Sector ReportFiber Networks

2014 Q1

Contents

1. General

1.1 Introduction

1.2 Terminology

2. Markets

2.1 Dutch Market

2.2 European & Worldwide

3. Market Trends

3.1 Dutch Market

3.2 European & Worldwide Market

3.3 Country Differences

4. Market Consolidation

4.1 Mergers & Acquisitions' Activity

4.2 Growth Potential

Introduction

A cross-country report on the development of a solid fiber network infrastructure

During the past years we have seen a significant increase in the installation of fiber networks

throughout Europe. Whereas The Netherlands only counted an approximate 133.000 Fiber to the Home

connections in 2006, this number has grown close to 2 million connections at the end of 2013.

This report includes a cross-country comparison focused on the availability of Next Generation Access

networks and the development of fiber optics infrastructure. Additionally, this reports pays attention to the

emergence of local fiber networks in small-midsize municipalities in The Netherlands. Lastly, we identified a

list of recent M&A activity which supports the ongoing consolidation among.

This report has been compiled by BlueMind Corporate Finance, a member of the international Mergers Alliance network.

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Terminology

The below mentioned terminology summarizes the most common types of data exchange as described

throughout this report:

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Abbreviation FttH FttB (A)DSL VDSL DOCSIS NGA LTE

Definition Fiber-to-the Home(usually consumers)

Fiber-to-the Building(consumers and businesses)

(Assymetric) Digital Subscriber Line

Very-high-bitrate Digital Subscriber Line

Data Over Cable Service Interface Specification

Next Generation Acces

Long Term Evolution

Technology Fiber reaches the boundary of the living space, such as a box on the outside wall of a home.

Fiber reaches the boundary of the building, such as the basement in a multi-dwelling unit.

Technology for transferring data over regular copper phone lines that can be used to connect to the Internet.

Technology for providing data transmission faster than ADSL over a copper phone line or coaxial cable.

Technology that permits the addition of high-speed data transfer to an existing cable TV system.

Next-generation access describes a significant upgrade to symmetrical broadband access. Typical NGA networks include FttH and VDSL.

LTE is a wireless broadband technology such as 4G to support roaming Internet access via cell phones and handheld devices.

Downstream speed

up to 1000 Mbit/s

up to 1000 Mbit/s

up to 1.5 Mbit/s up to 50 Mbit/s up to 50 Mbit/s > 30 Mbit/s up to 100 Mbit/s

Upstream speed

up to 1000 Mbit/s

up to 1000 Mbit/s

Up to 832 Kbit/s up to 15 Mbit/s up to 30 Mbit/s > 30 Mbit/s up to 50 Mbit/s

Table 1: Data transfer terminology used throughout this report.Source: BlueMind

2. Fiber Networks

Markets

Dutch Fiber Optics Market (i)

The Netherlands – National Statistics

• At the end of September 2013, The Netherlands counted an approximate 1.9m households that were connected (homes passed) to a fiber optics network.

• The number of households actually subscribed amounted 626.000, or 33% with a conversion rate to an actual subscription of 35-40%.

• Almost 85% of all FttH networks are owned by Reggefiber (a joint-venture betweenReggeborgh and KPN), the remaining 15% is controlled by various independent companies and local initiatives. Please note that these numbers only consider consumer-or FttH networks, business-or FttB networks are excluded.

• More than half of all municipalities have been connected to a fiber optics network (140 municipalities in 2011 vs. 210 municipalities in 2013).

Graph 1: Number of homes that are actually connected and/-or subscribed to a fiber network.Source: Stratix (Q3, 2013)

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Dutch Fiber Optics Market (ii)

The Netherlands – Regional Statistics

• More than half of all municipalities have been connected to a fiber-optics network (140 municipalities in 2011 vs. 210 municipalities in 2013).

• Flevoland covers the largest number of homes passed (FttH) with an absolute percentage of 69% while Gelderland enjoyed the fastest growth and increased from 13% in 2011 to 43% of homes passed in 2013.

