Member FINRA | SIPC

Proprietary

Bank Street Fixed-Line Communications Sector Analysis

4Q13 Commercial Services Market Sizing & Trending

April 4, 2014

Executive Summary With more than $100 billion in annual revenue, Commercial Services is a large and highly profitable market representing a compelling opportunity, particularly for companies with exposure to high-growth sectors such as Broadband Transport and Managed Services, including Voice-Over-Internet Protocol (VoIP) and Unified Communications (UC). Our quarterly survey covers 40 publicly reporting companies across the fixed-line telecommunications and managed services

sectors that are either Commercial Services pureplays or diversified companies that specifically disclose revenue from Commercial Services customer segments, including small to medium-size business (SMB), enterprise, government and carrier wholesale. Commercial Services revenue for the companies in our survey was $25.5 billion for the quarter ended December 31, 2013, up 0.2%

sequentially and down 1.6% on a year-over-year basis. Overall Commercial Services revenue has been essentially flat over the past four years as growth from new entrants and new services has been offset by the negative trends in legacy product categories. Bandwidth Infrastructure and Managed Network Services remain standouts in the fixed-line Commercial Services market with

robust growth in carrier, enterprise and government customer demand for capacity (i.e. Dark Fiber, Ethernet and Wavelengths) and enterprise demand for multi-point networking solutions (i.e. IP VPNs and MPLS) with security and other valued-added services. The VoIP and UC segment of the market is demonstrating remarkable growth as evidenced by the performance of the Cable MSOs

and pureplay VoIP providers, such as 8x8 and RingCentral, as well as diversified carriers with VoIP product offerings. Unlike the raw organic growth in the Broadband Transport category, most VoIP growth is cannibalizing legacy TDM-based voice services. In addition to Broadband Transport and VoIP services, we see growing demand for a broad array of Cloud Hosted Services,

including Microsoft Exchange, Data Storage for Backup and Archiving, Collaboration, Unified Communications, and Virtual Desktop. Cloud Hosted products could provide the next powerful wave of growth, particularly for companies focused on the SMB sector. The weak points in the Commercial Services market continue to be legacy products that are seeing sharp revenue declines as a

result of both price compression and customer churn due to product or technology substitution. Usage-based switched voice has been particularly weak in both the retail and wholesale markets with double-digit revenue declines for many market participants.

2

Bank Street possesses the focused expertise, industry knowledge and the substantial depth of transaction experience that our clients require to execute their financial and strategic objectives

Commercial Services Market Size Commercial Services revenue for the companies in our survey was $25.5 billion in 4Q13, up 0.2% sequentially and down 1.6% on a year-over-year basis. Overall Commercial Services revenue has been essentially flat over the past four years as growth from new entrants and new services has been offset by the negative trends in legacy product categories.

3 Source: Bank Street, SEC Filings and Company Websites

4Q12A 1Q13A 2Q13A 3Q13A 4Q13ACable MSOs $1,868 $1,953 $2,054 $2,157 $2,246Competitive Carriers $4,368 $4,278 $4,290 $4,271 $4,287Incumbent LECs $19,691 $19,226 $19,105 $19,029 $18,976Total $25,927 $25,458 $25,448 $25,457 $25,509

$0

$2,500

$5,000

$7,500

$10,000

$12,500

$15,000

$17,500

$20,000

$22,500

$25,000

$27,500

$ in

mill

ions

Commercial Services Market Share The incumbent LECs still comfortably enjoy dominant market share after 20 years of competition. Facilities-based competition from the Cable MSOs and over-the-top Hosted VoIP providers represent the most serious threat to the ILECs in the SMB market while fiber-based competitive carriers continue to gain ground in the Enterprise, Government and Carrier markets.

4 Source: Bank Street Research, SEC Filings and Company Websites

Incumbent LECs74%

Competitive Carriers

17%

Cable MSOs9%

Commercial Services Market Share (Q4 2013)

Incumbent LECs76%

Competitive Carriers

17%

Cable MSOs7%

Commercial Services Market Share (Q4 2012)

Bandwidth Infrastructure Quarterly Results Snapshot Fourth quarter results from fiber-based carriers showed strong growth fueled by enterprise and carrier demand for high-bandwidth connectivity, allowing many of the leading pureplay companies to deliver solid top-line revenue growth in spite of some churn and price compression from legacy SONET and TDM-based products.

