that some of our business’ competitors will cease operations or lose business in the future due to economic conditions and other difficulties that have affected companies throughout the telecommunications industry, it is likely that other competitors may gain competitive advantages by successfully completing their restructurings or bankruptcy reorganizations or through consolidations.

In light of the potential consolidation within the U.S. telecommunications industry, including the pending AT&T and SBC merger, Teleglobe believes that it is well positioned as the only company to focus exclusively on the international wholesale market. The Company believes this is a key competitive and strategic advantage, as its competitors focus on consolidation related issues.

Trademarks and Service Marks

We are principally known by our corporate symbol (TELEGLOBE and Design) and the word mark TELEGLOBE. In addition, we own, directly or through our subsidiaries, numerous marks that we use in relation to specific or specialized services or wares.

The most important and commonly used marks for the international telecommunications activities of the Corporation are: Canada Direct, Canada Direct and Design and SNARC.

Patents

We have obtained patents, and have patents pending, for managing routing to maximize the quality and margin of voice calls over the Internet, and also for establishing a voice call between a networked client

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computer and the public switched telephone network over the Internet. We believe this proprietary technology and know-how, combined with our value added services portfolio and IP network, creates opportunities for new products and service enhancements. Additionally, we believe that these patents have defensive value for protecting us from, or defending it in, patent litigation that could otherwise inhibit our future growth. Some of our patents could be licensed to others to provide additional revenue. Our patents could possibly be cross-licensed to obtain rights to the patents of others that would enable us to provide additional services that would otherwise be restricted. However, there is no assurance that these benefits will be material or realized at all. As of February 16, 2005, we had 16 issued United States patents, a number of foreign patents (most of which were coordinates of the issued United States patents), and had pending a number of additional patent applications.

Enforcing our patent rights could result in costly litigation. Our patents could be invalidated in litigation. Should this happen, we could lose significant competitive advantage. Additionally, our competitors or others could be awarded patents on technologies and business processes that could require us to significantly alter our technology, change our business processes or pay substantial license and royalty fees. In addition, we have, from time to time, received notices alleging patent infringement claims and are currently involved in defending a legal proceeding involving patent infringement claims (see “Legal Proceedings”). Claims of infringement, whether successful or not, could seriously harm our business, financial condition, results of operations and prospects.

The importance of our individual specific trademarks is relative to the revenues derived from the various services respectively associated with each of the marks. All of these marks are registered or pending registration in Canada, the U.S. or in other foreign jurisdictions. All of these marks are used on a regular and consistent basis in relation to the services and/or wares associated with them. Registrations are renewable at various dates in accordance with the applicable legislation of the various jurisdictions involved.

Regulation

As a global communications company, we are subject to varying degrees of regulation in each of the jurisdictions in which we provide services and /or own facilities. Local laws and regulations, and the interpretation and enforcement of such laws and regulations, differ significantly among the jurisdictions and could limit our ability to operate. Further, there can be no assurance that future regulatory, judicial and legislative changes or regulatory intervention will not have a material adverse effect on us or that domestic or international regulators or third parties will not raise material issues with regard to our compliance or noncompliance with applicable regulations.

Regulation of the telecommunications industry is changing rapidly both domestically and globally. The introduction of new IP-Enabled services, including VoIP and wireless technologies, have prompted reexamination of many regulatory policies. Privatization and deregulation have had, and are expected to continue to have, significant effects on competition in the industry. Although we believe that these deregulatory efforts and new technologies will create opportunities for new entrants in the telecommunications service industry, there can be no assurance that they will be implemented in a manner that would benefit us. Further the increase in providers vying for a limited market share will require us to maintain our competitive rate structures.

In the U.S., the FCC exercises jurisdiction over the facilities and services that we use to provide interstate and international telecommunications services. State regulatory commissions generally have jurisdiction over intrastate telecommunications services and related facilities, although we do not currently provide intrastate services. Our operations in other countries are governed by foreign laws and regulations.

The regulatory framework in certain jurisdictions in which we provide services is described below:

United States

In the U.S., our regulated interstate and international telecommunications services (i.e., communications originating in one state and terminating in another or in a foreign country) are subject to the provisions of the

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Communications Act of 1934, as amended, and FCC regulations issued thereunder. Regulated intrastate telecommunications services (i.e., communications originating and terminating in the same state) are subject to applicable laws and regulations of the various states and state regulatory commissions.

Federal Regulation. As a carrier offering telecommunications services to the public, we must comply with the requirements of common carriage under the Communications Act, including the offering of such service on a nondiscriminatory basis at just and reasonable rates. We are subject to FCC requirements that we obtain prior FCC approval for transactions that transfer control of our FCC-regulated subsidiary Teleglobe America Inc., or assignments of our licenses to a different entity, including indirect and pro forma transfers and assignments. These prior approval requirements may delay, prevent or deter transactions which result in a change in control of Teleglobe America Inc.

Because our ownership structure includes foreign holding companies, the FCC routinely consults with the Executive Branch before approving any of our applications. Through the consultation process, the Executive Branch has the discretion to ask the FCC to deny an application. In the alternative, the Executive Branch may require us to enter into an agreement that addresses identified network security concerns, and request that the FCC condition the grant of our applications on compliance with such network security agreement.

International Service Regulation. We have obtained the necessary authority under Section 214 of the Communications Act to use, on a facilities and resale basis, various transmission media for the provision of international switched services and international private line services on a nondominant carrier basis. We also hold multiple FCC licenses granted under the Cable Landing License Act and FCC rules to own and operate undersea cables that land on U.S. shores.

We must conduct our international business in compliance with the FCC’s International Settlements Policy, or FISP, which governs the terms of U.S. carrier agreements with foreign carriers for the origination and termination of traffic in the U.S. The FISP requires for international telecommunications services:

Where the FISP applies, carriers must file their accounting rates with the FCC, and gain regulatory approval before implementing any agreements for the exchange of traffic with foreign carriers.

The FCC has streamlined regulation of competitive international services and eliminated many FISP requirements. The FCC has eliminated the FISP on the vast majority of international routes. To the extent that the FISP applies on a particular route, as a facilities-based U.S. carrier, we are required to abide by FISP requirements with respect to our telecommunications operating agreements with dominant foreign carriers. However, our arrangements with nondominant foreign carriers or for traffic on routes deemed competitive are no longer subject to these requirements. We may take advantage of the greater pricing flexibility permitted for arrangements with nondominant foreign carriers, and on specified routes, but we may also face greater price competition from other international service carriers.

The FCC continues to deregulate international services. The FCC recently eliminated restrictions on international callback services. The FCC has opened a rulemaking proceeding to consider broad reforms to the FISP, including further deregulation where international competition exists. The FCC also announced it will examine the need for further reforms to protect U.S. carriers from excessive foreign mobile termination charges. The FCC’s actions have granted us greater flexibility to enter into innovative international service arrangements which will facilitate our international business. The FCC has not yet ruled on the regulatory classification or lawfulness of international Internet telephony. We are unable to predict the FCC’s rulings regarding these issues. We are also subject to various reporting and filing requirements that apply to companies providing international services under an FCC authorization.

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Interstate Service Regulation. We are considered a non-dominant domestic interstate carrier subject to minimal regulation by the FCC. We are not required to obtain FCC authority to initiate or expand our domestic interstate operations, but we are required to obtain FCC approval to transfer control, curtail or discontinue service, to file various reports and to pay various fees and assessments. In addition, as a non-dominant interstate carrier, we are subject to the FCC’s complaint jurisdiction, requirements to contribute to the federal universal service fund, pay regulatory fees and comply with various operational requirements. We are also subject to the Communications Assistance for Law Enforcement Act, or CALEA, and certain FCC regulations which require telecommunications common carriers to modify their networks to allow law enforcement authorities to perform electronic surveillance.