• The strongest growth for 2014 (10% increase in homes passed) is expected in Overijssel. Until recently, Groningen and Zeeland used to cope with relatively high installation costs. Alongside the availability of cable-and DOCSIS, growth of fiber networks is picking up now.

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Graph 1.1: Overview of regional differences among Dutch provinces from 2011 until 2013.Source: Stratix

Dutch Fiber Optics Market (iii)

The Netherlands – Regional Statistics

• As can be seen in the regional map, the largest increase in the number of homes passed was noticed in the East of The Netherlands.

• Reggefiber, market leader in The Netherlands, primarily focused on small-midsize municipalities during the past years as those wereeasy-to-manage targets with a relatively high conversion rate.

• However, 2013 experienced a significant shift towards bigger citieswhich include Amsterdam, The Hague, Eindhoven and Tilburg. Though, larger cities still seem to be somewhat of a problem due tocivil engineering issues and their high population density.

• Outskirts, or areas that are located far from the city center,continue to cause a challenge for fiber optic cable providers. Approximately 5-15% of all homes in a particular city are notconnected to a fiber optics network, thus full coverage remainsdifficult.

• LTE or mobile 4G networks have proven to offer a suitable alternative in rural areas to fiber optic networks in more centralareas. Graph 1.2: Contractors are now shifting their focus towards bigger cities.

Source: Stratix (2013)

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Dutch Fiber Optics Market (iv)

A selection of national market players:

A selection of local market players:

Source: BlueMind 9

European & Worldwide Fiber Optics Market (i)

International ICT Rankings

• The Netherlands consistently covers a prominent position in the international ICT rankings as it scores particularly high in terms of fixed broadband infrastructure quality and availability.

• In terms of broadband internet, The Netherlands has a strong developed infrastructure due to heavy competition among suppliers of cable (DOCSIS) and DSL networks.

• The Netherlands is considered the absolute number 1 in terms of broadband subscriptions and ‘Next Generation Access’ (NGA). NGA includes FttH, VDSL and TV cable (DOCSIS 3.0+).

Graph 2.1: Number of broadband and/-or NGA subscriptions per 100 inhabitants in 2012.

Source: Stratix, European Commission

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European & Worldwide Fiber Optics Market (ii)

International Fibre-to-the-Home Rankings

• With regards to active FttH/FttB subscriptions, The Netherlands remains out of the lead and is placed 25 th (approx. 5% at the end of 2011).

• The reason why The Netherlands is not on top of the list in termsof the number of active FttH subscriptions is mainly due to the fact that the NGA broadband cable-and DSL infrastructure (> 30Mb/s) is already well developed.

• The Netherlands is hindered by the ‘Law of the handicapof a head start’ which means that countries, in which broadband internet has not developed yet (e.g. due to a lack ofcopper cabling), are now installing fibre-optic networks right away.

• Also, strong competition, a lack of legislation and (EU) subsidiesare powering growth of fiber optics technology.

• Although The Netherlands has a lower coverage of fibre-opticnetworks, the degree of utilization or the so-called conversationrate is above the EU average (33% vs. 21%).

Graph 2.2: Percentage of active FttH/FttB subscriptions the end of 2011.Source: Stratix, European Commission

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European & Worldwide Fiber Optics Market (iii)

Coverage by Technology at EU level

• At the end of 2012, over 99.9% of European homes could have access to at least a standard broadband networkconsidering all technologies (fixed, fixed-wireless,mobile and satellite).

• Next Generation Access technologies (> 30Mb/s) are available to 53.8% of homes as of the end of 2012. DOCSIS 3.0 cable has by far the highest NGA footprint (39.4%) followed by VDSL (24.9%) and FttP (12%). The latter one, FttP, includes both FttH and FttB connections.