5

“Cogent reported revenue of $89.9 million in 4Q13, a sequential increase of 2.4% and a year-over-year increase of 8.8%. Adjusted EBITDA in 4Q13 was $31.5 million, a sequential increase of 2.8% and a year-over-year increase of 10.5%. Capital expenditures were $10.1 million and the company generated $21.4 million of unlevered free cash flow in the quarter. Cogent will make a total dividend payment of $0.39 per share to be paid on March 27th.“ Cogent Communications, Inc. February 20, 2014

“Zayo reported fiscal 2Q14 revenue of $273.6 million, a $9.3 million sequential increase that included approximately $3.5 million of acquired revenue. The company's annualized organic growth rate accelerated 300 basis points to 9.0% based on its fiscal 2Q14 results. Zayo generated $161.5 million of Adjusted EBITDA in fiscal 2Q14. Capital expenditures were $88.3 million and Zayo generated $73.2 million in unlevered free cash flow.” Zayo Group, LLC February 6, 2014

“Level 3's total 4Q13 revenue was $1.602 billion compared to pro forma revenue of $1.614 billion in 4Q12, but its Core Network Services revenue grew 3.7% year-over-year and 3.2% sequentially. Core Network Services contributes approximately 90% of total revenue. Level 3's Adjusted EBITDA for 4Q13 was $466 million and the company generated $358 million of unlevered free cash flow in the quarter.” Level 3 Communications, Inc. February 5, 2014

“tw telecom reported 4Q13 revenue of $400.0 million compared to $377.9 million in 4Q12, a year-over-year increase of $22.1 million or 5.9%. tw telecom's 4Q13 M-EBITDA was $140.7 million, an increase of 1.7% from the same period last year as the company's M-EBITDA margin declined 140 basis points to 35.2% as a result of spending on its growth initiatives as well as higher access costs from growing multi-location customers.” tw telecom inc. February 11, 2014

Bandwidth Infrastructure Quarterly Revenue With organic growth of 1.7% sequentially and 5.9% year-over-year, tw telecom’s 4Q13 results exemplify the solid demand for broadband transport both in metro and inter-city deployments. Those demand trends are visible in the reported results of many of the other publicly reporting bandwidth infrastructure pureplays, including Cogent, Level 3 and Zayo.

6

$83 M $85 M $86 M $88 M $90 M

$0 M

$20 M

$40 M

$60 M

$80 M

$100 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Cogent Communications

$979 M $967 M $970 M $987 M $1,025 M

$0 M

$200 M

$400 M

$600 M

$800 M

$1,000 M

$1,200 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Level 3 Communications (North America CNS)

$378 M $381 M $389 M $393 M $400 M

$0 M$50 M

$100 M$150 M$200 M$250 M$300 M$350 M$400 M$450 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

tw telecom

$245 M $253 M $258 M $264 M $274 M

$0 M

$50 M

$100 M

$150 M

$200 M

$250 M

$300 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Zayo Group

Source: Bank Street, SEC Filings and Company Websites

Business Services (SMB) Quarterly Results Snapshot While still facing significant headwinds, recent results from diversified competitive carriers focused on the small and medium-size business (SMB) market reflected the better economic climate with improvements in gross customer additions as well as customer churn. Growth is primarily coming from broadband and services such as VoIP as opposed to legacy TDM offerings.

7

“Broadview reported 4Q13 revenue of $75.5 million, down 3.9% sequentially and 8.9% on a year-over-year basis. Broadview served 25,000 business customers at year-end 2013 with average monthly revenue per customer of $807 during the year versus $747 in 2012. Average monthly churn was 1.7% in 2013. Cloud-based services, including bundled and standalone services, generated 21% of total retail revenue, up from 7% in 2009.” Broadview Networks Holdings, Inc. March 31, 2014

“Cbeyond reported 4Q13 revenue of $111.5 million versus $118.9 million in 4Q12 and $113.7 million in 3Q13. While total revenue declined, Cbeyond 2.0 revenue was $20.6 million or 18.4% of total revenue in 4Q13, up 81.1% from 4Q12 and 15.3% 3Q13. Monthly ARPU was $658 during 4Q13, up from $638 in 4Q12 and $653 in 3Q13. Adjusted EBITDA was $17.7 million in 4Q13 compared with $18.8 million in 4Q12 and $18.0 million in 3Q13.” Cbeyond, Inc. March 17, 2014

“EarthLink reported 4Q13 revenue of $301.8 million versus $328.7 million in 4Q12, reflecting the ongoing impact of competition, price compression and churn in the company's legacy business. EarthLink's business services segment revenue comprised 78% of revenue in 4Q13. EarthLink generated Adjusted EBITDA of $50.1 million in 4Q13 and issued full-year 2014 guidance for Adjusted EBITDA of $180-$195 million.” EarthLink, Inc. February 19, 2014