Several pending FCC proceedings will address the rights and obligations of competitive local exchange carriers, including unbundled network elements, access charge reform, universal service fund reform, and broadband service regulation. The FCC continues to grant incumbent ILECs greater pricing flexibility and relaxed regulation of access services in those markets where there are other providers of access services. In general, intercarrier compensation issues continue to be examined by the FCC, and a task force of U.S. carriers has been created to propose solutions to the FCC. We cannot predict how these proceedings will affect our business. However, it is possible that changes in FCC rules may be enacted that result in fewer competitive choices among local exchange carriers and impose additional costs on the U.S. interexchange carriers with whom we deliver our international traffic for termination. As a result, it is possible that our costs might also increase if these additional costs are passed on to us.

All interstate telecommunications carriers, including us, are subject to federal universal service contribution mechanisms. The FCC is currently considering revisions to its universal service funding mechanism and new regulations regarding carriers’ pass-through of universal service costs to their customers. We cannot predict the outcome of these proceedings or their potential effect on us.

The FCC has not determined that the services that we provide using Internet telephony are subject to direct regulation and the FCC has generally maintained a long-standing policy to keep consumer Internet services free from burdensome economic regulation at both the federal and state levels. However, the FCC has been collecting information regarding Internet telephony services in various proceedings. For instance, the FCC has been asked by certain ILECs to declare that Internet telephony services are subject to regulation as telecommunications services and therefore subject to interstate switched access charges and universal service fund assessments. Alternatively, other carriers and companies such as AT&T, Level 3, pulver.com and Vonage have filed their own petitions for declaratory ruling asking the FCC to find that certain Internet telephony services are exempt from certain regulations for a variety of reasons. As a result, on February 12, 2004, the FCC ruled that pulver.com’s Free World dialup (FWD) offering, which allows users of broadband Internet access services to make voice over Internet Protocol or other types of peer-to-peer communications directly to other FWD members, without charge, is an unregulated information service that is subject to federal jurisdiction. On April 21, 2004, the FCC issued an order finding that specific end user retail phone-to-phone VoIP services offered by AT&T are basic services and therefore subject to access charges and certain other regulation. The FCC’s decision in the AT&T matter was limited to services that use only ordinary customer premise equipment with no enhanced functionality, originate and terminate on the public switched network and undergo no net protocol conversion and provide no enhanced functionality to end users due to the provider’s use of IP technology. The FCC explicitly stated that its decision is an interpretation of existing rules and does not preclude the FCC from taking a different direction in its general proceeding on IP-enabled services or in another pending proceeding dealing with intercarrier compensation which may materially change the existing access charge regime which the AT&T decision interpreted. It is possible that the AT&T decision has increased the likelihood that the Internet telephony services we offer may be regulated or may be subject to regulation in the future, although the FCC expressly left open the possibility of revisiting the AT&T decision at a later date.

On March 10, 2004, the FCC initiated a comprehensive rulemaking proceeding to seek public comment on the appropriate regulatory treatment of IP-enabled services, including Internet telephony. In that proceeding, the

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FCC sought comment on fundamental questions that will affect every aspect of IP-enabled services. The FCC posed questions that may signal an openness to consider significant changes in the way the FCC regulates today’s evolving telecommunications networks and services. The proceeding promises to analyze statutory definitions, jurisdictional matters and to revisit prior FCC decisions in a manner that will likely restructure the existing regulatory framework for Internet telephony and other IP-enabled services. The FCC made clear that it is starting from the premise that IP-enabled services should only be minimally regulated, in light of the public interest in encouraging broadband infrastructure and greater customer choice. However, if the FCC were to determine that certain Internet-related services including the Internet telephony services we provide are subject to FCC regulation as telecommunication services, the FCC could subject providers of such services, including us, to traditional common carrier regulation, including requirements to comply with the international settlement regime for international services, make universal service contributions, and pay access charges to local telephone companies. This regulation could significantly increase our costs of providing service, impose new technically challenging requirements or otherwise adversely affect us. Finally, the FCC has initiated a CALEA proceeding to consider the technical and policy issues associated with law-enforcement access to IP-enabled services under CALEA. This proceeding addresses the scope of covered services, the assignment of responsibility for compliance, and the wiretap capabilities required.

Several state Public Utility Commissions, or PUCs, are also actively considering issues including Internet telephony and at least one commission, the Minnesota Public Utilities Commission, ruled that intrastate Internet telephony services are telecommunications services subject to licensing and other regulatory obligations in Minnesota. That Commission was subsequently enjoined from enforcing that ruling, however, by a U.S. Federal court. In addition, on November 9, 2004, the FCC granted a petition by Vonage Holdings Corp. (“Vonage”) to preempt the Minnesota Public Utilities Commission’s order. The FCC found that Vonage’s VoIP service is an interstate service offering and is not subject to traditional state public utility regulation. The FCC did not reach a determination as to whether the service was properly classified as an “information” or “telecommunications” service under federal law. Telecommunications services are regulated more closely by the FCC, whereas the FCC to date has not regulated “information” services. The FCC did state, however, that its preemption decision applies to all IP-enabled services that have characteristics similar to Vonage’s service. We cannot predict how Internet telephony may be regulated by federal or state regulations in the future or how such regulation may affect our operating costs and competitive position.

State Regulation. Most state PUCs require carriers to either register or obtain a certificate of authority before offering intrastate telecommunications services. Although we do not currently provide intrastate services, we hold authority to resell intrastate long distance nationwide (except Alaska) and in Puerto Rico by virtue of certificates issued by or registrations on file with the state PUCs or on an unregulated basis.

Holding intrastate authority subjects us to various state laws and regulations, including, in most jurisdictions tariff or price list filing requirements. Most states also require the filing of periodic reports, the payment of various fees and surcharges and compliance with service standards and consumer protection rules. States often require prior approval or notification for certain transactions, including stock or asset transfers or, in several states, for the issuance of securities, debt, encumbrances, or name changes. As a certificated carrier, consumers may file complaints against us at the PUCs. Our authority to provide intrastate service can generally be conditioned, modified, canceled, terminated, or revoked by state regulatory authorities for failure to comply with state law and/or the rules, regulations and policies of the state regulatory authorities. Fines and other penalties may also be imposed for such violations. Public service commissions also regulate intrastate access charges and other pricing for intrastate telecommunications services within their respective states.

Canada

Overview. Until October 1998, our predecessor, Teleglobe Canada Inc., was the sole authorized provider of facilities-based telecommunications services between Canada and all countries except the U.S. In a 1998 order, the Canadian Radio-television and Telecommunications Commission, or the CRTC, opened the Canadian

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international telecommunications services market to competition and removed all prior traffic routing restrictions. As a result, Canadian telecommunications service providers are no longer restricted to using our network to route overseas international calls. Due to the competition that has developed in the Canadian market since these deregulatory actions, we are now subject to the same rules applicable to other Canadian international telecommunications service providers under the Telecommunications Act.

Licenses Issued by The CRTC. The CRTC is the agency in Canada that is charged under the Canadian Telecommunications Act with regulating companies that provide telecommunications services that cross provincial or international borders and which own or operate transmission facilities. We hold a Class A BITS license issued by the CRTC which authorizes us to own or operate telecommunications facilities used in transporting basic telecommunications service traffic to or from Canada. Our license has a five-year term and may not be transferred without the consent of the CRTC. We acquired our license from Teleglobe Canada Limited Partnership pursuant to the consent of the CRTC.

In 1999, the CRTC found sufficient competition in the international services market to forbear from regulating international direct dial telephone service. Wholesale international voice termination service, is our most significant generator of revenues. The CRTC has retained sufficient powers to impose conditions on our delivery of services and our international operations remain subject to the conditions of our CRTC Class A BITS license, which address matters such as competitive conduct and consumer safeguards.

We also hold licenses required by the Canadian Telecommunications Act and the Radiocommunications Act for our satellite earth station sites and international undersea cable landing sites authorizing us to operate such facilities and to carry traffic between Canada and any foreign country or between countries through Canada. The radio transmission licenses are renewable annually. The undersea cable landing licenses are granted for periods of ten or 20 years. All of our licenses are in effect and we are in compliance with all of the terms and conditions under which they were granted.

