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The CLEC Sector 2009:Making it to the Other SideNew Paradigm Resources Group, Inc.30 S. Michigan, Suite 700Chicago, IL 60603(312) 980-7848 New Paradigm Resources Group, Inc.www.nprg.comSeptember 15, 2009

The CLEC Sector 20091Sector Parameters2The Sector Today3Market Dynamics4Portfolio Evolution & Opportunities5Sector Trends & Forecasts6CLEC Sector OutlookInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.2

Today’s WebinarObjective: Present the “State of Affairs” of the CLEC sectorBased on:Recently completed industry research & analysis on the CLEC space9999CLEC Industry Analysis & Sector Analysis ReportsCompany-level research & analysisOngoing research across sectorsCompetitive Carrier Information & Analysis TrackInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.3

The Context Our last Webinar on the CLEC sector looked atthe evolution of “CLEC 2.0:” Carrier strategies tothrive in the “Web 2.0” era:– Facilities based CLECs– Partnerships and innovation to go off-net– Primacy of content and solutions– Addition of Value-Added ServicesThis and other webinars can be downloaded fromNPRG’s Resource Center at reports.nprg.comInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.4

The CLEC Sector 2009SECTION 1:SECTOR PARAMETERSInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.5

NPRG’s Sector Classification SchemaEmerging WirelessLTE / 4G CellularBroadband Wireless(incl. Wi‐Fi and WiMAX)AccessSolutionsVideoServicesSatelliteFixed WirelessPaid ContentFiber Network OperatorsIPTV(Competitive Video)Metro EthernetFTTHBPLCable VideoCable Broadband &TelephonyISPsFacilities‐Based CLECsRBOCsSoftware as a ServiceManaged ServicesVoIPIOCsNon‐Facilities CLECsCIOCsIn an increasingly diverseprovider universe,Facilities-Based CLECspossess unique—andvaluable—attributesWireline Voice & DataInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.6

Defining the SectorWhat Makes a CLEC a CLEC:Distinguishing FeaturesCarrier Characteristic:Networks: Access & Transport Network IntelligenceCLEC Features:Primarily fiber-based networksTDM-based Class 5 switches in place;Migrating to IPServicesFull range of voice servicesFull range of data offeringsSome offer advanced servicesHistorical AspectsNo 100 year history; 1996 ActMarkets ServedNo legacy “franchise” marketsCustomer BasePredominantly business usersInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.7

CLEC CompetitionCLEC Competitive Overlap with Other SectorsNature of Overlap andCompetition with CLECsSectorRBOC("in region")Broad voice and data portfolio (all customer segments), wireless basestation backhaulIndependent Operating Company (IOC)Broad voice and data portfolio (all customer segments)Cable Broadband & Telephony (CBT)Broad voice and data portfolio (primarily among residential and microbusiness), wireless base station backhaulFiber Network OperatorMetro fiber and long-haul transport (primarily enterprise and wholesalesegments), wireless base station backhaulInternet Service Provider (ISP)Internet access, high-capacity data serviceResellerBroad voice portfolio, some data servicesVoIPIP voice service, unified communicationsSource: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.8

The CLEC Sector 2009SECTION 2:THE SECTOR TODAYInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.9

Tale of the Tape: Sector MetricsCLEC Sector Sizing(2009)Facilities-Based CLECsTotal Revenue56 28 billionMetro Fiber Route-Miles185,000 Circuit Switches1,000 Packet Switches800 Access Lines 30 millionSource: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.10

Poll Question #1Sector MetricsInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.11

The CLEC UniverseAccess One, Inc.AMA TechTel Communications, Inc.AT&T, Inc. CLEC OperationsBayRing CommunicationsBirch Communications, Inc.Broadview Networks, Inc.Buckeye Telesystem, Inc.Cavalier Telephone, LLCCbeyond, Inc.CenturyTel, Inc. CLEC OperationsCIMCO Communications, Inc.Communication Options, Inc.ComSpan Communications, Inc.Cox Business ServicesDSL.net, Inc.Empire One Telecommunications, Inc.Falcon Broadband, Inc.First Communications, LLCGeneral Communication, Inc.Global Crossing, Ltd. CLECGlobal NAPs Networks, Inc.Informed Direction Within aChanging LandscapeGlobalcom, Inc.Grande Communications Networks,HomeTown Solutions, LLCIntegra Telecom, Inc.ITC Deltacom, Inc.Jaguar Communications, Inc.Level 3 Communications, Inc.Local Fiber, LLCLogix Communications EnterprisesMid-Maine CommunicationsNorlight, Inc.NTS Communications, Inc.NuVox Communications, Inc.One Communications Corp.Optimum LightpathOrlando Telephone CompanyOtter Tail Telecom, Inc.Pac-West Telecomm, IncPAETEC CommunicationsPCS1, Inc. New Paradigm Resources Group, Inc.Penn Telecom, Inc.Primus TelecommunicationsGroup, Inc.Qwest CommunicationsInternational, Inc. CLECRCN CorporationRIO NetworksRNK, Inc.Socket Telecom LLCStratusWaveCommunications, LLCSureWest CommunicationsTDS MetrocomTelNet Worldwide, Inc.tw telecom Inc.US TelePacific CorporationVerizon Communications, Inc.CLEC OperationsXO Communications, Inc.12