“Integra reported 4Q13 revenue of $146.4 million, down 1.3% sequentially and 1.8% on a year-over-year basis. The company's results reflect solid progress in its transformation to serve larger customers that take strategic products, which represented 42.8% of total revenue in 4Q13 versus 31.5% in 4Q12. Integra reported $47.1 million of Adjusted EBITDA in 4Q13 and $15.2 million in unlevered free cash flow after capex of $31.9 million.” Integra Telecom, Inc. March 18, 2014

Business Services (SMB) Quarterly Revenue Recent results from diversified competitive carriers focused on the small and medium-size business (SMB) market reflect challenging trends. Escalating competition from the Cable MSOs and Hosted VoIP providers has made the low end of the SMB market an untenable proposition, highlighting the importance of focusing on larger customers with more sophisticated needs.

8 Source: Bank Street Research, SEC Filings and Company Websites

$83 M $81 M $80 M $79 M $76 M

$0 M$10 M$20 M$30 M$40 M$50 M$60 M$70 M$80 M$90 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Broadview Networks

$119 M $120 M $118 M $114 M $112 M

$0 M

$20 M

$40 M

$60 M

$80 M

$100 M

$120 M

$140 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

cBeyond

$254 M $248 M $243 M $241 M $236 M

$0 M

$50 M

$100 M

$150 M

$200 M

$250 M

$300 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

EarthLink

$149 M $148 M $148 M $148 M $146 M

$0 M$20 M$40 M$60 M$80 M

$100 M$120 M$140 M$160 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Integra Telecom

Cable Commercial Services Results Snapshot The Cable MSOs have done a remarkable job of leveraging their networks to serve business customers and are approaching 10% total market share in Commercial Services. As the Cable MSOs move up market to serve larger customers, we expect them to make acquisitions of both assets and product capabilities in order to enhance their ability to compete over the long term.

9

“Cablevision's 4Q13 consolidated revenue increased 4.5% year-over-year to $1.583 billion, demonstrating improved trends versus prior periods. The company's average monthly cable revenue per customer was $147.34, an increase of $6.43 or 4.6% year-over-year. Cablevision's business services unit Lightpath saw revenue increase 3.9% to $85.0 million while AOCF increased 14.8% to $37.0 million.” Cablevision Systems Corporation February 26, 2014

“Time Warner Cable’s revenue for the full year grew 3.4% year-over-year, driven primarily by growth of 21.6% in business services revenue and 14.4% in residential high-speed data revenue. The company reported business services revenue of $616 million in 4Q13, up 19.6% on a year-over-year basis with the strongest growth (29.9%) coming from voice services, which contributed $113 million in the period.” Time Warner Cable Inc. January 30, 2014

“Charter's 4Q13 revenue of $2.1 billion grew 5.0% on a pro forma basis as compared to the prior-year period, or 6.2% excluding advertising, led by growth in Internet, video, and commercial revenues. Commercial service revenue was the strongest contributor with 4Q13 revenue of $228 million up 19.4% over 4Q12 on a pro forma basis. Fourth quarter Adjusted EBITDA grew by 2.6% year-over-year on a pro forma basis.” Charter Communications, Inc. February 20, 2014

“Comcast’s revenue for its Cable Communications segment increased 5.2% to $10.7 billion in the fourth quarter of 2013 compared to $10.1 billion in the fourth quarter of 2012, driven by increases of 8.7% in high-speed Internet, 25.3% in business services with strong middle-market contribution and 2.3% in video, partially offset by a 7.5% decline in advertising due to lower political advertising revenue.” Comcast Corporation January 28, 2014

Cable Commercial Services Revenue Cable MSOs have generated strong organic revenue growth in the past three years with the four public filers generating annual Commercial Services revenue in excess of $7.2 billion. Despite their success, the Cable MSOs still have relatively small market share in proportion to the incumbent LECs and other competitive carriers, suggesting significant potential for future growth.

