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    Telecom and Data Services

    Industry Overview

    October 29, 2010 Fiber: A Sector Evolves

    AnalystsColby Synesael

    (646) 562-1355

    [email protected]

    Jonathan Charbonneau

    (646) 562-1356

    jonathan.charbonneau

    @cowen.com

    Please see addendumof this report forimportant disclosures.

    www.cowen.com

    Conclusion:We believe increasing utilization of private WANs (wide areanetworks) and the public Internet will increase demand for fiber-basednetworks over the next several years and that this will create significantinvestment opportunities. After nearly ten years of 1) market consolidation, 2)increasing utilization, and 3) improving pricing, we believe we have reached aninflection point. Specifically, we believe the network has become an essentialcomponent of everyday life in both personal and business environments andthat this trend will accelerate in coming years. This in turn should drive double-digit revenue growth and increasing ROIC for the next few years for pure playbandwidth infrastructure providers focused on providing data-orientedservices to wholesale and enterprise customers.

    A Reintroduction to the Revitalized Bandwidth InfrastructureIndustry. Over the next few years we expect bandwidth infrastructure toevolve into a sizable standalone segment of the telecom services industry.While there will continue to be demand for voice-oriented services (even if itis primarily VoIP), we believe fiber companies that focus on providing asimplified/focused set of data services will generate the most growth andhighest margin. Although telecom networks were originally designed to helptransport voice, it is clear today that voice is only an application and thatcompanies focused on delivering all content over a horizontally alignednetwork are best positioned. Where we believe companies will be able todifferentiate is on 1) network density, 2) on-net locations, and 3) uniquenessof route.

    Relevant public companies. AboveNet (ABVT); Alaska (ALSK), AT&T (T),Cablevision (CVC), CenturyLink (CTL), Cogent (CCOI), Comcast (CMCSA),FiberTower (FTWR), Global Crossing (GLBC), Knology (KNOL), Level 3 (LVLT),Hickory Tech (HTCO), PAETEC (PAET), Sprint (S), TowerStream (TWSR), twtelecom (TWTC), Verizon (VZ), XO (XOHO).

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    Sections

    Introduction...5

    Market Consolidation5

    Increasing Utilization...7

    Improving Pricing.....10

    Copper Will No Longer Do..11

    Another Large Buildout is Unlikely.....11

    Service Offerings..............................................13

    Customers..16

    Ethernet Exchanges..17

    Wireless Backhaul18

    Conclusion...20

    Company Example.22

    Definitions.24

    M&A Transactions 2006-Present25

    Company Directory..26

    Charts

    Chart 1: U.S. Wireline Capex....5

    Chart 2: CLEC Industry circa 2001....6

    Chart 3: Notable 2010 Fiber Acquisitions......7

    Chart 4: Global IP Traffic.......8

    Chart 5: Broadband Subscriber Growth.....8

    Chart 6: Average Consumer Broadband Speed....9

    Chart 7: Elasticity of Price vs. Demand...10

    Chart 8: Max Speed and Distance for Various Copper-Based Solutions ....11

    Chart 9: Typical Capex Allocation.....12

    Chart 10: OSI Model....13

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    Chart 11: U.S. Ethernet Market Forecast..15

    Chart 12: U.S. IP MPLS VPN Market Forecast..16

    Chart 13: Customer Examples.....17

    Chart 14: Ethernet Exchange Providers.....17

    Chart 15: Example IRR for Fiber Backhaul.....18

    Chart 16: Wireless Backhaul Network......19

    Chart 17: North American Mobile Backhaul Connections Forecast...20

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    October 29, 20104

    Forward

    While the opportunity to invest in specific companies is obviously important, this

    report primarily focuses on investment trends. However, we do mention various

    companies in the report that we believe exemplify some of the opportunities that we

    discuss. In addition, at the end of the report (see page 26) we provide a list of public

    and private companies that provide bandwidth infrastructure solutions. For a morein-depth analysis of the public companies we cover (see page 32), please contact

    your sales representative to receive our individual company reports.

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    Introduction

    We believe increasing utilization of private WANs (wide area networks) and the

    public Internet will increase demand for fiber-based networks over the next several

    years and that this will create significant investment opportunities. After nearly ten

    years of 1) market consolidation, 2) increasing utilization, and 3) improving pricing,

    we believe we have reached an inflection point. Specifically, we believe the networkhas become an essential component of everyday life in both personal and business

    environments and that this trend will accelerate in coming years. This in turn should

    drive double-digit revenue growth and increasing ROIC for the next few years for

    pure play bandwidth infrastructure providers focused on providing data-oriented

    services to wholesale and enterprise customers.

    Although the first fiber optic cables were deployed in the late 1970s to help improve

    the delivery of voice traffic, the benefits were focused on reducing cost in the core

    where large volumes could be aggregated and transported over long distances more

    economically than copper. While this helped open up a new wave of competition

    that led to reduced long distance pricing, the value proposition of fiber outside the

    core remained limited. It was only in the mid-1990s with the commercial adoption of

    the Internet and the passing of the 1996 Telecom Act that it became apparent thatbuilding a last mile fiber network that extended to the end user premise and

    replaced the copper network would represent a new sector and have significant

    value.

    Market Consolidation

    Between 1996 and 2000 hundreds of fiber networks were built in the United States

    by a variety of local utilities, government sponsors, and individual companies.

    Although these networks were expensive to build and required significant planning,

    the bullish outlook on the Internet economy during this time, and the passing of the

    1996 Telecom Act, helped create significant investment interest.

    Chart 1: U.S. Wireline Capex

    $0

    $10

    $20

    $30

    $40

    $50

    $60

    $70

    $80

    1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

    Billions

    Source: US Census Bureau, Annual Capital Expenditures Survey

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    Like many technology trends however, demand took longer to reach fruition than

    expected and many companies that took on significant debt to support the builds

    were not able to survive. For example, of the 37 public companies the

    Telecommunications Industry Association identified as CLECs in its 2001 report, 23

    had filed for bankruptcy by the end of 2003.