As a carrier that owns and operates only international submarine cables or earth stations that provide international telecommunications services by means of satellites, we are currently exempt from the Canadian Telecommunications Act restrictions on direct foreign investment in Canadian carriers and their holding companies and the number of non-Canadians permitted on the board of directors of Canadian carriers and their holding companies. As long as these foreign ownership restrictions remain in place, we are precluded from owning and operating any Canadian domestic transmission facilities.

The CRTC recently commenced a public proceeding to determine whether it will regulate Internet telephony. The CRTC’s preliminary view is that its existing regulatory framework for traditional voice services should also apply to Internet telephony services. If the CRTC adopts new regulations governing Internet telephony, Teleglobe or its affiliates, to the extent that they are offering Internet telephony, may be subject to further licensing and other regulatory obligations.

Other Markets

We are also subject to regulation in several other countries throughout the world in connection with our carrier services and other telecommunications service activities. In these jurisdictions, we hold or our local operating entities hold non-exclusive licenses or operate pursuant to general authorization. The policies of the national governments and regulatory authorities of these countries may have a positive or negative impact on our ability to conduct business in such locations.

European Union. We provide international telecommunications services in several of the member states of the European Union, or EU. In Europe, the regulation of the telecommunications industry is governed at a supranational level by the European Parliament, Council and Commission. Recent EU Directives require the repeal of the individual licensing regime used in each Member State. Instead, the licensing regime has been replaced by a general authorization to provide electronic communications networks and services, based on a

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“technology neutral approach.” As a result, Member States of the EU no longer issue individual telecommunications licenses to companies except in exceptional circumstances such as the allocation of spectrum. Therefore, all of the licenses we hold in EU Member States have been or soon will be eliminated and we now offer telecommunications services subject to the general conditions and obligations outlined in the Electronic Communications Directives and as developed by individual Member States.

The UK wholesale international services market in which we compete has been found to be competitive and therefore regulation of our wholesale international operations and services is de minimis.

As part of the implementation of the new regulatory regime, on January 1, 2004, a newly established UK regulator, the Office of Communications, or OFCOM, became responsible for the licensing functions formerly carried out by the Department of Trade and Industry. OFCOM also replaced existing regulatory agencies, including the Office of Telecommunications, or Oftel, that developed regulatory policy and enforced licensing conditions. OFCOM commenced in 2004 a thorough review of all of the licensing and regulatory conditions in place for the telecommunications industry, including regulation of Internet telephony and voice over broadband. We cannot predict the final outcome of this review, and whether OFCOM may regulate the telecommunications industry differently, in particular by imposing regulatory and other fees, or how such regulation may affect our operating costs and competitive position.

Rest of World. In Australia, Norway, and Hong Kong, we also provide international telecommunications services pursuant to non-exclusive licenses or general authorizations. Each country in which we currently conduct or plan to conduct our business has a different regulatory regime and such differences will continue for the foreseeable future. The requirements for us to obtain necessary approvals vary considerably from country to country and are likely to change as competition is permitted in new service sectors. Each of these countries, however, has a pro-competitive regulatory regime that has established rules governing competition between operators. Any change in policy or regulation could have a material adverse effect on our operations and financial condition.

Employees

As of December 31, 2004, we had a total of approximately 800 employees, 200 of whom are covered by collective bargaining agreements.

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Geographic Areas

For financial information about geographic areas, including information about revenues and long-lived assets, see Note 21, “Segment Reporting and Geographic Information” to our Consolidated Financial Statements.

Item 2. Properties

As of December 31, 2004, we owned the following properties:

We lease our offices in Montreal, which consist of 62,259 square feet of space and expires on July 31, 2005, from SITQ Inc. We moved our corporate office to this location in early 1992. We have entered into a binding letter to lease for a new location of our Montreal offices consisting of 80,000 square feet of space with a lease term commencing June 2005 and terminating on December 31, 2020, from Frank J. Motter Construction. Upon the closing of the acquisition of the Acquired Businesses on May 30, 2003, we moved our corporate headquarters to Hamilton, Bermuda. We lease our offices in Hamilton from Fairway Management (Bermuda) Ltd. pursuant to a lease which expires on December 31, 2005.

For our telecommunications activities, we also lease offices in Toronto, Canada, Reston, Virginia, USA, Hong Kong, China, Sydney, Australia, Madrid and Barcelona, Spain, Abu Dhabi, UAE, Frankfurt, Germany, New Delhi, India, Kuala Lumpur, Malaysia, Moscow, Russia, Paris, France, Manila, Philippines, Singapore, Tokyo, Japan, London, United Kingdom, Princeton, New Jersey, Coral Gables, Florida, Puerto Rico and Rochester, New York.

Item 3. Legal Proceedings

On August 16, 2004, Teleglobe announced that after the merger with ITXC, which was consummated on May 31, 2004, as part of its normal ongoing review of ITXC’s operations in connection with the post-merger integration of the Company and ITXC, the Company had identified and was investigating potential instances of noncompliance with the United States Foreign Corrupt Practices Act (“FCPA”) relating to ITXC’s operations in certain African countries prior to its merger with Teleglobe, consummated on May 31, 2004. The Company voluntarily notified the Securities and Exchange Commission (the “SEC”) and the U.S. Department of Justice (the “DOJ”) of the matter. The Company’s Audit Committee subsequently engaged an outside law firm, Debevoise & Plimpton LLP (“Debevoise”), to investigate the FCPA-related matters. As a result of the investigation, the following individuals are no longer employed by the Company: the Company’s Vice President, Sales-Wireless, formerly the Executive Vice President, Global Sales for ITXC; the Company’s Regional Buyer for Africa, formerly ITXC’s Regional Director for Africa; and the Company’s Executive Vice President and General Counsel, formerly Vice President, General Counsel and Secretary of ITXC prior to its merger with Teleglobe.

Following the completion of its investigation into the actions of ITXC employees in November 2004, at the request of the Company’s Audit Committee, Debevoise conducted an investigation into Teleglobe’s foreign agency agreements and practices in order to confirm that no similar issues exist with respect to Telelgobe’s compliance with the FCPA.

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Debevoise recently completed its investigation with respect to Teleglobe’s compliance with the FCPA, and has issued a final report concerning the results thereof to the Audit Committee. The Debevoise report states that its investigation uncovered no violation of the FCPA by Teleglobe employees. However, the report also concludes that commercial bribery appears to have occurred with regard to two agents retained by Teleglobe (with whom the Company no longer carries on business) relating to one telecommunications carrier in Asia that is a Teleglobe customer. The report finds evidence that it is likely that payments made by Teleglobe to these agents were paid for the benefit of employees of such telecommunications carrier. As a result of the investigation, the Company’s Regional Sales Managing Director, Asia/Pacific and the Company’s sales representative responsible for that carrier have been terminated and several other employees were reprimanded. The Debevoise report makes a number of recommendations aimed at improving Teleglobe’s compliance practices and procedures, which recommendations the Company has begun to implement.

Teleglobe has been cooperating fully with the SEC and the DOJ with respect to this matter, and it has periodically briefed representatives of the SEC and DOJ concerning the investigation. The SEC has advised the Company that it is conducting an informal inquiry into the matter and has requested that Teleglobe provide certain documents to it on a voluntary basis. The Company intends to continue to fully cooperate with the SEC and the DOJ concerning these matters, and has voluntarily provided certain documents to the SEC in response to their request. Based on Debevoise’s investigation into the actions of ITXC employees and any additional factors arising from the final report, Teleglobe cannot predict the extent to which the SEC, the DOJ or any other governmental authorities will pursue administrative, civil or criminal proceedings, the imposition of fines or penalties or other remedies or sanctions. The Company has not identified, and does not believe it is likely that, any material adjustment to its financial statements is or will be required in connection with the results of this investigation, although it is possible that a monetary penalty, if any, may be material to the Company’s results of operations in the quarter in which it is imposed.

