Financing Local
Fibre Access Infrastructure
FTTH Council Copenhagen
February, 2009
Network Economy Group
Bern - Brussels - Frankfurt - London

Company Background – Who we are
Focus
 Investment and management group focused on asset based projects in
Telecommunications, IT and Renewables, founded 1995
 7 partners spread over Europe linked with Remington Capital in the US
 Co-investments and co-management roles in the joint businesses with
strategic partners
Key facts
 Successful track record of joint public private partnerships over the last ten
years - successfully built-up, grown and sold 14 local fibre access ventures with
local utilities and municipalities - € 210m invested capital with an IRR > 100%
 Developed FTTH/C business cases with FT and DT in 2005
 Initiated and structured deals in 2007 to buyout incumbent infrastructure
jointly with Terra Firma, to restructure an Eastern European Telco jointly with
Citibank and in the NL with Waterland Private Equity
 In 2006 founded and funded Biossence Ltd., leading alternative energy from
waste company in the UK – now jointly with New Earth Solutions
Strictly Confidential Network Economy Group Page 1
Bern - Brussels - Frankfurt - London

Fiber is the ideal medium for the future
communication
Key choice driver Fiber Copper Wire
 Future proof and affordable local access
 Symmetric up and down loading of high
volume data
 Peer-to-peer communications
 Increase in competition of communication
services
 Freedom of choice
 Low operating expenses
 Low initial investment
Fibre (i) is technology agnostic; (ii) a shared medium ideal for symmetric network
architecture; (iii) has nearly unlimited capacity, and (iv)reduced operating costs
Strictly Confidential Network Economy Group Page 2
Bern - Brussels - Frankfurt - London

However fibre access infrastructure development
has to be carefully planned to substantially reduce
the initial investment
Main investment characteristic The cost per user can be reduced if..
 Working jointly with municipality and
 80% of the value is in the duct system
local utilities - 40% of construction cost
and access to buildings
reduction
 Long-term commitments from off-takers
 Civil engineering and property business
including local government to lower
outweigh telecommunications elements
interest rates and equity returns
 Sharing the infrastructure between
 Independence of the infrastructure from different Service Providers to enhance
the services is key penetration rates
 High penetration of usage ends to
decrease implementation cost per user
 Seamless fiber networks to decrease
operating cost by around 40-50%
€ ~150m CapEx is needed to connect a one million inhabitant area
Strictly Confidential Network Economy Group Page 3
Bern - Brussels - Frankfurt - London

Among the three financing options the green-
field is the preferred
1 2 3
Subsidization Structural Green field Success drivers:
Option to
separation
finance  Consensus.If you want
FTTH in Bayerischer
Buy out the wire- Wald (D) or Nuenen
Subsidization of Local initiative by
Description
line infrastructure (NL) first, take on the
the government local government
initiative
of the incumbent to attract specific
telco to set up an funds and the  Synergy.If you feel it is
independent a competitive advantage
local population
infrastructure to invest to distribute water,
business electricity or gas to the
local community then
optical fiber is the next
logical step
to whom and for No debt financing
Key concern  Funding.Only
what goals? available.
government
Political
guarantees / funds can
uncertainties
bridge the gap induced
by the current lack of
available debt financing
Strictly Confidential Network Economy Group Page 4
Bern - Brussels - Frankfurt - London

Green field approach is preferred, however 3
main challenges remain
Suggested approach
Key challenges
 How to get long-term off-take agreements  Local Government commitment to open access
upfront? and to off-take for their own needs
 Mobile operators moving into fixed mobile
convergence and are willing to off-take
 Set up a retail fund offering a financial product
based on long-term infrastructure commitment,
 How to get debt financing in place?
promoted by the local government, local banks
and local financial agencies
 A retail fund is easier to set up, to capitalize and to
manage than a cooperative solution. It could be
backed partly by government guarantees too
 How to convince the local mass market to use  If people invest in their own infrastructure they will
fibre based services instead of DSL or Cable- use it
TV based services?
Strictly Confidential Network Economy Group Page 5
Bern - Brussels - Frankfurt - London