    Chart 2: CLEC Industry circa 2001

    Company Status Company Status

    1 Adelphia Business Solutions BK March 2002 20 ITC Deltacom, Inc. BK June 2002

    2 Advanced Radio Telecom Corp. BK April 2001 21 Log on America, Inc. BK July 2002

    3 Allegiance Telecom, Inc. BK May 2003 22 McLeodUSA, Inc. BK February 2002

    4 Allied Riser Communications Acquired Feb. 2002 23 Mpower Communications Corp. BK April 2002

    5 Choice One Communications, Inc. BK October 2004 24 Net2000 Communications, Inc. BK November 2001

    6 Convergent Communications BK March 2001 25 Network Access Solutions BK June 2002

    7 Corecomm Ltd. Acquired June 2002 26 Network Plus Corp. BK February 2002

    8 Covad Communications Group BK August 2001 27 Northpoint Communications BK January 2001

    9 CTC Communications Group, Inc. BK October 2002 28 NTELOS Inc. BK March 2003

    10 Cypress Communications, Inc. Acquired April 2002 29 Pac-West Telecom, Inc. BK May 2007

    11 DSL.NET Inc. Acquired April 2006 30 RCN Corp. BK May 2004

    12 E Spire Communications, Inc. BK March 2001 31 Rhythms Netconnections, Inc. BK August 2001

    13 Electric Lightwave Acquired June 2002 32 Teligent, Inc. BK May 2001

    14 Fibe rNet Telecom Group, Inc. Acquired September 2009 33 Time Warner Telecom, Inc. Never went BK

    15 Focal Communications Corp. BK December 2002 34 US LEC Corp. Acquired March 200716 General Communication Never went BK 35 USOL Holdings, Inc. BK November 2005

    17 GST Telecomm Inc. BK May 2000 36 Winstar Communications BK April 2001

    18 ICG Communications BK November 2000 37 XO Communications, Inc. BK June 2002

    19 Intermedia Communications, Inc. Acquired July 2001 Source: Telecommunications Industry Association 2001 Annual Report, Company data, Cowen and Company

    Because many of the telecom companies that did not survive owned fiber that had

    already been placed in the ground, there was a significant amount of interest in

    acquiring these scarce assets during the downturn, albeit at a fraction of what it cost

    to build them. As a former boss of mine was prone to saying, there was significant

    value knowing where the bodies were buried. Some of the acquisitions made by

    telecom providers were to expand geographical presence while others were to

    increase network utilization by shuttering one network and combining traffic. This

    was particularly helpful in improving margin, considering the high degree of fixedcosts to run a network. Other assets went to buyout firms or market speculators.

    By the end of 2003 much of the weaker companies assets had been liquidated and

    the industry as a whole was in survival mode. However as the economy began to

    improve in 2004 and the valuation of many public telecom providers improved,

    another wave of acquisitions began. Although transactions were no longer being

    done for pennies on the dollar they were still considered good prices compared to

    what it cost to build the networks and what many of these companies were valued at

    before the bubble burst. Speaking with several providers who were involved, many

    viewed this round of acquisitions as the last group of fiber companies with sizable

    revenue and an opportunity to further improve market pricing/rationalization.

    By the end of 2007 the economy and the telecom industry in general were doingvery well. At the same time the promises of the Internet that were made in the 1990s

    were being seen in companies like Amazon (ecommerce), FaceBook (social network),

    and Salesforce.com (SaaS). The use of broadband (BB) had also significantly

    increased and businesses were now utilizing the network for a wide variety of tasks.

    With many of the larger fiber-oriented companies already acquired, M&A shifted to

    smaller deals. Companies began rolling up several of the remaining pure play assets.

    Private equity also emerged as a serious player since the industry provides many

    favorable characteristics including recurring revenue, a scalable model, and

    fragmentation (still).

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    Chart 3: Notable 2010 Fiber Acquisitions

    12.2x

    10.3x

    8.4x

    6.8x

    10.0x9.5x 9.7x

    7.8x

    Lexent

    Lightower

    $110

    Fibertech

    Court Squared

    $535

    KDL-Norlight

    Windstream

    $782

    WV FiberNet

    Ntelos

    $170

    AFS

    Zayo

    $100

    Veroxity

    Lightower

    $21

    AGL

    Zayo

    $71

    RCN Metro

    ABRY

    $496

    Target

    Acquirer

    Value (MM)

    LTME

    BITDA

    12.2x

    10.3x

    8.4x

    6.8x

    10.0x9.5x 9.7x

    7.8x

    Lexent

    Lightower

    $110

    Fibertech

    Court Squared

    $535

    KDL-Norlight

    Windstream

    $782

    WV FiberNet

    Ntelos

    $170

    AFS

    Zayo

    $100

    Veroxity

    Lightower

    $21

    AGL

    Zayo

    $71

    RCN Metro

    ABRY

    $496

    Target

    Acquirer

    Value (MM)

    LTME

    BITDA

    Source: Company data, Cowen and Company

    The increase in strategic M&A in the last few years has also been partly driven by thechange (or the perceived change) within the regulatory environment. Unlike the

    heavily regulated copper networks (or whats happening in the U.K.), fiber networks

    are largely unregulated. Current laws do not require incumbent carriers to sell fiber

    to other carriers at mandated wholesale rates. The concern then is that as the

    incumbents build out fiber networks they may elect to shut off parts of the copper

    network, which would leave competitive providers either without a way to reach

    customers or force them into a commercial agreement with the incumbent or

    another competitive carrier that could disrupt the economics of its business.

    Increasing Utilization

    According to Cisco, as of 2008, YouTube and Hulu generated twice as much monthly

    traffic as the entire U.S Internet backbone in 2000. Cisco also estimates that global IPtraffic will grow at a CAGR of 34% between 2009 and 2014. We believe IP traffic

    growth is directly correlated to increasing utilization of fiber networks since one of

    the primary values of fiber is that it supports higher capacity. We believe there are

    three interrelated events taking place that have led to IP traffic growth including

    increasing BB 1) users, 2) speeds, and 3) intensive applications.

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    Chart 4: Global IP Traffic

    0

    10,000

    20,000

    30,000

    40,000

    50,000

    60,000

    70,000

    2009 2010 2011 2012 2013 2014

    Petabyte

    s

    Internet Managed IP Mobile Data

    Source: Cisco VNI: Global Mobile Data Traffic Forecast Update 2009-2014, Cisco VNI: Forecast and

    Methodology, 2008-2013

    Drivers

    Over the past 10 years BB users at home, at work and on the go (wireless), have

    increased significantly. This is most obvious in the residential market where in the

    U.S BB penetration is now over 65% compared to approximately 4% in 2000. While

    residential BB users should continue to increase slowly, the majority of BB user

    growth in the U.S. going forward will come from wireless adoption and business

    expansion. According to IDC, the U.S wireless broadband market will grow from

    6.5MM subscribers in 2009 to 30.2MM in 2014, which equates to a CAGR of 36.1%.