• NGA technologies are most widespread in Romania, Belgium, Lithuania and the Netherlands, where over 50%of lines are high-speed. NGA lines are mainly based on cable in the Netherlands and fiber (FttH and/or FttB) in Romania and Lithuania.

Graph 2.3: Internet coverage by means of technology in the EU.Source: European Commission, Communications Committee

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European & Worldwide Fiber Optics Market (iv)

Coverage by Technology at EU level

• Belgium, Lithuania, Romania and The Netherlands are themost advanced in NGA.

• In Belgium and The Netherlands as close to 60% of fixed broadband lines are at least 30 Mb/s as a result of fierce platform competition between cableand (V)DSL.

• The mid-range of 30-100Mbit/s also includes fiber connections as not all fiber networks are able to generatespeeds over 100Mbit/s yet.

Graph 2.4: Broadband lines by speed per country at the beginning of 2013.Source: European Commission, Communications Committee

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3. Fiber Networks

Market Trends

Trends in the Fiber Optics Market (i)The Netherlands

Growth Projections

• It is expected that the number of homes passed with FttH will increase from approx. 2 million at the end of 2013 towards 3 million in 2015. With a stabilizing growth rate, the number of new FttH connections is likely to average 500.000 per year.

• Reggefiber has indicated that it tends to have passed 60% of all households in The Netherlands by 2020, or 4.5 million households. However, the expected conversion rate remains low at roughly 30%. The FttH Council Europe estimates a total of 17.9% active FttH subscriptions by 2017 compared to only 8.3% in 2013.

Graph 3.1: Expected growth in the number of homes passed in The Netherlands. Source: Stratix, CBS

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Trends in the Fiber Optics Market (ii)

Positive Indicators

• The case for FttH is strengthening as costs continue to falland as the evidence for lower OPEX and energy costs grows.

• FttH Platform and Stedenlink have launched the ‘FttH Awareness’ program to highlight the importance of ultra-fast broadband technology for the near future.

• Strong growth in video-on-demand (e.g. Netflix) and other high-bandwidth internet services.

• The housing market is picking up again and greenfield housing will become an additional growth driver.

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Year Households Homes passed (P) Homes subscribed (S) Subscriptions Conversion rate (S/P)

2013 7.57m 1.91m 626.000 8.3% 33%

2015 7.60m 3.00m 990.000 13.0% 33%

Table: 3.1: Expected growth in the number of homes passed in The Netherlands. Source: Stratix, CBS

Negative Indicators

• DSL vectoring, bonding and other developments are leading some operators to consider DSL as fast enough and thus postpone any investments into new fiber networks.

• Outskirts are still considered a problem as these depend on subsidies or LTE technology.

The Netherlands

Growth Projections

• It is expected that the number of ‘homes passed’ with FttH will increase from approx. 2 million at the end of 2013 towards 3 million in 2015. With a stabilizing growth rate, the number of new FttH connections is likely to average 500.000 per year.

• Reggefiber has indicated that it tends to have connected 60% of all households in The Netherlands by 2020, or 4.5 million households, but this seems to be somewhat overoptimistic as FttH Council Europe estimates 17.9% active FttH subscriptions by 2020 compared by 1.6% in 2013.

Trends in the Fiber Optics Market (iii)Europe & Worldwide

Growth Projections

• In Western countries the picture will continue to be very mixed, with other incumbents gradually joining the FttH move but some sticking with cable-and (V)DSL.

• New entrants have had a big impact in Russia, Turkey, Bulgaria, Romania and many of the most dynamic markets, and growth in these countries will continue.

• Impact of mobile broadband: some substitution of fixed broadband, and diversion of capital, but counterbalanced by need for fiber backhaul, no major influence is foreseen.

Graph 3.2: Expected FttH household penetration by the end of 2017.Source: FttH Council Europe

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Trends in the Fiber Optics Market (iv)Europe & Worldwide

Positive Indicators

• Massive drive to FttH in Eastern Europe will continue, driven by competition, strong demand, favorable legislation and low costs.