10 Source: Bank Street Research, SEC Filings and Company Websites

$82 M $82 M $83 M $83 M $85 M

$0 M$10 M$20 M$30 M$40 M$50 M$60 M$70 M$80 M$90 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Cablevision (Lightpath)

$515 M $537 M $565 M $594 M $616 M

$0 M

$100 M

$200 M

$300 M

$400 M

$500 M

$600 M

$700 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Time Warner Cable Business Services

$191 M $197 M $207 M $218 M $228 M

$0 M

$50 M

$100 M

$150 M

$200 M

$250 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Charter Commercial Services

$699 M $741 M $788 M $836 M $876 M

$0 M

$200 M

$400 M

$600 M

$800 M

$1,000 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Comcast Business Services

Hosted VoIP Quarterly Snapshot 4Q13 data from Synergy Research Group showed that the UC business suite now accounts for 8% of all managed and hosted business voice subscribers thanks to an annual growth rate of almost 30%. By comparison, managed on-premise IP PBX subscriber numbers are steadily declining while hosted business VoIP subscribers are growing at a rapid clip.

11

“8x8 reported revenue of $32.7 million for fiscal 3Q14, an increase of 24% over revenue of $26.4 million for fiscal 3Q13. The number of new services sold during the quarter was a record 61,286, an increase of 38% from 44,366 new services sold in the same period last year. Monthly business service revenue churn was 1.5%, compared with 2.3% in the same period last year. Monthly business customer churn was 1.6%.” 8x8, Inc. January 22, 2014

“ShoreTel Sky hosted revenues of $21.7 million were up 27% year-over-year and 5% sequentially. Gross margins on hosted revenue were 39.8% in ShoreTel’s fiscal 2Q14, compared with 43.3% in fiscal 2Q13. The total number of installed customer seats increased 40% over the second quarter of fiscal 2013 to approximately 136,000. Annualized revenue churn remained slightly below 4%.” ShoreTel January 23, 2014

“Alteva reported 4Q13 revenue of $7.4 million, an increase of 6.6% from $6.9 million for the same period in 2012. Revenues increased 16% year-over-year excluding the revenue from the Syracuse operations that were sold in September 2013. Unified Communications revenue was $3.9 million in 4Q13, an increase of 14% from $3.4 million for the same period in 2012. The company achieved Adjusted EBITDA of $2.5 million in 4Q13.” Alteva, Inc. March 28, 2014

“RingCentral reported 4Q13 revenue of $45.3 million, up 8.1% sequentially and 36.9% on a year-over-year basis. For the full-year ended December 31st, RingCentral reported $160.5 million of revenue as compared to $114.5 million for 2012. The company reported these results in the S-1 registration statement for its secondary equity offering, which did not disclose statistics for customers or churn for 4Q13.” RingCentral, Inc. March 7, 2014

Hosted VoIP Quarterly Revenue The strong growth of the Hosted VoIP market is clearly evidenced by the performance of pureplay public companies such as 8x8, RingCentral and ShoreTel’s Sky Hosted unit. The companies below cumulatively generated $104 million of revenue in 4Q13, up 7% sequentially and 30% on a year-over-year basis based solely on organic growth.

12 Source: Bank Street Research, SEC Filings and Company Websites

$26 M $29 M $30 M $31 M $33 M

$0 M

$5 M

$10 M

$15 M

$20 M

$25 M

$30 M

$35 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

8x8, Inc.

$3 M $4 M $3 M$4 M $4 M

$0 M

$1 M

$2 M

$3 M

$4 M

$5 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Alteva

$33 M $36 M $38 M $42 M $45 M

$0 M

$10 M

$20 M

$30 M

$40 M

$50 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

RingCentral

$17 M $18 M $19 M $21 M $22 M

$0 M

$5 M

$10 M

$15 M

$20 M

$25 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

ShoreTel Sky

Incumbent Strategic Services Quarterly Snapshot While the incumbent LECs continue to experience across the board pressure in their Commercial Services businesses, each of the major companies provide useful disclosure on their revenue from Strategic Services, including current generation Broadband Transport and other networking products, managed services and other growth segments.

13

“In the fourth quarter of 2013, Strategic business services growth accelerated with revenues up 4.2% sequentially and 17.4% year-over-year to $2.25 billion, now contributing more than 25% of wireline business revenues. AT&T's strategic business services are its most advanced business solutions, including VPN, Ethernet, cloud, hosting and other advanced IP services.” AT&T Inc. January 28, 2014

“Windstream’s business service revenue was $920 million in the fourth quarter, up $4 million sequentially and $3 million year-over-year. Business services revenue now contributes 61.7% of total revenue. Data and integrated services grew more than 3 percent in the fourth quarter from the same period a year ago to $412 million due to growth in integrated voice and data services and data center services.” Windstream Corporation February 26, 2014