    Surprisingly, there is a lack of information that shows business utilization of BB,

    although empirical observation suggests most businesses today use broadband and

    that future user growth will come from business expansion.

    Chart 5: Broadband Subscriber Growth

    0

    50

    100

    150

    200

    2000 2001 2002 2003 2004 2005 2006 2007 2008

    Millions

    Mobile Broadband Subscribers Fixed Broadband Subscribers

    Mobile Data Subscribers

    Source: FCC Fourteenth Annual Wireless Report (2010)

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    Ten years ago network connections at home and at work barely qualified as BB

    (>256Kbps) and wireless BB did not exist; however today this is significantly

    different. Median advertised BB speeds in the U.S. increased from 1.5Mbps in 2000 to

    7.0Mbps in 2009 (FCC). According to Cisco, in 2000 the average global residential

    Internet connection download speed was 127Kbps vs. 4.4Mbps in 2010.

    Although most residential users still rely on coaxial cable modems or copper- basedDSL, it accelerates wholesale demand for fiber. Within wireless, advancement of 3G

    and 4G (LTE and WiMAX) is also accelerating demand for fiber- based backhaul (see

    page 18). Within the business market, demand for Ethernet and IP VPNs that require

    >100Mbps service is accelerating, which typically requires fiber-based connections.

    Chart 6: Average Consumer Broadband Speed (Mbps)

    0.81.5

    2.4

    4.0

    7.0

    0.0

    1.0

    2.0

    3.0

    4.0

    5.0

    6.0

    7.0

    8.0

    1997 2000 2003 2006 2009

    Source: FCC Broadband Performance Report (2010)

    Over the past 15 years the use of the Internet has evolved from one of curiosity to

    one of ubiquity due to the increasing value of the applications and content being

    made available. While many of these applications require minimal bandwidth such

    as email or voice-over-IP (VoIP) others, like massive multiplayer online gaming

    (MMOG) and web conferencing, require significant bandwidth. At the same time the

    type of content being made available has transitioned from user generated (ex: early

    version of YouTube) to professional (ex: current version of Hulu). Importantly, these

    trends are not just evident with consumers, but also inside enterprises where the

    use of rich content websites and increasingly complex applications has become the

    norm.

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    Improving Pricing

    During the 1990s the largest network builds were long-haul routes connecting major

    cities to one another. Many companies partnered with other companies to help

    offset the costs, but it also meant that competitors were offering service on the

    same route. Making things worse, since many providers had a considerable amount

    of fiber strands they also sold dark fiber indefeasible rights of use (IRUs) to othercompetitors. When demand failed to reach fruition a significant glut of capacity led

    to commoditized pricing on many long-haul routes. Although utilization has gone

    up considerably in the last few years and IRU sales have continued to decline as the

    market consolidates, this glut remains on many of the more popular long-haul

    routes today.

    There has been less pricing pressure on regional routes or metro routes. While much

    of the investments during the last major build focused on long-haul routes there

    was less focus on routes that connected to the last mile providers or directly to an

    end user location. According to Vertical Systems Group (www.verticalsystems.com),

    only 22.9% of all businesses in the U.S. with greater than 20 employees are now

    connected with fiber, of which the majority is large enterprise locations. This is

    because of the additional cost and effort required to dig up city streets and connectto buildings, which can require elongated negotiations with city officials and

    building landlords. As a result, regional and metro fiber networks have experienced

    more stable pricing.

    While we generally assume that pricing is weaker for long-haul routes and stronger

    for regional or metro routes, it is important to note that the biggest impact is based

    on uniqueness of the route and end points, regardless of what type of route it is. It

    just happens that most unique routes are regional or metro. That said, the

    importance of diversification has increased the value of alternative long-haul routes

    that go to popular destinations (New York to Chicago) or for long-haul routes that go

    to destinations that have minimal networks built to them (New York to Fargo).

    Elasticity of Demand for Bandwidth is High

    Since the cost to support capacity is largely fixed, a provider who wants to sustain a

    profit should only lower its price as utilization increases. This is because the cost of

    bandwidth is associated with the cost a network provider spends to build capacity

    and is not necessarily tied to utilization. Said differently, if the cost to support

    capacity is 100 and the network operator has one customer it needs to charge that

    customer at least 100. However, if it adds a second customer it can rationally reduce

    the price per customer to at least 50. Using this logic, it is fair to assume that the

    price of bandwidth when measured on a per unit basis (ex: MB) is on a perpetual

    decline; however, high elasticity of demand will be able to support profitable

    revenue growth.

    Chart 7: Elasticity of Price vs. Demand (Absolute and Percentage)

    0.0% -5.0% -10.0% -15.0% -20.0% -25.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0%

    0% $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0%

    10% $2,200 $2,090 $1,980 $1,870 $1,760 $1,650 10% 10.0% 4.5% -1.0% -6.5% -12.0% -17.5%

    20% $2,400 $2,280 $2,160 $2,040 $1,920 $1,800 20% 20.0% 14.0% 8.0% 2.0% -4.0% -10.0%

    30% $2,600 $2,470 $2,340 $2,210 $2,080 $1,950 30% 30.0% 23.5% 17.0% 10.5% 4.0% -2.5%

    40% $2,800 $2,660 $2,520 $2,380 $2,240 $2,100 40% 40.0% 33.0% 26.0% 19.0% 12.0% 5.0%

    50% $3,000 $2,850 $2,700 $2,550 $2,400 $2,250 50% 50.0% 42.5% 35.0% 27.5% 20.0% 12.5%Y/YDemandIncrease

    Y/Y Price Decline Y/Y Price Decline

    Y/YDemandIncrease

    Note: Assume $20 base price per MB and 100 MB base demand or $2,000

    Source: Cowen and Company

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    In the immediate years following the bubble, the price of bandwidth decreased

    irrationally (i.e. below cost) as competition first accelerated and then companies

    fought to survive. As the market consolidated, pricing declines returned to historical

    patterns. Today, although bandwidth pricing continues to decline, lower equipment

    costs and growing bandwidth demand are enabling profitable double digit growth

    for providers of bandwidth infrastructure solutions. Thus, when we describe pricing

    trends as improving, we are in part referring to the total revenue a provider isgenerating from a customer location/route. Importantly, this excludes when a

    customer adds additional locations or services, which would be upside.