• High penetration/conversion rate encouraging some to build out further.

• Average broadband line speed continues to grow fast, priming the market for FttH.

• The case for FttH is strengthening as costs continue to fall and as the evidence for lower OPEX and energy costs grows.

• Devices per home increasing; user-generated video and photography helping to drive higher upload demand.

• The housing market in Europe and the US is picking up again.

Negative Indicators

• Poor conversion rate in some areas such as France.

• Municipal movement making slow progress in some countries.

• DSL vectoring, bonding and other developments are leading some operators to consider DSL as fast enough and thus postpone any. investments into new fiber networks.

• EU severely cut the budget for new fiber projects in areas that don’t have access to broadband internet.

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Country Differences

Main factors contributing to differences between countries (in approximate order of importance):

• Actual achievements to date(e.g. availability of broadband internet, level of technology and internet speed)

• Attitudes and plans of the major potential builders (e.g. attitude depending on a minimum required conversion rate)

• Impact and effectiveness of regulation and government policy(e.g. private vs. state-owned, available subsidies)

• Competition and its impact (e.g. level of market fragmentation, net-neutrality vs. network discrimination)

• Density of housing, proportion of MDUs and amount of green-field construction(e.g. number of households, number of Multi-Dwelling-Units)

• Local appetite for high-bandwidth services(e.g. use of video on demand services such as Netflix)

• Local construction cost issues(e.g. availability of ducts, local civil construction factors)

Although the case for FttH and actual deployment both improved markedly in 2012, the gapbetween different countries in Europe, and between EU and non-EU area, is still widening.

Source: BlueMind 19

4. Fiber Networks

Market Consolidation

M&A Activity in The Netherlands (i)

• A selection of the M&A landscape in The Netherlands:

Table 4.1: Overview of the most prominent M&A deals in The Netherlands.Source: Zephyr, BlueMind

Date Acquiror Country Target Country Remarks

July-05 Eurofiber NL Northern Light Rail NL

June-06 Reggeborgh Invest NL Eurofiber NL

March-07 Eurofiber NL iConnext (Telecom Utrecht) NL

March-07 Eurofiber NL Fastfiber NL

Jan-08 CIF NLCAI Westland

(CAIW/Caiway)NL

Dec-08 KPN NL Reggefiber NL 41% stake deal

Feb-09 Reggefiber NLStichting Glasvezelnetwerk

AmsterdamNL

Increase of stake from 30% to 70%

Feb-10 CIF NL CAI Krimpen a/d Ijssel NL

Feb-10 CIF NL  CAI Loenen a/d Vecht NL

Feb-10 CIF NL CAI IJsselstein NL

Sep-11 CIF NL  CAI Albrandswaard NL

Jan-12 CIF NL KabelMedia Brabant-

Gelderland (KBG)NL

May-12 Doughty Hanson (PE) UK Eurofiber NL Majority stake

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M&A Activity in The Netherlands (ii)

• A selection of the M&A landscape in The Netherlands:

Date Acquiror Country Target Country Remarks

Nov-12 KPN NL Reggefiber NLIncrease of stake from

41% to 51% (deal value € 99m)

Dec-12 cBizz (CAIW) NL Ebo Glasvezel NL

Jan-13 CIF NL CAI Hendrik-Ido-Ambacht NL

Jan-13 CIF NL SCAI Borculo NL

Jan-13 Reggefiber NLOntwikkelingsbedrijf

Rotterdam (OBR)NL

Feb-13 CIF NL CAS Hilvarenbeek NL

Feb-13Reggeborgh (Deutsche

Glasfaser Gruppe)NL Sacoin DE

May-13 cBizz (CAIW) NL CAI Albrandswaard NL

May-13 Eurofiber NL Unet NL

Jun-13 Eurofiber NL Isilinx/IsiconneXion NL

Feb-14 KPN NL Reggefiber NLIncrease of stake from 51

to 60% (expected deal value € 116-161m)

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Table 4.2: Overview of the most prominent M&A deals in The Netherlands.Source: Zephyr, BlueMind

M&A Activity Internationally• A selection of interesting international M&A deals over the over the past years. Pleae note that most of these companies are active in

infrastructure as well as services.