On May 31, 2004, Teleglobe consummated its merger with ITXC. ITXC has been subject to various legal proceedings relating to claims arising in the ordinary course of business. The following are legal proceedings pending against ITXC.

On April 14, 2004, Acceris Communications Technologies, Inc. commenced a patent infringement suit in the United States District Court of the District of New Jersey, against ITXC Corp., alleging that ITXC’s VoIP services and systems infringe Acceris’ U.S. Patent No. 6,243,373, entitled “Method and Apparatus for Implementing a Computer Network/Internet Telephone System.” On May 7, 2004, ITXC filed a lawsuit against Acceris for infringement of a number of ITXC’s VoIP patents. The suit alleged infringement of five of ITXC’s United States Patents, numbers 5,889,774, 6,026,087, 6,404,864, 6,628,760 and 6,661,878, directed generally to the transmission of telephone calls over the Internet and the completion of telephone calls by switching them off the Internet and onto a public switched telephone network (PSTN). On July 6, 2004, the Court rejected Acceris’ initial motion to dismiss ITXC’s case based upon alleged failure to conduct an adequate precomplaint investigation. The Company intends to vigorously defend against the allegations of infringement in that case and believes it has substantial defenses to them. However, an adverse result in this litigation could either result in injunctive relief precluding all or a portion of ITXC’s VoIP activity or materially impact the Company’s revenue and profitability. Litigation of such matters may require significant management and financial resources of the Company and adverse outcomes in such lawsuits could materially adversely affect our financial condition or operating results.

ITXC and certain of its former officers/directors were named as defendants in several purported shareholder class action lawsuits commenced in 2001. The lawsuits allege, among other things, that, in connection with ITXC’s public offerings of securities, its prospectus did not disclose certain alleged practices involving its underwriters and their customers. These actions seek compensatory and other damages, and costs and expenses associated with the litigation. No discovery has taken place with respect to ITXC and the other issuer defendants. ITXC is one of hundreds of companies named in substantially identical lawsuits. Management believes that ITXC and its officers/directors did not engage in any improper or illegal conduct. All of these cases have been

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consolidated for pretrial purposes before Judge Scheindlin in the Southern District of New York, who refused to dismiss the cases in an opinion issued in February 2003. All of the individual defendants who had been named as defendants in the Company’s case have now been dismissed from the proceeding without prejudice, pursuant to a stipulation with the plaintiffs. Neither the individual defendants nor the Company nor its insurers paid any consideration for these dismissals. The issuer defendants, their insurance carriers and the plaintiffs have negotiated a settlement pursuant to which the insurance carriers would fund any monetary consideration, and it is anticipated that this proposed settlement will be submitted to the Court for approval in the near future. If approved by the court, under the terms of the proposed settlement, the Company would be dismissed from the litigation with prejudice and should neither have future liability to plaintiffs nor any significant expenses in connection with the litigation, except for a limited obligation to cooperate in discovery in the plaintiffs’ continuing cases against the underwriters.

We are also party to suits for collection, commercial disputes, claims from customers and/or suppliers over reconciliation of payments for voice minutes, circuits, Internet bandwidth and/or access to the public switched telephone network, leased equipment, and claims from estates of bankrupt companies alleging that we received preferential payments from such companies prior to their bankruptcy filings. We intend to prosecute vigorously claims that we have brought and employ all available defenses in contesting claims against us. Nevertheless, in deciding whether to pursue settlement, we will consider, among other factors, the substantial costs and the diversion of management’s attention and resources that would be required in litigation. In light of such costs, we have settled various matters on what we believe have been favorable terms which did not have a material impact on our financial position, results of operations, or cash flows. The results or failure of any suit is not expected to have a material adverse affect on our business.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of our security holders, through the solicitation of proxies or otherwise, during the fourth quarter of our fiscal year covered by this report.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of

Equity Securities

Our common shares traded on the NASDAQ National Market under the symbol “TLGB” since June 1, 2004. As of February 22, 2005, we had approximately 222 record shareholders and as of February 25, 2005 we had approximately 9,835 beneficial stockholders. The following table sets forth the per share range of high and low sales prices for the periods indicated:

The market price for our shares is volatile and fluctuates in response to a wide variety of factors.

We have never declared or paid any dividends on our common shares. We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and the expansion of our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend upon our financial condition, operating results, capital requirements and other factors the Board of Directors deem relevant.

We have not sold any unregistered securities during the period covered by this report, nor have we repurchased any equity securities during the period covered by this report.

As of December 31, 2004, all equity compensation plans had received shareholder approval, and 3,364,323 options to purchase shares of Teleglobe common shares had been awarded under such plans, with 456,818 options available for future issuance. For further information on such plans, including the weighted average exercise price, see Item 8. Financial Statements and Supplementary Data.

There are no restrictions on the Company’s ability to transfer funds in and out of Bermuda, where it is incorporated, or on paying dividends to non-resident shareholders. At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by the Company or its shareholders in respect of the Company’s shares. Under Bermuda law, the Company’s board of directors may declare and pay dividends from time to time unless there are reasonable grounds for believing that the Company is or would, after the payment, be unable to pay its liabilities as they become due or that the realizable value of its assets would thereby be less than the aggregate of its liabilities and issued share capital and share premium accounts.

Item 6. Selected Financial Data

The business history of Teleglobe and its predecessor entities is described under Item 1 of this document. We refer to “Consolidated Old Teleglobe” as the business which originated in 1950 and was acquired in full by BCE in November 2000. We refer to the Telecommunications Group of Consolidated Old Teleglobe as the “Predecessor” and its financial statements as the “Predecessor Financial Statements”.

As more fully explained elsewhere in this document, pursuant to the Purchase Agreement between Consolidated Old Teleglobe and TLGB, an affiliate of Cerberus, dated September 18, 2002, we acquired a portion of the assets and liabilities of Consolidated Old Teleglobe in a transaction that was consummated on May 30, 2003.

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The Predecessor’s businesses consisted of the voice, data and mobile roaming businesses, the same lines of businesses as our company. The Predecessor’s businesses included:

Of the businesses included in the Predecessor Financial Statements, we did not acquire the operations of the Internet Data Centers, any of the material voice, data and mobile roaming operations outside of the U.S., Canada, United Kingdom, Australia, Hong Kong and Spain or any of the minority equity investments in other companies. We refer to the businesses that we acquired on May 30, 2003 as the “Acquired Businesses” and we refer to the acquirer of the Acquired Businesses as the “Successor.” The financial statements that we refer to as the “Successor Financial Statements” include only the assets, liabilities and results of operations arising out of the Acquired Businesses.

The summary financial and operating data set forth below for each of the five months ended May 30, 2003 and the years ended December 31, 2002 and 2001 have been derived from the financial statements and operating data of the Predecessor, respectively. While we believe that the selected financial and operating data set forth below and in the Predecessor Financial Statements for such periods fairly present, in all material respects, the financial condition, results of operations and cash flows of the Predecessor, neither our CEO nor our CFO had any involvement, direct or indirect, with Consolidated Old Teleglobe during any periods prior to December 1, 2002.

The summary financial data set forth below for the year ended December 31, 2000 is derived from the financial statements of Consolidated Old Teleglobe included in the 2000 and 2001 Annual Report on Form 40-F. During 2000, Consolidated Old Teleglobe was a registrant with the SEC. The information presented for 2000 represents the “BCE Teleglobe” operating segment as reported in the consolidated financial statements included in the 2001 Annual Report of Consolidated Old Teleglobe on Form 40-F. While we have no reason to believe that the selected financial and operating data set forth below with respect to the year ended December 31, 2000 is misleading in any material respect, we did not have any involvement, direct or indirect, with Consolidated Old Teleglobe during any periods prior to December 1, 2002. The information for 2000 has not been reaudited for the purposes of this document.