    Copper Will No Longer Do

    While improvement in technology has extended the life of legacy copper-based

    networks, physical limitations are starting to reduce the financial justification of

    upgrading such networks. The major disadvantage to copper-based networks is their

    limited bandwidth capacity. In addition, since copper-based networks use electrical

    signals to transport information they can suffer from multiple quality issues

    including a higher likelihood for attenuation or a weakening of the signal. This is

    more likely to occur as the distance between equipment increases. As a result,

    copper based networks need many additional amplifiers and repeaters, withthousands generally needed to replace a single high-bandwidth long-haul fiber

    cable.

    Chart 8: Max Speed and Distance for Various Copper Based Solutions

    Max Max

    Downstream Distance

    (mbps) (miles)

    SHDSL 5 1.75ADSL 12.5 1.10ADSL2plus 25 1.25

    DSL2 100 0.25 Source: Cowen and Company

    Another Large Buildout is Unlikely

    Considering the high costs and the significant time required to build a fiber

    network, today many providers are expanding in current markets or extending into

    adjacent markets rather than building in completely new markets. These providers

    are typically building out based on indications from current customers for specific

    capacity on specific routes. In addition, by expanding rather than building new they

    are able to leverage existing infrastructure, which can have a very positive impact on

    the associated return. Also, as demand for fiber directly connected to an end user

    location continues to increase, the value of building a deeper network is also

    increasing since it positions competitive providers as viable alternatives to the

    incumbent for last mile access.

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    When a provider does expand in a completely new market it typically leases out dark

    fiber from another provider versus building a new network. By doing so it can

    significantly reduce the cost associated with a build as well as time to market. If it is

    successful growing the customer base, the provider eventually could increase its

    margin by building its own network, although this would occur over an extended

    time period. As a result of the 1) high cost, 2) time required, and 3) unknown

    demand, to build a new network, we believe the risk of additional companiesentering the fiber industry is small. To our knowledge, Allied Fiber and Spread

    Networks are the only new companies that are building entirely new (long-haul) fiber

    networks in the U.S.

    Build versus Buy Logic

    We estimate that in 2010 the average EBITDA multiple (LTM) paid for a fiber

    company was 9.3x. While each deal is unique and it is difficult to quantify exactly

    how much it would cost to build a similar network (costs vary widely based on type

    of route and location), it is not just the cost to build the physical network that has to

    be considered, but also the time it would take to 1) build the network, 2) hire the

    employees, and 3) generate similar cash flow. All providers that we spoke with said

    they only consider entering a new market if they can do so through acquisition andinstead prefer to focus new builds on current or adjacent markets.

    We estimate that the majority of new builds being done are success based, meaning

    it is being done for a customer that will enable the provider to generate a positive

    return on the project. Typically most providers target at least a 30% IRR to take on a

    new project, although in recent years providers have reduced the initial IRR for

    specific projects like wireless backhaul that they believe have a high likelihood of

    being renewed or generating additional revenue (ex: another tower tenant takes

    service). In addition, current federal stimulus funding is enabling some providers to

    partner with the government where in some cases the government will pay for 80%

    of the build.

    Chart 9: Typical Capex Allocation

    65.0%

    20.0%

    15.0%

    Success Speculative Maintenance

    Source: Cowen and Company

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    Potential for High ROIC

    While it is important for fiber companies to sign customers to multi-year deals to

    offset the large amount of capex that is required to add a customer (ex: building a

    fiber lateral to the customers location) and generate the proper IRR, the ability for

    fiber companies to generate a high ROIC (return on invested capital) is tied to the

    ability to maintain and grow that customer. Because the cost to operate a network islargely fixed (i.e. high incremental margin) and because the incremental capex

    required to add bandwidth is small (ex: 1GB Ethernet to 10GB Ethernet), when a

    customer increases its bandwidth requirements the provider is able to generate a

    high ROIC. We estimate that many fiber providers generate north of 20% ROIC.

    Service Offerings

    Customers who purchase bandwidth infrastructure buy a combination of services

    that support their specific needs. One of the more helpful ways to understand the

    various services and how they interact with one another is to view them as part of

    the open systems interconnection (OSI) model. The OSI model helps subdivide the

    communications system into smaller parts called layers. By thinking of each layer as

    a function that provides a service to the layer above it and receives service from thelayer below it helps conceptualize the different types of solutions providers

    typically sell. Note that bandwidth infrastructure services are Layer 1 thru Layer 3,

    although some carriers offer additional Layer 4 thru Layer 7 services.

    Chart 10: OSI Model

    Application

    7

    Presentation

    6

    Session

    5

    Transport

    4

    Network

    3

    Data Link

    2

    Physical

    1

    ChainedLayers

    End-to-EndLayers

    Dark Fiber (L1) Financial institution or a Casinoconnecting multiple sites to a remote/consolidated storage orprocessing center

    DWDM (L2) 2.5GB low latency wave between tradingoperations in Chicago and to an electronic exchange in NewYork

    SONET (L2) CLEC using regional SONET private line ringconnecting main POPs in one or more markets

    Ethernet (L2/3) Wireless carrier for backhaul from towersto MSO

    IP VPN (L2/3) Regional retailer or bank/ATM networkconnecting all sites and forming the backbone for data andvoice connectivity

    Internet (L3) SME customer for direct Internet access, withmultiple upstream transit providers

    Application

    7

    Presentation

    6

    Session

    5

    Transport

    4

    Network

    3

    Data Link

    2

    Physical

    1

    ChainedLayers

    End-to-EndLayers

    Dark Fiber (L1) Financial institution or a Casinoconnecting multiple sites to a remote/consolidated storage orprocessing center

    DWDM (L2) 2.5GB low latency wave between tradingoperations in Chicago and to an electronic exchange in NewYork

    SONET (L2) CLEC using regional SONET private line ringconnecting main POPs in one or more markets

    Ethernet (L2/3) Wireless carrier for backhaul from towersto MSO

    IP VPN (L2/3) Regional retailer or bank/ATM networkconnecting all sites and forming the backbone for data andvoice connectivity

    Internet (L3) SME customer for direct Internet access, withmultiple upstream transit providers

    Source: Cowen and Company

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    Dark fiber

    Dark fiber is optical fiber, dedicated to a single customer, where the customer is

    responsible for attaching the necessary equipment and lasers to light the fiber.

    Although dark fiber can be expensive and fewer providers are now selling it than 10

    years ago, there is still demand from customers who prefer to have complete control

    over the network. Dark fiber is typically leased under long-term agreements of 10years or more and can be either structured as an operating expense or a capex

    expense known as an indefeasible right of use (IRU). Churn is very low. The

    throughput of dark fiber is dependent on the equipment the customer attaches.