“CenturyLink’s business segment achieved year-over-year recurring revenue growth driven by continued demand for high-bandwidth data services and solid sales momentum. Strategic revenues were $643 million in the quarter, a 7.5% increase over 4Q12. CenturyLink Business revenue includes Ethernet, Wavelength and MPLS Services and excludes Savvis.” CenturyLink, Inc. February 12, 2014

“Verizon reported that 4Q13 revenue from strategic services to global enterprise customers grew 2.3% to $2.139 billion compared with $2.030 billion in 4Q12 and represented 59% of its total global enterprise revenue of $3.646 billion in 4Q13. Strategic services include cloud and data center services, security and IT solutions, advanced communications, strategic networking and telematics services.” Verizon Communications, Inc. January 21, 2014

Incumbent Strategic Services Quarterly Revenue While the incumbent LECs continue to experience across the board pressure in their Commercial Services businesses, each of the major companies provide useful disclosure on their revenue from Strategic Services, including current generation Broadband Transport and other networking products, managed services and other growth segments.

14 Source: Bank Street Research, SEC Filings and Company Websites

$1,915 M $1,978 M $2,099 M $2,157 M $2,248 M

$0 M

$500 M

$1,000 M

$1,500 M

$2,000 M

$2,500 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

AT&T

$2,090 M $2,087 M $2,079 M $2,115 M $2,139 M

$0 M

$500 M

$1,000 M

$1,500 M

$2,000 M

$2,500 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Verizon

$598 M $613 M $615 M $638 M $643 M

$0 M

$100 M

$200 M

$300 M

$400 M

$500 M

$600 M

$700 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

CenturyLink

$917 M $914 M $913 M $916 M $920 M

$0 M

$200 M

$400 M

$600 M

$800 M

$1,000 M

4Q12A 1Q13A 2Q13A 3Q13A 4Q13A

Windstream

Methodology & Limitations Our quarterly survey covers 40 publicly reporting companies across the fixed-line telecommunications and managed services sectors that are either Commercial Services pureplays or diversified companies that specifically disclose revenue from Commercial Services customer segments, including small to medium-size business (SMB), enterprise, government and carrier wholesale. This survey is intended not to provide a comprehensive view of all companies competing in the Commercial Services market, but an

indicative one based on those leading companies that publicly disclose their financial results. Based on the size and number of companies included in this survey, we believe it covers approximately 90% of revenue from the Commercial Services market. Competitive Carriers included in our survey include 8x8, Alteva, Broadview Networks, Cbeyond, Cogent Communications, EarthLink,

GTT Communications, Integra, Inteliquent, Level 3 Communications, Lumos Networks, RingCentral, ShoreTel Sky, Sprint (Wireline), Sunesys, TelePacific Communications, Towerstream, tw telecom, Vonage Business and Zayo. Cable MSOs included in our survey include Cablevision, Charter, Comcast and Time Warner Cable.

Incumbent LECs included in our survey include AT&T, CenturyLink, Frontier, Hawaiian Telecom, Hickory Tech, TDS Telecom, Verizon

and Windstream. Among the publicly reporting major incumbents not included in our survey, Consolidated Communications, Fairpoint, and Otelco do not provide revenue mix details that would allow us to determine revenue from Commercial Services. In many cases, companies that have made significant strategic acquisitions will provide re-stated historical quarterly results in order

to allow for apples-to-apples organic growth comparisons with prior periods, which is the case with EarthLink, Level 3 and Windstream. However, some companies do not provide restated historical financials, so the historical growth comparisons are not all purely organic.

15

Contact Information Bank Street combines the professional team, transaction experience, industry insight and capabilities of a bulge-bracket investment bank with the focus, dedication, and senior level attention of a boutique practice in order to yield outstanding results for its clients.

16

Bank Street Group LLC Four Landmark Square

3rd Floor Stamford, CT 06901

For information, please contact:

James H. Henry Senior Managing Director

(203) 252-2802 jhenry@bankstreet.com

Richard S. Lukaj Senior Managing Director

(203) 252-2801 rlukaj@bankstreet.com

J. Peter Beckett Managing Director

(203) 252-2814 pbeckett@bankstreet.com

Gardner L. Grant, Jr. Managing Director

(203) 252-2815 ggrant@bankstreet.com

Amy S. Johnson Managing Director

(203) 252-2803 ajohnson@bankstreet.com

Steve K. Lee Managing Director

(203) 252-2806 slee@bankstreet.com

Jon Vanden Heuvel Managing Director

(203) 252-2811 jvandenheuvel@bankstreet.com

Kevin Chu Vice President

(203) 252-2808 kchu@bankstreet.com