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The following table sets forth selected financial data of the Company for the periods indicated. The balance sheet data as of December 31, 2004 and 2003, and the statement of operations data for the year ended December 31, 2004, seven months ended December 31, 2003, five months ended May 30, 2003 and year ended December 31, 2002 set forth below are derived from the consolidated financial statements of the Company included elsewhere herein. The balance sheet data as of December 31, 2002, 2001 and 2000 and the statement of operations data for the year ended December 31, 2001, two months ended December 31, 2000 and ten months ended October 31, 2000 set forth below are derived from consolidated financial statements of the Company that are not included herein. The selected financial data below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the audited consolidated financial statements of the Company included elsewhere herein

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

Presentation

The following discussion should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included elsewhere herein. In addition to historical information, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the Company’s business, operations and financial condition. “Forward-looking statements” consist of all non-historical information, and the analysis of historical information, including any references in this Annual Report to future revenue growth, future expense growth, future credit exposure, future profitability, anticipated cash resources, anticipated capital expenditures, capital requirements, and the Company’s plans for future periods. In addition, the words “could”, “expects”, “anticipates”, “objective”, “plan”, “may affect”, “may depend”, “believes”, “estimates”, “projects” and similar words and phrases are also intended to identify such forward-looking statements.

Actual results could differ materially from those projected in the Company’s forward-looking statements due to numerous known and unknown risks and uncertainties, including, among other things, (i) challenges in integrating Teleglobe and ITXC and, as a result, may not realize all of the expected benefits of the merger or the expected benefits of the merger may take longer to realize than originally expected (ii) other risks, including the volatile and competitive environment for telecommunications; changes in domestic and foreign economic, market and regulatory conditions; the inherent uncertainty of financial estimates and projections; uncertainty inherent in litigation; unanticipated technological difficulties; the risk that the Company may not be able to access sufficient capital; the creditworthiness of and relationship with our customers; the Company’s debt level and the inherent lack of flexibility resulting therefrom; future transactions and risks inherent in being subject to significant regulation. All such forward-looking statements are current only as of the date on which such statements were made. The Company does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

The historical financial information and the audited financial statements to which the following discussion relates for the year ended December 31, 2004 and seven months ended December 31, 2003, which we refer to as the “Successor Financial Statements,” are the consolidated financial statements of Teleglobe for such period. The Successor Financial Statements reflect the assets, liabilities and businesses acquired from Consolidated Old Teleglobe on May 30, 2003, as discussed in detail below.

The historical financial information and the audited financial statements to which the following discussion relates for each of the five months ended May 30, 2003 and the year ended December 31, 2002, which we refer to as the “Predecessor Financial Statements,” are derived from the books and records of Consolidated Old Teleglobe and its subsidiaries, from which we purchased certain assets, liabilities and businesses. The

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“Predecessor” represents the Telecommunications Group of Consolidated Old Teleglobe that consisted solely of the voice, data, Internet and wireless roaming services businesses but includes the portions of such businesses not contained in the Acquired Businesses. While we believe that the information set forth in the Predecessor Financial Statements and the selected historical information for such periods fairly presents, in all material respects, the financial position, results of operations and cash flows of the Predecessor, neither our CEO nor our CFO had any involvement with Consolidated Old Teleglobe during any periods prior to December 1, 2002.

The results of operations contained in the audited financial statements for the year ended December 31, 2004 are results of operations for that period and the period presented are not necessarily indicative of the results to be expected for any other period.

Successor

Teleglobe Parent, the majority shareholder of Teleglobe International Holdings Ltd (“TIH”), was incorporated on December 31, 2002, but did not assume ownership of the Acquired Businesses until May 31, 2003 and did not carry on any other activities prior to May 31, 2003. The Successor Financial Statements include only the assets, liabilities and results of operations arising out of the Acquired Businesses. Our operations consist of the provision of international voice, data, Internet and wireless roaming services from our facilities primarily located in Canada, the U.S., the UK, Hong Kong, Spain and Australia to a wide range of customers, including our largest customer, Bell Canada. In particular, the following areas represent material differences in the operations reflected in the Successor Financial Statements as compared to the Predecessor Financial Statements:

Regional Operations Not Purchased

We did not acquire the regional operations of the Predecessor outside the U.S., Canada, the UK, Hong Kong, Spain and Australia. Those operations, the majority of which generated losses and negative cash flows, were either liquidated in Consolidated Old Teleglobe’s bankruptcy proceedings or disposed of by Consolidated Old Teleglobe.

Elimination of Enterprise/Internet Data Center Operations

The Predecessor Financial Statements reflect significant operating losses attributable to excess capacity of co-location facilities and network lease and maintenance costs. The assets supplying such excess capacity were not included in the Acquired Businesses and, as a result, the Successor Financial Statements reflect a significant reduction in operating and maintenance costs.

Headcount Reductions

The Predecessor operated:

All of the costs related to such employees are included in the Predecessor Financial Statements as selling, general and administrative costs. The costs related to the approximately 800 employees of the Predecessor are included in the Predecessor Financial Statements through May 30, 2003. Approximately 150 of such employees remained with the Predecessor upon the acquisition of the Acquired Businesses because they were involved solely with the residual operations of the Predecessor. Of the approximate 800 employees, the Successor operated the Acquired Businesses prior to the merger with ITXC with only 650 employees since December 1, 2002, when our senior management began to manage such portion of the Predecessor pursuant to the Interim Management Agreement. With the ITXC merger, the Company now has approximately 800 employees.

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Network Efficiency

The bankruptcy process and, in particular, the day-to-day management of the Acquired Businesses by members of our current senior management under the Interim Management Agreement during the period beginning December 1, 2002 through May 30, 2003, permitted us to conduct a thorough review of profitability and utilization of our network on a circuit-by-circuit basis, as well as an evaluation of network resiliency and redundancy and costs relative to competitive benchmarks. Two key actions were undertaken as a result of this process:

These actions have resulted in an over $20.0 million per year reduction in network expenses associated with the operation of indefeasible rights-of-use, or IRU, agreements, maintenance and restoration costs and leased capacity in the periods reflected in the Successor Financial Statements.

Predecessor

The Predecessor’s businesses consisted of the voice, data and mobile roaming businesses, the same lines of businesses as the Successor. The Predecessor’s businesses included:

Of the businesses included in the Predecessor Financial Statements, we did not acquire the operations of the Internet Data Centers, any of the voice, data and mobile roaming operations outside of the U.S., Canada, the UK, Australia, Hong Kong and Spain or any of the minority equity investments in other companies, including Intelsat. We refer to the businesses that we acquired as the “Acquired Businesses.”

On September 18, 2002, Consolidated Old Teleglobe entered into a Purchase Agreement with TLGB, an affiliate of Cerberus. On December 1, 2002, following approval of the purchase by the Ontario Superior Court of Justice and the U.S. Bankruptcy Court, Consolidated Old Teleglobe entered into the Interim Management Agreement with TLGB. Under the terms of the Interim Management Agreement, TLGB assumed day-to-day management responsibility for the operations of the Acquired Businesses on December 1, 2002, which continued to operate under bankruptcy protection as described above, pending receipt of regulatory and other approvals.

TLGB designated Teleglobe Parent and its subsidiaries as its designated affiliates pursuant to the Purchase Agreement to consummate the acquisition of the Acquired Businesses. On May 30, 2003, the purchase of the Acquired Businesses by TLGB was completed for a total purchase price of $125.0 million plus assumed liabilities and acquisition costs. For reporting purposes, Teleglobe is using May 31, 2003 as the Successor’s opening balance sheet date.

Business Combinations

We consummated the merger with ITXC Corp. on May 31, 2004. This transaction was accounted for under purchase accounting. See Note 3 to the consolidated financial statements for further information regarding the merger.