    WDM and DWDM

    Wavelength-division-multiplexing (WDM) was created to help mitigate bandwidth

    constraint issues by combining multiple optical carrier signals onto one optical fiber

    by using different wavelengths or colors of light to carry each signal. Dense

    wavelength-division-multiplexing (DWDM) uses tighter channel spacing and can

    deliver more throughput over a single fiber. Modern systems can handle up to 160

    signals (10 Gbps per signal) for total theoretical capacity of 1.6 Tbps per fiber. This

    has reduced much of the need for additional fiber on current routes, although theequipment to light a wave or lambda or fractional fiber can still be expensive.

    SONET (similar to Private Line)

    Synchronous Optical Network (SONET) was created in the mid-1980s to help

    regional telephone companies exchange various types of data and video traffic more

    efficiently and economically than could be done over the public service telephone

    network (PSTN). SONET is a legacy solution that some fiber-based providers

    customers use to transport Ethernet. SONET transmits data at speed greater than

    155 Mbps and is refereed to as a self healing network because it is typically

    deployed using a ring architecture (although not always), which has the capability to

    transfer traffic in the opposite direction if a fiber cut occurs.

    Ethernet

    Ethernet is being adopted as the underlying service transport by enterprises,

    consumer triple-play platforms, and more recently, wireless backhaul. Developed by

    Xerox in 1973 (IEEE standard 1985), Ethernet is replacing legacy services such as

    SONET, Frame Relay and ATM because it provides more flexible bandwidth options

    and is highly scalable, which in turn makes it highly cost efficient. Because

    transitioning to Ethernet does require new equipment (albeit cheaper than legacy

    gear), upgrades typically occur when legacy systems reach the end of life or if the

    company or carrier is deploying new systems.

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    Chart 11: U.S. Ethernet Market Forecast

    $0.0

    $2.0

    $4.0

    $6.0

    $8.0

    $10.0

    $12.0

    2006 2007 2008 2009 2010 2011 2012 2013 2014

    Billions

    Ethernet

    CAGR 2009-2014

    16.6%

    $0.0

    $2.0

    $4.0

    $6.0

    $8.0

    $10.0

    $12.0

    2006 2007 2008 2009 2010 2011 2012 2013 2014

    Billions

    Ethernet

    CAGR 2009-2014

    16.6%

    Source: Infonetics, Cowen and Company

    IP VPN

    Although Frame Relay made corporate WANs an alternative as early as 1965 its

    spoke-and-wheel topology and its proneness to outages made it expensive. However,

    the advent of highly cost-effective virtual private networks (VPNs) in the late 1990s

    has accelerated the use of private wide area networks (WANs) in the business

    environment while the IPSEC protocol has reduced security concerns. In addition,

    globalization and the use of remote workers is also increasing demand for IP VPNservices that provide a cost-effective solution for employees working remotely and

    across the globe.

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    Chart 12: U.S. IP MPLS VPN Market Forecast

    $0.0

    $1.0

    $2.0

    $3.0

    $4.0

    $5.0

    $6.0

    $7.0

    $8.0

    $9.0

    2006 2007 2008 2009 2010 2011 2012 2013 2014

    Billions

    IP MPLS VPN

    CAGR 2009-20149.9%

    $0.0

    $1.0

    $2.0

    $3.0

    $4.0

    $5.0

    $6.0

    $7.0

    $8.0

    $9.0

    2006 2007 2008 2009 2010 2011 2012 2013 2014

    Billions

    IP MPLS VPN

    CAGR 2009-20149.9%

    Source: Infonetics, Cowen and Company

    Internet

    Internet Protocol (IP) was originally developed in the 1970s and is the primary

    network protocol used on the Internet and has also become the technology of choice

    among service providers throughout their next-generation networks. IP-based

    networks are able to avoid many of the costs associated with legacy circuit

    switched-networks such as provisioning, monitoring, and maintaining multiple

    transport protocols. Overall, IP networks are significantly less expensive to operatewhile also providing higher levels of performance when compared to traditional

    circuit-switched networks.

    Customers

    While bandwidth infrastructure services have historically only been needed by

    carriers, as bandwidth needs have continued to increase so has the number of

    potential customers. As a result, many providers today offer these solutions to

    customers that typically include healthcare institutions, financial institutions, the

    government, Internet centric businesses, content delivery networks, and other

    carriers.

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    Chart 13: Customer Examples

    Financials

    Multi-Gig - Low latency, secure, trading networks

    Off-site, secure backup of financial records

    Education

    Fiber based Gigabit network to schools/colleges

    Video/Distance Learning

    High speed private data networks

    Health Care

    Remote medical imaging, patient records

    Telemedicine

    Connectivity to research institutions

    Cloud Computing

    Outsourced server hosting

    Financials

    Multi-Gig - Low latency, secure, trading networks

    Off-site, secure backup of financial records

    Education

    Fiber based Gigabit network to schools/colleges

    Video/Distance Learning

    High speed private data networks

    Health Care

    Remote medical imaging, patient records

    Telemedicine

    Connectivity to research institutions

    Cloud Computing

    Outsourced server hosting

    Source: Cowen and Company

    Ethernet Exchanges

    When a provider wants to exchange Ethernet traffic with another provider it is

    required to translate service characteristics from one providers classifications into

    the others a process that can be very complex and timely. Using Carrier Ethernet,

    Ethernet Exchanges make interconnection efficient and economical by enabling

    seamless, one-to-many interconnections. Carriers are therefore able to buy and sell

    Layer 2 Carrier Ethernet services that are consistent across networks in real time

    with full service transparency and translation.

    When delivering traffic, carriers generally prefer to keep the traffic on-net as much

    as possible because using an off-net solution typically increases the cost of delivery,

    but also because it can reduce QoS. Using an Ethernet Exchange promises to reduce

    cost and improve QoS for carriers requiring an off-net solution. Ethernet Exchanges

    will also help carriers reach international markets more easily to help service

    multinational customers.

    Advent of Ethernet Exchanges Will Likely Accelerate Growth of EthernetService

    Over the past year, three companies including Equinix, CENX (with multiple

    partners), and Neutral Tandem (with partner Telx) have launched separate Ethernet

    Exchanges. Although the Ethernet market has continued to demonstrate strong

    growth over the last few years despite a weak economic environment, the advent of

    Ethernet Exchanges is expected to accelerate growth in coming years by making

    Ethernet more ubiquitous across providers and markets. According to VerticalSystems Group (www.verticalsystems.com), by 2014 the Ethernet Exchange market

    will be a $674MM worldwide opportunity versus almost nothing in 2010.