CLECs’ Relative SizeCompany Share of CLEC Sector Revenue (2009)VerizonCommunications, Inc.CLEC OperationsAll OthersLevel 3Communications, Inc.Cox Business ServicesAT&T, Inc. CLECOperationsQwest CommunicationsInternational, Inc. CLECtw telecom Inc.XOPAETECCommunications, Inc. Communications, Inc.Source: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.13

Sector BellwethersPublicly-held CLECs:Stock Price Changes (January 2008 – September 11, 2009)Percentage Decrease/Increase40%CbeyondDeltacomLevel 3PAETECRCNtw telecomXO CommunicationsS&P 50020%0%-20%-40%-60%-80%-100%Jan 2008Apr 2008Jul 2008Oct 2008Jan 2009Apr 2009Jul 2009Source: New Paradigm Resources Group, Inc. researchInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.14

CLEC 2009 Mid-Year ReviewIt’s not great, but it could be worse ¾ Sober financials, but surviving¾ Muted M&A activity ¾ But look, no bankruptcies!¾ Incremental network upgrades & build outs¾ Bolstering product portfolios around the marginsInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.15

The CLEC Sector 2009SECTION 3:Market DynamicsInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.16

Poll Question #2Competitive Pressure on ILECsInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.17

Residential Segment DynamicsMSOs and ILECs add revenue streams in the Residential Segment Large ILECsCable MSOsVoIP / Digital VoiceLocal LDVoiceCableTVFiOS / U-Verse / IPTVCableModemDSLCLECResidentialServicesSource: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.18

Residential Segment Metrics Leaving less room for CLECs in the residential segmentResidential Endpoints Deployed by All Carriers140120Cable Residential VoIP ched Residential Voice2010VoIP ResidentialSource: New Paradigm Resources Group, Inc.2014Millions of ResidentialSubscribersMillions of e: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.192014

The CLEC Sector 2009SECTION 4:Portfolio Evolution & OpportunitiesInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.20

Poll Question #3CLEC Revenue SourcesInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.21

CLEC Portfolio ValueCustomer Management of NetworkNetwork Planning and Consulting ServicesBusiness Continuity-Disaster Recovery (BCDR)ServicesSoftware-as-a-Service, Cloud ComputingPhysical CPE/PBX Management, etc.Network Monitoring, Alerting, Restoration, etc.“Value-Added Services"Provider Value AddedValue-Added Services in Carriers’ PortfoliosNetworking Services (VPN, etc.)Access & Transport, including Voice ServicePhysical Connectivity (“Pipes”)Source: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.22

Portfolio Evolution 2009Facilities-Based CLECs Offering Managed Services(2009)36%64%Do Not OfferDo OfferSource: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.23

CLECs’ Portfolio EvolutionRevenue Shifts(2008 - 2009)CompanyVoiceVideoDataOtherFirst Communications, LLCÐ 7.9%-Ï 7.2%Ï 0.7%Level 3 Communications, Inc.Ð 1.4%Ï 0.5%Ï 0.9%Ï 0.0%Norlight, Inc.Ð 3.2%-Ï 3.2%-PAETEC Communications, Inc.Ð 1.0%-Ð 1.2%Ï 2.2%tw telecom Inc.Ð 0.2%-Ï 0.3%Ð 0.1%Source: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.24

CLEC Industry Role 2009CLEC Wholesale OpportunitiesSectorCLEC Wholesale OpportunityRBOC("in region")Limited: Out-of-franchise access, some long distance serviceIndependent Operating Company (IOC)Interexchange services, long distance service, Internet transit andpeeringCable Broadband & Telephony (CBT)Backbone services (inter-regional transport), wholesale VoIP platformsFiber Network OperatorMetro and long-haul transport (complementary), switching, equipmentcollocationInternet Service Provider (ISP)Wholesale access, metro and long-haul transport, Internet transit andpeering, equipment collocationResellerWholesale access and voice service, interexchange services, longdistance, VoIP servicesVoIPWholesale VoIP platforms, origination/termination, E911, wholesaleaccess, metro and long-haul transportSource: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.25

The CLEC Sector 2009SECTION 5:Sector Trends & ForecastsInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.26

CLEC Sector Movement: RevenueCLEC Sector Annual Revenue Growth (%)Percentage Change e: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.27

CLEC Sector Movement: InfrastructureFacilities Deployed:Metro Fiber Route Miles GrowthGrowth in Metro Fiber Route : New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.28

CLEC Network Evolution ContinuesCircuit and Packet Switches Deployed(2008 to 2009)Circuit SwitchesNet Change inSwitch Count:Packet SwitchesNumber ofCompaniesPercent ofCompanies*Number ofCompaniesPercent ofCompanies*Increase00.0%1425.5%No Change4989.1%4174.5%Decrease610.9%00.0%Not Applicable1*1*Source: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.29

CLEC Access MethodsCLEC-Delivered Access Lines by Provisioning MethodSource: New Paradigm Resources Group, Inc.Informed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.30

Notable CLEC Activity in 2009 CLECs spotlighting fiscal, integrative triumphs:tw telecom (Xspedius), PAETEC (McLeodUSA,US LEC), Level 3 (multiple) Showcasing position for wireless backhaul andwireline content delivery as business drivers Hinting cleaner balance sheets precursors torenewed acquisition cycleInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.31

The CLEC Sector 2009SECTION 6:Sector OutlookInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.32

Poll Question #4CLEC Sector StrengthInformed Direction Within aChanging Landscape New Paradigm Resources Group, Inc.33