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Overview

We are a global telecommunications company providing a range of international and domestic telecommunications services on a wholesale basis. We categorize our products and services into three primary groups: voice, data and value-added services. The following table summarizes our key service offerings:

Voice-Transport Services

International Switched Transit

Virtual Transit

Premium Virtual Transit

Data-Transport Services

IP Transit (Local and International Internet Access)

DVB/IP Satellite Access

International Private Leased Circuits

Hard Patched Transit

Broadcast

Indefeasible Rights of Use

Value-Added Services

Mobile Global Roaming and Signaling

Managed Roaming SCCP (Signaling Transport)

International Toll-Free

Inbound collect

Revenue Drivers

Our revenues are impacted by the following factors:

Primary Expense Drivers

Our primary expenses are comprised of telecommunication and network expenses, selling, general and administrative expenses, merger expenditures and benefits and depreciation/amortization expenses.

Telecommunications and Network Expenses

Variations in telecommunications and network expenses are primarily due to:

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Selling, General and Administrative Expenses

Variations in selling, general and administrative expenses are primarily due to:

Merger Expenditures and Benefits

The Company’s ITXC merger integration plan to achieve annual post-merger benefits of approximately $25 to $30 million is expected to be completed by the end of the second quarter 2005. The integration plan centers around facility and headcount reductions, termination cost savings and consolidation of the Teleglobe and ITXC networks resulting in reduced capital expenditures. There has been a delay of one quarter from the original plan exclusively related to planned integration of routing capabilities. All other aspects of the integration are currently on schedule. Selling, general and administration expenses (SG&A) savings are partially impacted and the majority of termination cost savings will be delayed until completion. To date, the Company has realized in excess of 50% of the estimated post-merger benefits. Integration costs, including consultant fees, retention bonuses and other costs directly related to the integration of ITXC, of approximately $11.4 million are included in the consolidated results of operations for the year ended December 31, 2004. Property and equipment expenditures related to the integration total approximately $8.9 million on the Consolidated Balance Sheet as at December 31, 2004.

ITXC access to Teleglobe IP network and Teleglobe connectivity:

The combination of Teleglobe and ITXC provided opportunities to lower the operating expenses of our network, resulting in a decrease in network expenses. IP access charges are a significant example. ITXC on a stand-alone basis purchased IP access services from Teleglobe as well as other competitive wholesale IP service carriers. We have cancelled many of these third-party services, replacing access via Teleglobe’s network. The marginal cost of doing so is very low, yielding operating expense reductions.

We have also realized network savings in the short-term by migrating some common customers from two interconnects to one, improving utilization rates. This allows us growth capacity with lower investment requirements for a period of time. In the longer term we anticipate benefits from network growth via VoIP, an inherently more cost effective medium than TDM. To date, the Company has achieved its integration goal related to network consolidation. The benefits of our completed network consolidation will be reflected in our network expenses.

Facilities and headcount reductions:

To date the Company has achieved its integration goal related to closures of overlapping facilities. Further savings may be achieved from the sublet of excess floor space. The second half of 2004 SG&A costs have not been significantly impacted by savings from headcount reductions mainly because the results include estimated retention bonus to be paid in the near term. However, SG&A for the first quarter of 2005 and onwards is expected to reflect net benefits from these reductions.

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Termination cost savings:

In the future, due to the nature of the international wholesale voice industry, the increase in volume from the merger with ITXC will result in substantial termination cost savings for the combined company with other carriers. The planned integration of the combined company least cost routing capabilities will allow the combined company to route traffic using the lowest cost available in any of the combined company’s routes. While our benefits to date are limited, we anticipate the synergies to occur after we have completed integrated routing towards the end of the second quarter of 2005.

Cash Flow Generation

We generate cash through two settlement processes: net settlement and traditional settlement. If industry practices regarding net settlement were to change, our cash flow could be adversely affected.

Net Settlement

Because a significant portion of our business is conducted through bilateral arrangements, we generate a substantial amount of our cash flow by periodic “netting” or “settlement.” The fees payable to each party are declared, typically monthly or quarterly, and we either make payments to or receive payments from correspondent carriers based on the net volume and rate of inbound and outbound traffic. Fees are typically settled on a monthly or quarterly basis, but may also be settled biannually or annually. Due to these extended settlement periods, there can be material variations in quarterly cash flows.

Traditional Settlement

We also employ what we consider a more traditional settlement process under which customers are bound by industry standard contracts with terms of generally net 30 days.

In the year ended December 31, 2004, approximately 66% and 34% of our revenue was generated through net settlement and traditional settlement, respectively.

Critical Trends; Performance Drivers

Price Erosion

Throughout the late 1990’s, the number of companies deploying and managing international fiber optic networks for the provision of voice and data transport services increased dramatically, fueled by expectations for substantial increases in demand as well as investor optimism. The resulting oversupply, coupled with competition among suppliers, has resulted in transport and capacity prices plummeting. However, in light of the potential consolidation within the U.S. telecommunications industry, including the pending AT&T and SBC merger, Teleglobe believes that it is well positioned as the only company to focus exclusively on the international wholesale market. Although the price for data transport is highly variable as a function of geography and transport system, according to industry sources the price for data transport has declined due to overcapacity and intense competition. Our average revenue per minute, or ARPM, for international voice traffic has decreased significantly per year since the beginning of 2000, as price erosion has been offset to some extent by favorable product mix. We continued to experience price erosion throughout 2004 and anticipate this trend to continue but to a lesser extent.

Cost Deflation

The same factors contributing to price erosion, namely oversupply and competition among suppliers, as well as enhancements to network technology, have caused significant price deflation for voice termination and interconnection circuits. As a result, we expect to benefit from ongoing reductions in telecommunications and network expenses.

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Migration to VoIP

As a result of increased reliability and efficiency of VoIP technology, voice traffic using the technology has increased substantially since 2001. We believe that the addition of ITXC’s proprietary technology will permit the Company to maintain quality and reliability while benefiting from the cost advantages of VoIP transport.

Bell Canada Revenue Trends

The Bell Agreement was amended on June 12, 2003 to extend the agreement and Bell Canada’s minimum purchase commitment for two additional years, from January 1, 2006 to December 31, 2007. In exchange for Bell Canada’s agreement to eliminate the requirement that Teleglobe purchase telecommunications services for delivery in Canada exclusively from Bell Canada, Teleglobe agreed to eliminate the requirement that Bell Canada purchase certain telecommunications services for delivery outside of Canada exclusively from Teleglobe (i.e., IP transit, IPL and international voice), thereby permitting Teleglobe to enter into its agreements with other major Canadian telecommunications carriers such as Telus. The amendment also reduced annually, in each of the years 2004 through 2007, by specified amounts, the percentage of the traffic that each party is committed to purchase from the other. In addition, the pre-existing requirement to provide Bell Canada with at least as favorable pricing available to any customer receiving similar services, known as a most favored service purchaser clause, was maintained. As a result of these provisions and the overall trend in the international telecommunications industry toward continual price declines, revenues generated by Bell Canada have been and are expected to continue to decline over time. While Teleglobe’s revenues generated from Bell Canada are expected to continue to decline as a result of the amended agreement, access to the Canadian market has resulted in increased volumes from other major telecommunication companies in that market.

Critical Accounting Policies and Estimates

The discussion and analysis of Teleglobe’s financial condition and results of operations are based upon the Consolidated Financial Statements and Combined Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, investments, intangible assets, restructuring and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies apply to and affect significant judgments and estimates used in the preparation of its Consolidated and Combined Financial Statements:

Allowance for Doubtful Accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company estimates the amount of the allowance for doubtful accounts required to reduce accounts receivable to expected net realized value by reviewing the status of significant past-due receivables and analyzing historical bad debt trends and industry and customer specific conditions.

Revenue Recognition. There are limited estimates required in connection with recognition of revenue because voice and data traffic are measured in automated switches and routers, and contractual rates for traffic are used to bill or declare revenue on a monthly basis. However, for certain voice contracts, historical traffic may be retroactively re-rated within a contract period. This traffic re-rating is calculated and recognized immediately in the month the new contractual rate is established.