    Chart 14: Ethernet Exchange Providers

    Provider Date Announced Based On Markets

    CENX November 2009 MEF E-NNI U.S., Europe, Recently AsiaEquinix October 2009 MEF E-NNI North America, Europe, Asia-Pacific

    Neutral Tandem/Telx June 2010 MEF E-NNI U.S. Source: Company data

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    Largest Beneficiaries of Ethernet Exchanges are Likely to Be Customers Not Providers

    Providing an Ethernet Exchange service is simply an extension of the services that

    data center providers particularly those focused on interconnection like Equinix

    and Telx already provide. Historically, they provide the physical location for

    carriers to exchange traffic. By providing a more standardized exchange platformthey are removing the need for each carrier to forge their own separate

    arrangements to exchange Ethernet specific traffic with one another.

    From our vantage point then an Ethernet Exchange is simply one more type of

    service that interconnection providers will offer and will not prove to be a stand-

    alone business. As a result, we believe it is likely that CENX at some point is acquired

    by one of its data center partners or by one of the other Ethernet Exchange

    providers. At some point, we also expect providers to interconnect with one another

    to accelerate adoption and because customers will demand it.

    Wireless Backhaul

    As demand for wireless broadband data has increased, wireless service providershave begun upgrading various components of their backhaul networks from copper

    to fiber. While some fiber operators have responded aggressively others have moved

    more cautiously; however with initial adoption of 4G services expected to begin in

    2011 and mass adoption to begin in 2012 the overall industry response is becoming

    more positive despite significant variations in capital expenditures due to the

    geography of cell sites and abnormally long payback periods. We expect this

    demand to continue to provide significant growth opportunities for several fiber

    operators, although we expect investment returns to vary widely.

    Chart 15; Example IRR for Fiber Backhaul

    Rev/Tower/mo $625

    Life (years) 10 Average: 7-10 years

    Operating Margin 80% Average: 70-90%

    Capex/Tower $50,000 Can vary significantly

    Mbps 25 31 39 49 61 76 95 119 149 186

    Price $25 $24 $23 $21 $20 $19 $18 $17 $17 $16

    Monthly Rev $625 $742 $881 $1,047 $1,243 $1,476 $1,753 $2,081 $2,471 $2,935

    y/y growth 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8% 18.8%

    YEAR 1 2 3 4 5 6 7 8 9 10

    Revenue $7,500 $8,906 $10,576 $12,559 $14,914 $17,710 $21,031 $24,974 $29,657 $35,218

    Operating Cost 1,500 1,781 2,115 2,512 2,983 3,542 4,206 4,995 5,931 7,044

    EBIT 6,000 7,125 8,461 10,047 11,931 14,168 16,825 19,980 23,726 28,174

    One-time Capex 50,000

    NFV (44,000) 7,125 8,461 10,047 11,931 14,168 16,825 19,980 23,726 28,174

    Sum NFV 96,438

    Discount 1.2 1.5 1.9 2.4 2.9 3.6 4.5 5.5 6.9 8.5

    IRR 23.9%

    NPV (35,524) 4,644 4,453 4,269 4,093 3,924 3,762 3,607 3,458 3,315

    Sum NPV 0 Source: Cowen and Company

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    Backhaul Network

    Wireless backhaul is the transport network for wireless voice and data traffic from a

    cell site to a mobile switching center (MSC) and then to an exchange point or central

    office where it can be transferred to a carriers landline network or the Internet (i.e.

    the core). Historically traffic between most cell sites and MSCs has been delivered

    using wireless microwave signals or copper-based T1 lines. Although fiber providershave been building out to select carrier MSCs since the advent of commercial

    wireless in the 1980s, in recent years it has become more widespread as increasing

    wireless traffic continues to help improve the economics. Based on the same trends,

    fiber providers have also begun extending fiber to the actual towers.

    Chart 16: Wireless Backhaul Network

    CentralOffice

    MobileSwitching

    Center

    BaseStation

    Controller

    Tower

    Tower

    Tower

    Mobile Backhaul Network

    CentralOffice

    MobileSwitching

    Center

    BaseStation

    Controller

    Tower

    Tower

    Tower

    Mobile Backhaul Network

    Source: Cowen and Company

    4G Will Accelerate Demand

    Oncoming demand for 4G data services will require wireless carriers to upgrade

    many aspects of their backhaul networks to fiber-based Carrier Ethernet fromcopper-based T1s since LTE and WiMax are both expected to generate real world

    speeds of 4 to 6 Mbps down and 1 to 2 Mbps up. Said another way, if a tower is

    supporting 165 LTE users that are concurrently watching an HD video using 6 Mbps

    the tower would need to support 1 GB; far more than what is capable with copper.

    Although bonded copper or hybrid fiber-coaxial (HFC) cable networks will initially

    be utilized as well, it will most likely only be when fiber is not available. We also

    expect increasing utilization of microwave networks, which we discuss below.

    Microwave

    Although fiber is more reliable and does not require spectrum, in many cases

    microwave is more appropriate because of economics and time to market. In some

    cases carriers will use microwave to transfer traffic from multiple towers that aredifficult to reach geographically with a physical line, but are within line of site of

    one tower that serves as an aggregation point. The carrier can then pull fiber to that

    one tower (or still use microwave) from the MSC. Some microwave companies have

    also acquired fiber or have agreements with other fiber providers to offer an end-to-

    end hybrid solution. Providing a hybrid network can offer a better ROI than fiber

    only, although it will not scale to the same capacity and may eventually need to be

    replaced.

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    While there are many incumbent providers such as AT&T, Sprint, Qwest and Verizon

    Wholesale, as well as cable providers like Cablevision and Cox, going after the

    wireless backhaul market, a variety of fiber providers are also targeting the market

    including FiberTech, Intellifiber, Level 3, Lightower and Zayo, as are a handful of

    microwave companies including FiberTower, TTI, TowerCloud, and TowerStream.

    Chart 17: North American Mobile Backhaul Connections Forecast

    0

    100

    200

    300

    400

    500

    600

    700

    800

    900

    2006 2007 2008 2009 2010 2011 2012 2013 2014

    Thousands

    Copper Fiber Air

    Source: Infonetics, Cowen and Company

    Conclusion

    Over the next few years we expect bandwidth infrastructure to evolve into a sizable

    standalone segment of the telecom services industry. While there will continue to be

    demand for voice oriented services (even if it is primarily VoIP), we believe fiber

    companies that focus on providing a simplified/focused set of data services will

    generate the most growth and highest margin. Although telecom networks were

    originally designed to help transport voice, it is clear today that voice is only an

    application and that companies focused on delivering all content over a horizontally

    aligned network are best positioned. Where we believe companies will be able to

    differentiate is on 1) network density, 2) on-net locations, and 3) uniqueness of

    route.