Phased Process to Protect Downside Risk &
Generate Attractive Returns for Infrastructure Investors
1 2 3 4 5
Growth/
Complete Refinance/ Economics
value
Planning Commitment
Phases
funding Exit
creation
Joint From local Attract strategic Local Marketing of  Marketing of a  IRR for project
Descri-
planning government investors (local network to retail investment will be 10%, if
ption
exercise and organisations and businesses and fund to re-finance only the local
business as well as from international) residents to the network after public
planning with operators and and set up retail achieve a network 4yrs organisation is
local Service fund distributed usage of 50% over using the
 Exit for strategic
government Providers via local banks 5 years in network
investors through
and financial collaboration with trade sale to retail  IRR for project
agencies local distribution
fund at fair will be 20%, if
partner. Target market value usage can be
returns for increased to
residential 50% over 5
investors: Libor years
plus 2.5% pa
 Attractive
Return of 10%
for local
infrastructure
investors
(10-15%)
Strictly Confidential Network Economy Group Bern - Page 6
Brussels - Frankfurt - London

Project process structure
Start to build
core network for
municipality
locations
Municipality
Organizations
Add off-take
SPV Assets & Operations
agreements
Network
SPV
Economy Set up retail
Retail Fund Roll-out marketing
fund
Private Equity
Investors
Raise fund
Further network roll-out
jointly with local
distribution
partner
yr0 yr4
Step 1 Step 2 Step 3 Step 4
• Engagement of • Set up of SPV by NE/ • Start network rollout to • Building assets point to point
municipality / local PE connect local municipality • Set up operations
utilities to join NE • Municipality support of locations • Rollout marketing
business plan SPV by planning, • Set up retail fund with • Further network roll-out will be
• Engagement of Private ducts, locations, attractive structure funded by retail fund
Equity to join NE marketing • Starting fund raising with
business concept/plan • Municipality long-term local retail partner
commitment to use SPV=Special Purpose Vehicle
fibre
Network Economy Group
Brussels - Frankfurt – London – Bern

SPV Process structure
Private Equity/
Local Residents Network Economy
€1k-10k retail
distribution
Buyout/
High wealth
Network Economy
Fibre Access Fund
individuals
refinancing
With local partners
€ >20k direct
distribution
Local Institutional SPV Assets
investors
€1m Return b%
yr0 yr4
Step 3 Step 5
• Set up Retail and Direct • After fund raising the retail fund will
Funds to attract different buy the assets from LFAI for the
kind of investors and enterprise value
attract local institutional • Further network roll-out will be
investors direct investing funded by retail fund
into regional fibre access
projects
Network Economy Group
Brussels - Frankfurt – London – Bern

NE - combining sector expertise & development
skills with asset management
Partners
Management
Local Municipalities
Local Access Fiber
Fund
Infrastructure
Local Utilities
Manager Projects
Asset Management
and
Network Property Investments
Economy
Construction
Team
Fibre Network
Telco Service Provider
Operations
Strictly Confidential Network Economy Group Bern - Page 9
Brussels - Frankfurt - London

Reference project – Southern Europe
Number of residents: 800 000
Market Penetration: 70%
Number of connections: 290 000
Cumulated CapEx: €240m
Steady-state annual sales: €70m
EBITDA break-even: After 2 yrs
Mid-term EBITDA margin: 60%
Project return: 15%
Strictly Confidential Network Economy Group Page 10
Bern - Brussels - Frankfurt - London

Exit for strategic investors (step 5)
 Based on developed business plan and financial model for identified region the
initial investment of €30-50m is needed based on 50% debt leverage
 Milestones and preconditions of retail fund
Municipality commitment granted

Partnership with local utility agreed

First relevant ISP commitment secured

Initial Investment Structure and investment budget defined

 Exit after 4 yrs by selling the SPV at enterprise value to the retail fund
 Further fund raising of the retail fund will finance further rollout of the network
infrastructure
Strictly Confidential Network Economy Group Bern - Page 11
Brussels - Frankfurt - London