Date Acquiror Country Target Country Deal value Pre-deal turnover

Turnover multiple

EBITDA multiple

Sep-09 Zayo Group USFibernet Telecom

US € 62,6m € 47m 1,3 7,0

Feb-11Time Warner

CableUS

NewWave Communication

sUS € 204,7m n.a.  n.a n.a.

May-11

Vocus Communicati

onAU

Digital River Networks

AU € 2,9m n.a.  n.a n.a.

Jan-11Rogers

Communications

US Atria Networks US € 320,5m n.a.  n.a n.a.

Jun-11 F2i Reti IT Metroweb IT € 436m € 51,6m 8,5 10,7

Nov-11 Level 3 US Global Crossing US € 2.273,9m € 1.977,5m 1,2 7,5

Jan-12 Zayo Group USArialink

BroadbandUS € 13,6m € 3,8m 3,6 n.a.

Jul-12 Zayo Group US AboveNet US € 1.738,1m € 365,2m 4,8 11,6

Aug-12 Zayo Group US Fibergate US € 92,8m € 11,2m 8,3 n.a.

Feb-13 Zayo Group USAccess

Communications

US € 29,6m € 2,3m 12,6 n.a.

Table 4.3: Overview of a number of interesting foreign M&A deals.Source: Zephyr, BlueMind

Accelerated Growth

• As we have seen throughout this report, the coverage of fiber networks is expected to grow further. The Netherlands will count over 3.0m of FttH connections by 2015 of which approx. 1.0m will have active subscriptions.

• The previous section indicated that M&A is a hot topic. Due to strong capital requirements, many small and local cooperatives are dependent on external financing by means of equity or debt.

• In addition to large capital requirements, operational costs tend to be significantly higher for small networks. By means of a merger or acquisition, both parties are able to share in maintenance and platform costs while still enjoying a certain level of independence.

• Currently, there are approx. 25 independent networks in The Netherlands and as we consider acquisitions a logical sequence to support growth, we foresee ongoing consolidation in the market.

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Mergers Alliance is a group of award winning corporate finance specialists who provide high quality advice to organizations that require international reach for their M&A strategies.

We focus on local and international deals up to US$500 million in value across a wide range of sectors. Over the past 12 months our partner firms have collectively completed over 100 deals, in 30 countries worldwide with an aggregate value of over US$3 billion.

Each of our partner firms is an independent local specialist with an extensive transactional track record within their territories. All partners are authorized by their local financial services regulator.

Over the past 10 years our professionals have been recognized as authorities on international corporate finance transactions and in particular the Mergers Alliance advisers have built up a reputation for being:

• highly experienced in executing international transactions

• specialists in a wide range of industry sectors

• entrepreneurial and committed to delivering the best deals for their clients

The Mergers Alliance Technology, Media and Telecom team brings global expertise and a broad transaction experience to our clients worldwide. We have strong industry links with prominent TMT strategic players as well as with venture and private equity investors in all major and emerging economies.

About Mergers Alliance

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Ron BeltManaging Partner, BlueMind Corporate Finance

Telephone+31 73 623 8774Emailron.belt@bluemind.nlLocations-HertogenboschNetherlands

Marleen VermeerAdviser, BlueMind Corporate Finance

Telephone+31 73 623 8774Emailmarleen. vermeer@bluemind.nlLocations-HertogenboschNetherlands

Stephanie ClerxSenior Analyst, BlueMind Corporate Finance

Telephone+31 73 623 8774Emailstephanie.clerx@bluemind.nlLocations-HertogenboschNetherlands