    As private WANs and the public Internet continue to gain size and complexity an

    industry of infrastructure-oriented companies has developed to support its growing

    needs. As we described in this report, we believe bandwidth infrastructure is a key

    sector within this industry; however, we also believe that wireless towers and data

    centers are too. Somewhat common to real estate, the characteristics include 1)

    significant recurring revenue, 2) scalable fixed costs, and 3) high capital costs.

    Although each group is at a different stage in its respective life cycle in the U.S.

    market, each model should generate significant FCF and ROIC long term. We also

    believe that international expansion could sustain company-specific growth cycles.

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    One of the biggest issues with this sector is a lack of public companies that enable

    investors to participate in some of these trends. While several existing public

    companies are benefiting from the trends outlined in this report it is not clearly

    reflected in financial results because they derive revenue from other legacy telecom

    segments that dilute growth and/or margin. Based on conversations with various

    industry participants we expect some private pure play companies to file for an IPO

    in the next 12 months depending on market conditions and that this will increaseinvestment opportunities. That said, for now we believe the best public company

    that represents many of the underlying trends outlined in this report is AboveNet

    (ABVT, Outperform).

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    Company Example

    There are several stories in the telecommunications industry that provide colorful

    examples of the market exuberance that initially began to take hold as a result of

    deregulation in the 1980s and quickly gathered steam in the 1990s with the Telecom

    Act of 1996 and mass market adoption of the Internet, only to end in disarray in the

    early 2000s with the crash of the Internet bubble. To help put this in context wehave provided a brief summary of MFS and Level 3. While the story is somewhat

    unique considering it involves two separate companies the relationship between the

    two is worth noting. In addition, Level 3 is one of the few standalone operators who

    remain in business today and has taken part in some of the consolidation post the

    Internet bubble.

    In 1986 a company called Chicago Fiber Optics (CFO) commissioned Kiewit

    Corporation to build a metro fiber network in the business district of Chicago.

    However when it was completed CFO could not pay its bill and Kiewit eventually

    took ownership of the company. In 1987 Kiewit formed Kiewit Communications

    Company and in 1991 renamed it MFS Communications (MFS). After building a

    nationwide network, in 1993 MFS did an IPO to help raise additional capital with

    Kewitt and its insiders maintaining an approximate 50% stake in the company thatwas valued at approximately $2B. Then in 1996 the company acquired backbone

    provider UUNET for $2.0B and later that year was sold to WorldCom for $14.4B or

    24x 1995 revenue.

    Based largely on the success of MFS and the impact management thought the

    Internet would have on the industry, under the direction of Kiewit Chairman Walter

    Scott and former MFS CEO Jim Crowe, in mid-1997 Kiewit started up a similar

    venture it called Level 3 (a reference to the bottom three layers of the OSI stack that

    the company was focused on) with approximately $3B and the help of several former

    MFS executives it poached from WorldCom. The following year the company

    completed an IPO and by March 2000 the companys stock was trading at $130 per

    share. Its market cap was $44B and its enterprise value was $50B ($7.3B of debt and

    $1.3B of cash) and thus was trading at 42x 2000 revenue.

    By 2001 Level 3 was trading below $10.00 and it had significantly pulled back its

    spending. Capex cost went from $5.6B in 2000 to $2.3B in 2001. Post the crash Level

    3 made several financial moves to stave off bankruptcy, although one can argue that

    for the company it may have been better for it to go into bankruptcy and start fresh

    considering the sizable debt that remains on its balance sheet, which has hindered

    growth. The company also acquired some assets at highly discounted prices

    including Genuity for $242MM in 2003, which at one point had a market cap of

    approximately $5B. The company also sold some of its businesses including its

    Software Spectrum segment (acquired in 2002) in 2006.

    As the economy started to improve in 2004 it became clear that many of theexpectations Level 3 and other fiber operators had about the Internet would

    eventually reach fruition. However, unlike its thinking when the company was first

    created it appeared that the higher growth and margin opportunity would be had by

    shifting a large part of its focus on enterprise companies over carriers/ISPs and

    metro fiber over long-haul. At the same time, to further improve its margins the

    company believed it needed to increase its network utilization. As a result, between

    December 2005 and October 2006 Level 3 acquired six fiber operators of which the

    majority helped expand its presence in the metro and with enterprise customers.

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    Today Level 3s stock trades at $0.97 and it has a $1.6B market cap; however it still

    has $5.9B of net debt and it trades at 8.3X EV 2011 revenue. Although the company

    today has what we believe are significant fiber infrastructure assets the company

    generates a large amount of revenue from voice services and has had a difficult time

    integrating the assets it acquired, which in turn has led to execution problems.

    Going forward we believe the company is positioned well from an asset perspective

    to capture many of the growth opportunities we discussed in this report althoughnegating our excitement is its balance sheet. One of the best opportunities we see

    for the company would be to make accretive acquisitions or sell off some of its

    assets to pay down debt and simplify the company.

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    DEFINITIONS

    Types of Fiber

    What is optical fiber? Optical fiber is an extremely thin strand of transparent glass-

    like material that carries information in the form of light very long distances at

    extremely high speeds. Light travels through fiber by bouncing off the glass wallsand since no light is absorbed, the wave of light can travel long distances, albeit

    such issues like a weakening of the signal might occur due to impurities in the glass.

    Fiber-based networks that are being deployed today typically will have several

    hundred strands of fiber located within each fiber optic cable. There are primarily

    three different types of optical fiber that are being used for fiber networks today;

    multi mode, single mode, and non-zero dispersion shifted fiber.

    Types of Routes

    Long haul routes. Long-haul routes (sometimes refereed to as inter city routes)

    connect cities together. Typically terminate at a large POP (point of presence) like 60

    Hudson Street in NYC.

    Metro routes. Metro routes (sometimes refereed to as intra city routes) are routes

    within a specific city that are connected to various office buildings, data centers,

    and cell towers.

    Regional routes. Regional routes connect cities within a particular region or

    smaller distance. They share many of the same characteristics as a metro route.