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Although relatively infrequent, there can be material disputes with customers over volume or traffic recognized on our customers’ switches. Our practice is to maintain recorded revenue based on our traffic data until the merits of a dispute are identified.

Telecommunications Expense. Recognition of voice termination expense for basic termination agreements is similar to revenue recognition and requires minimal estimation. However, material estimates are currently required for our more complex longer-term enhanced bilateral agreements, or EBAs. For these contracts, which have an average term of approximately five months, a termination rate is estimated at the beginning of the contract based on anticipated net inbound/outbound traffic and surcharges. Our current practice is to reconcile actual net traffic and surcharges after the contract terminates, which can result in material periodic adjustments.

Network Expenses. Maintenance and restoration expenses for undersea cables vary from period to period based on cable reliability and lit capacity within a sub-sea region. We accrue for these expenses using estimates of costs based on historical trends. On occasion, unanticipated events may require a material adjustment during a reporting period. Additionally, because of the complexity of industry practices for provisioning and disconnecting access circuits, disputes regarding termination timing and associated charges can occur. From time to time, we have experienced material adjustments during a reporting period from resolution of these disputes.

Valuation of Goodwill and Other Intangible. We have made acquisitions in the past two years that included the recognition of a significant amount of goodwill and other intangible assets. Commencing January 1, 2002, goodwill is no longer amortized, but instead is assessed for impairment annually or more frequently as triggering events occur that indicate a decline in fair value below that of its carrying value. In making these assessments, we rely on a number of factors including operating results, business plans, economic projections, anticipated future cash flows and market comparable data. There are inherent uncertainties related to these factors and our judgment, including the risk that the carrying value of our goodwill may be overstated or understated.

Income Taxes. Assessment of the appropriate amount and classification of income taxes is dependent on several factors, including estimates of the timing and probability of realization of deferred income taxes and the timing of income tax payments. Deferred income taxes are provided for the effect of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. We measure deferred tax assets and liabilities using enacted tax rates that, if changed, would result in either an increase or decrease in the provision for income taxes in the period of change. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. In assessing the likelihood of realization, management considers estimates of future taxable income, the character of income needed to realize future tax benefits, and all available evidence. Actual income taxes could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, our financial condition and results of operations in future periods, as well as final review of our tax returns by taxing authorities, which, as a matter of course, are regularly audited by federal, state and foreign tax authorities.

Recently Issued Accounting Standards

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an interpretation of ARB NO. 51, which addresses consolidation by business enterprises of variable interest entities (“VIEs”) either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 (Revised Interpretations) resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIEs created after January 31, 2003, but prior to January 1, 2004, may be accounted for either based on the original interpretation or the Revised Interpretations. However, the Revised Interpretations must be applied no later than the first quarter of fiscal year 2004. VIEs created after January 1, 2004 must be accounted for under the Revised Interpretations. The Company’s adoption of this standard did not result in a material impact on the Company’s financial statements.

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In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of APB No. 29, Accounting for Nonmonetary Transactions. SFAS 153 requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company is currently evaluating the potential impact this may have on its financial position, results of operations or cash flows.

In December 2004, the FASB released its final revised standard, SFAS No. 123R, Share-Based Payment. SFAS 123R requires that a public entity measure the cost of equity based service awards based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award or the vesting period. A public entity will initially measure the cost of liability based service awards based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. Adoption of SFAS 123R is required for fiscal periods beginning after June 15, 2005. The Company is evaluating SFAS 123R and believes the impact on the financial statements should be consistent with the FAS 123 pro forma disclosure contained in Note 17 of the financial statements.

Results of Operations - Comparison of the Years Ended December 31, 2004 and December 31, 2003

Set forth below is a description of the results of operations derived from the Successor financial statements for the year ended December 31, 2004 and the seven months ended December 31, 2003. These results include only the results of operations arising from the purchase of certain businesses from Old Teleglobe. The discussion below sets forth the results of operations derived from the Predecessor financial statements for the five months ended May 30, 2003 consisting of all businesses owned by Old Teleglobe. For purpose of comparing periods, the results for the seven months ended December 31, 2003 of the Successor have been grouped with the Predecessor financial statements for the five months ended May 30, 2003 by mathematically adding the relevant periods without making any adjustments. The results of operations for the year ended December 31, 2003 would have been different if the entire periods were part of the Successor. The results of ITXC are included in the consolidated results of operations from June 1, 2004.

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Revenues

The following table presents revenues derived from each product group and other relevant revenue-related information for the periods indicated. For geographical reporting, revenues are attributed to the geographic location in which the customer is located. The results of ITXC are included from June 1, 2004.

Predecessor revenue includes portions of the Predecessor business not acquired by Successor and may not be directly comparable. Total revenues, excluding revenues from Bell Canada, increased by $217.7 million or 31.9% to $899.6 million in the current period as compared to $681.9 million for the year ended December 31, 2003. The revenues generated from Bell Canada decreased due to the renegotiated volume and pricing arrangements as discussed above. The increase in revenues, excluding the Bell revenue, mainly results from the inclusion of ITXC revenue from June 1, 2004. The number of customers at current quarter-end represents an increase of 272, including customers obtained through the merger with ITXC, as compared to the comparable period in 2003.

Revenue generated from voice transport services increased by approximately $157.1 million or 24.3% to $803.1 million during the year ended December 31, 2004 from $646.0 million for the year ended December 31, 2003. The increase is mainly due to the inclusion of ITXC revenue from June 1, 2004 and from an increase in minutes of traffic carried. Minutes of traffic carried increased mainly due to a network expansion in Europe and

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additional market penetration in the USA with the signing of new contracts and customers. Total minutes of traffic carried in the current year versus last year increased by 49.8%. The increase is mainly due to the inclusion of ITXC related minutes from June 1, 2004 while excluding such amounts in 2003. The increase in revenue was partially offset by the current competitive pricing trends in the telecommunication industry and a scheduled decrease in volume and price adjustment under the Bell Canada Agreement. Although Teleglobe’s revenues generated from Bell Canada are expected to continue to decline as a result of the amended agreement, access to the Canadian market has resulted in increased volumes from other major telecommunication companies in that market.

During the year ended December 31, 2004, the average voice revenue per minute was approximately $0.071 per minute, as compared with $0.086 per minute during the year ended December 31, 2003. The decrease in average revenue per minute is primarily attributable to changes in our route destination mix, repricing of Bell services and to an overall decline in rates experienced in telecommunications over the past year.

Data service revenue decreased to $107.1 million in the year ended December 31, 2004 from $125.2 million in the year ended December 31, 2003. This amounts to a decrease of approximately $18.1 million or 14.4% on a yearly basis. The decline is in large part a result of cancellation of customer contracts in mid-2003 due to uncertainty with Old Teleglobe’s asset sale as well as the repricing of contracts upon renewal as a result of ongoing price competition. These declines were partially offset by increased traffic volumes billed to retained customers and new customers. During Old Teleglobe’s bankruptcy, the Predecessor experienced difficulty in signing up new data customers, which led to a decline in data revenues as existing contracts terminated during the five months ended May 30, 2003.

Revenue generated from value added services increased by $5.4 million or 6.2% to $92.0 million for the year ended December 31, 2004 from $86.6 million for the comparable period of 2003. We experienced increases in signaling services in the current periods, offset by a volume decline in other value added services primarily from operations that were eliminated during the restructuring of the Predecessor and by price erosion resulting from competition by new entrants into the mobile global roaming services market.

Operating Expenses

The following table outlines operating costs as a percentage of revenue for the periods indicated. The results of ITXC are included from June 1, 2004.