    Undersea routes. Undersea routes are routes under water and are used to connect

    various continents and countries. They typically terminate at a large POP.

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    M&A 2006-Present

    Date

    Acquirer Target Announced Value Consideration EV/EBITDA**

    EarthLink ITC^DeltaCom 10/1/10 $516 100% cash 5.8x LTM

    Lightower Lexent * 9/14/10 $110 100% cash 12.2x LTM

    PAETEC Cavalier 9/13/10 $460 100% cash 5.1x LTM

    Ridgemont Equity Partners Unite Private Networks * 8/31/10 NA 100% cash NA NA

    Court Square Capital Partners Fibertech * 8/26/10 $535 100% cash 10.3x LTM

    Windstream KDL-Norlight * 8/17/10 $782 70% cash/30% stock 8.4x LTMNTELOS WV FiberNet * 7/20/10 $170 100% cash 6.8x 2009

    Zayo Group American Fiber Systems * 6/30/10 $100 100% cash 10.0x LTM

    Alinda Capital Partners DukeNet * 6/25/10 $274 bought 50% stake NA NA

    Lightower Veroxity * 5/25/10 $21 100% cash 9.5x LTM

    CenturyTel Qwest 4/22/10 $22.6bn 53% cash/ 47% stock 5.2x 2010

    Zayo Group AGL Networks * 3/24/10 $71 100% cash 9.7x LTM

    ABRY RCN Metro * 3/5/10 $496 100% cash 7.8x LTM

    PacketExchange Mzima Networks * 1/18/10 NA NA NA NA

    Ntelos Allegheny Communications * 10/6/09 $27 100% cash 6.0x 2009

    Zayo Group FiberNet * 5/28/09 $104 100% cash 8.5x LTM

    Zayo Group Columbia Fiber Solutions * 8/25/08 $12 100% cash - -

    Zayo Group Citynet assets * 9/30/08 $3 100% cash - -

    Zayo Group Adesta assets * 9/15/08 $6 100% cash - -

    Zayo Group CenturyTel markets * 4/2/08 $3 100% cash - -

    Zayo Group Northwest Telephone * 5/1/08 $7 100% cash - -

    First Communications Globalcom, Inc. 7/22/08 $59 100% cash - -

    Lightower DataNet Communications * 3/6/07 NA 100% cash - -

    Lightower KeySpan Communications * 3/6/07 NA 100% cash - -

    Zayo Group Citynet Fiber Networks * 2/18/08 $102 100% cash - -

    Zayo Group Onvoy 8/22/07 $77 100% cash - -

    Zayo Group Voicepipe 11/1/07 $3 100% cash - -

    PAETEC McLeoud USA 9/17/07 $558 100% stock - -

    Zayo Group Indiana Fiber Works * 9/1/07 $23 100% cash - -

    Zayo Group PPL Telecom * 8/1/07 $57 100% cash - -

    Zayo Group Memphis Networx * 7/1/07 $10 100% cash - -

    RCN Neon Communications * 6/25/07 $259 100% cash - -

    Integra Eschelon Telecom 3/20/07 $710 100% cash - -

    Level 3 Broadwing 10/17/06 $1,273 49% cash/ 51% stock - -

    PAETEC US LEC 8/14/06 $741 100% stock - -

    tw telecom Xspedius 7/27/06 $532 40% cash/ 60% stock - -

    Eschelon Mountain Telecommunications 6/29/06 $40 100% cash - -

    Broadview ATX Communications 6/27/06 $91 100% cash - -

    Level 3 Looking Glass 6/5/06 $156 49% cash/ 51% stock - -

    Qwest OnFiber 5/15/06 $107 100% cash - -

    Level 3 Telcove 5/1/06 $1,232 47% cash/ 53% stock - -Level 3 ICG Comm 4/17/06 $174 26% cash/ 74% stock - -

    Integra Electric Lightwave 2/7/06 $247 100% cash - -

    Level 3 Progress Telecom 1/26/07 $142 48% cash/ 52% stock - -

    Eschelon Oregon Telecom 1/26/06 $20 100% cash - -

    * Pure play Bandwidth Infrastructure company

    LQA, LTM,

    FTM

    Source: Company data, Cowen and Company estimates

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    Addendum

    STOCKS MENTIONED IN IMPORTANT DISCLOSURES

    Ticker Company Name

    ABVT Abovenet

    CBEY Cbeyond

    CCOI Cogent Communications GroupEQIX Equinix

    INAP Internap Network Services Corp

    LVLT Level 3 Communications

    PAET PAETEC Holding Corp

    RAX Rackspace Hosting

    SVVS Savvis

    T AT&T

    TMRK Terremark Worldwide

    TWTC tw telecom

    VZ Verizon Communications

    ANALYST CERTIFICATION

    Each author of this research report hereby certifies that (i) the views expressed in the research report accurately reflect

    his or her personal views about any and all of the subject securities or issuers, and (ii) no part of his or her compensationwas, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report.

    IMPORTANT DISCLOSURES

    Cowen and Company, LLC and or its affiliates make a market in the stock of ABVT, CBEY, CCOI, EQIX, INAP, LVLT, PAET,

    RAX, SVVS, T, TMRK, TWTC, VZ securities.

    Cowen and Company, LLC compensates research analysts for activities and services intended to benefit the firm's

    investor clients. Individual compensation determinations for research analysts, including the author(s) of this report, are

    based on a variety of factors, including the overall profitability of the firm and the total revenue derived from all sources,

    including revenues from investment banking. Cowen and Company, LLC does not compensate research analysts based on

    specific investment banking transactions.

    DISCLAIMER

    This research is for our clients only. Our research is disseminated primarily electronically and, in some cases, in printed

    form. Research distributed electronically is available simultaneously to all Cowen and Company, LLC clients. All

    published research, including required disclosures, can be obtained on the Firms client website,

    www.cowenresearch.com.

    Further information on any of the above securities may be obtained from our offices. This report is published solely for

    information purposes, and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in

    any state where such an offer or solicitation would be illegal. Other than disclosures relating to Cowen and Company,

    LLC, the information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport

    to be a complete statement or summary of the available data. Any opinions expressed herein are statements of our

    judgment on this date and are subject to change without notice.

    Notice to UK Investors: This publication is produced by Cowen and Company, LLC, which is regulated in the United

    States by FINRA and is disseminated in the United Kingdom by Cowen International Limited ("CIL"). In the United Kingdom,

    Cowen and Company is a Trading Name of CIL. It is communicated only to persons of a kind described in Articles 19 and

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