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Telecommunication expense

Telecommunication expense during the current year increased by approximately $148.4 million or 24.9% to $744.0 million from $595.6 million for the same period in 2003 primarily as a result of the increase in revenues due to the inclusion of ITXC’s results from June 1, 2004. The increase was partially offset by the termination of our mobile global roaming joint venture agreement with Comfone AG and lower voice termination costs reflecting benefits from price deflation. At the time of the Acquisition, management had decided to terminate the Comfone agreement and recorded its best estimate of the fair value of the termination payment as an unfavorable contract in the purchase price allocation. Accretion of the liability to reflect the amounts payable are recorded as interest expense. As a percentage of revenue, telecommunication expense increased during the year ended December 31, 2004 as compared to the prior year periods mainly due to an unfavorable mix of voice transport destinations with lower average margin per minute.

Network expense

Network expense decreased by approximately $23.2 million or 19.6% to $94.8 million in the current year from $118.0 million for the comparable period in 2003. The decrease is mainly due to the cancellation of access circuits in 2003 no longer required in 2004 as a result of the terminated contracts and the rejection of network contracts determined to be unprofitable. Further decreases resulted from ongoing contract renegotiations with our suppliers. The decreases were partially offset by the inclusion of ITXC’s network expenses from June 1, 2004.

Network expense as a percentage of revenue decreased in the current year as compared to the same period in 2003. The percentage decrease is a function of the decrease in expenses while revenues increased for the same comparative periods.

Selling, general and administrative expenses

Selling, general and administrative (SG&A) expense has increased by approximately $38.2 million or 38.8% to $136.8 million in the year ended December 31, 2004 from $98.6 million for the year ended December 31, 2003. The increase is mainly due to ITXC integration costs of approximately $11.4 million and the inclusion of ITXC’s SG&A expense from June 1, 2004. Furthermore, SG&A expense was adversely affected by the decline in value of the US dollar as compared to the Canadian dollar from the 2003 periods to the 2004 periods, resulting in an increase in our Canadian dollar expenses. The 2004 period also includes professional fees incurred in connection with the Foreign Corrupt Practices Act investigation in the approximate amount of $2.3 million. The overall increase in SG&A expenses in 2004, is partially offset by the inclusion of costs in the five months ended May 30, 2003 relating to certain operations of the Predecessor that were not acquired by the Successor. The integration of ITXC is currently underway and once completed is expected to provide significant synergies resulting in a decreased cost base. See “Merger Benefits and Expenditures” in the Overview section for an update on the ITXC integration.

Stock based compensation expense

A non-cash charge was recorded in the year ended December 31, 2003 as a result of the purchase of common shares from TLGB by key executives at the price paid for such shares by TLGB as of the closing of the Acquisition. The charge is calculated based on the difference between the purchase price of such shares paid by the executives and the estimated value of such shares as of the date on which both the executives were committed to buy the shares and TLGB committed to sell such shares. The change in the value of all of the outstanding

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common shares in the aggregate was determined to be an increase of $230.0 million from $5.0 million as of May 31, 2003 to $235.0 million as of July 10, 2003. An aggregate amount of 3.25% of common shares was deemed to have been committed to be purchased by Teleglobe management and sold by TLGB as of July 10, 2003 and, as a result, the Company recorded a compensation expense of approximately $7.5 million.

Professional fees incurred in connection with the carve-out financial statements

An amount of $3.6 million was recorded in 2003. These costs relate to professional services required to prepare and audit the carve-out financial statements.

Bad debt expense

Bad debt expense for the current year of $0.7 million decreased by $3.7 million or 84.5% from the year ended December 3,1 2003. The bad debt expense of $4.3 million recorded in 2003 reflects the inability of the Predecessor to effectively collect outstanding accounts in its liquidating international entities resulting from Old Teleglobe’s bankruptcy proceedings.

Foreign exchange (gain) loss

The foreign exchange gain of $2.6 million for the year ended December 31, 2004 is a function of the effect of fluctuations in the Canadian dollar, Euro, British Pound and other currencies versus US Dollar on the assets and liabilities of the Company. The 2004 amounts include a $1.7 million translation gain related to prior periods. The Company’s reporting currency is the US dollar, however, the Company transacts business in several different currencies.

The foreign exchange gain of $5.3 million recorded in 2003 is primarily due to the fluctuations in value of the Canadian dollar and Euro-denominated assets and liabilities.

Restructuring expense

During the year ended December 31, 2004, the Company reduced its workforce by 15 people. As a consequence, the Company incurred restructuring costs in the amount of $0.9 million consisting of severance. There were no restructuring expenses in 2003.

The retention bonuses that will be paid to ITXC employees upon their departure are being amortized over such employees agreed upon service period and are included in SG&A expenses. In 2004, the total amount expensed is approximately $1.5 million.

Amortization expense

Amortization expense in the current year of $6.3 million increased by $5.3 million or approximately 490% from $1.0 million for the same period in 2003. The increase is due to intangible assets recorded in connection with the Acquired Businesses and the merger with ITXC. The Predecessor did not have any intangible assets recorded at May 30, 2003.

Depreciation expense

Depreciation expense increased by $1.0 million or 4.2% to $26.1 million in the current year from $25.1 million for the comparable period in 2003 mainly due to the inclusion of ITXC’s depreciation partially offset by the lower carrying value basis in the assets of the Successor resulting from the application of purchase accounting.

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Other expenses

Interest expense

Interest expense in the current year of $19.2 million increased by approximately $18.0 million from $1.2 million for the comparable period in 2003. The increase is mainly due to $12.1 million accretion of the Comfone liability to the amounts expected to be paid. The joint venture agreement, acquired as part of the acquisition of the Predecessor, was terminated January 2003, requiring the Company to pay Comfone AG its share of any cash derived from the mobile global roaming business until the end of fiscal 2004. At the time of the Acquisition, management recorded its best estimate of the fair value of the termination payment as an unfavorable contract in the purchase price allocation. The remainder of the increase is mostly due to the interest expense related to the senior notes issued in connection with the ITXC merger.

Income taxes

The tax recovery of $1.7 million for the year ended December 31, 2004 is due to current tax recoveries of $1.9 million partially offset by deferred tax expense of $0.2 million. The current tax recovery of $1.9 million is primarily due to a $1.9 million tax receivable resulting from the carry back of losses incurred by the US entity in the year ended December 31, 2004 which will offset taxable income filed in 2003. The deferred tax expense of $0.2 million is the net result of recording deferred income tax assets due to net operating losses and other temporary differences in recognizing assets and liabilities for financial reporting and tax purposes, offset by a 100% valuation allowance reserve in respect to the deferred income tax assets, plus adjustments in respect to the 2003 prior period.

During the seven months ended December 31, 2003, income tax expense of $3.5 million was recorded. The provision for the seven months ended December 31, 2003 consists of current tax payable of $2.7 million mostly relating to the US operations, plus deferred tax expense of $0.8 million relating to various temporary differences.

Due to a different corporate tax structure from the Predecessor and the Predecessor’s bankruptcy proceedings, no meaningful comparison can be made to the five months ended May 30, 2003.

Results of Operations-Comparison of the Seven Months Ended December 31, 2003 (Successor) and the Five Months Ended May 30, 2003 (Predecessor)

Set forth below is a description of the results of operations derived from the Successor Financial Statements for the seven months ended December 31, 2003. These results include only the results of operations arising out of the Acquired Businesses after the purchase of the Acquired Businesses. The discussion below sets forth the results of operations derived from the Predecessor Financial Statements for the five months ended May 30, 2003. These results reflect management of the Acquired Businesses by the current senior management of Teleglobe pursuant to the IMA. However, certain operations of the Predecessor included in the Predecessor Financial Statements for such period were not acquired by Teleglobe Parent and continued to be operated by Consolidated Old Teleglobe and its management after May 30, 2003. For purposes of comparing periods of different length, the information below is presented using monthly average amounts for each of the seven months ended December 31, 2003 and the five months ended May 30, 2003, in each meaningful case derived from the actual aggregate amounts for such period.

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