OREGON CONNECTIONS HOOD RIVER October 24, 2013 Company Background Clear Creek Communications Service Area 52 Sq. Miles Founded 1906 Statistics Dwindling Access Lines Stable DSL and Cable Modem Customers (20/80) Stable Number of Video Customers Growing Number of Security Customers We serve no place Virtually no cities, towns or named communities The Network of the Future May Not Be Your Own External Forces Are Changing How Traditional Carriers View the Very Nature of Their Operations Leveraging Any Available Network is Now Acceptable External Forces Change the Future Three Drivers of Change 1. 2. 3. Reductions in Traditional Revenues Financiers Tighten Credit Active Regulatory Period Opportunities Brought by Change Reactions New Revenues and Markets Actions Outcomes 1.) Reduction in Traditional Revenues ILEC’s Actions Traditional Cost Cutting Can Result In Returned Revenue Customers Actions Movement Toward Wireless Can Result in Uncollected Revenues Action Of Others Events Beyond Your Control Can Result in Lower Revenue ILEC’s Actions Can’t Manage an ILEC Like a Normal Business Cost Savings vs Cost Study Complicated by Two Year Lag Positive Impact Can Be Short Lived Frustration and ?#*%&$! Customer Action Adoption of Broadband Loss Shift Toward Wireless Loss of Second Lines of Primary Lines Recession Just Trying to Cut Back Impact on All Services Expanded Options Some Customers May Not Know You Customer Actions Wireless Drift 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Access Line Loss Actions of Others Local Impact Caused By Separation Rules Returns That Are Driven By Averages National Average Loop Cost Local Rate Benchmarks CAPS Directly Impacted Our Operations Heavy Investment In Some Areas Raised NALC Our Investment Straight Lined Impacts Our NALC Multiple Significant Reduction in Support 20% of Annual Revenue Lost Actions of Others Exponential Growth National Average Loop Cost Increase 7.5%,14%, 10%, 12%, 1% NACP Grew 3x Faster Than Company 800 700 600 500 400 300 200 100 0 2.2x 2.1x 1.9x 1.7x 1.5x 1.6x Clear Creek National Average 2006 2007 2008 2009 2010 2011 2.) Financiers Tighten Credit Concerns With Industry Segment Telephone Business Performance Regulatory Uncertainty Result Cautious Lending Tighter Covenants Bottom-Line Less Capital Available Loan Pre-Payments Concerns With Industry Segment Industry Multiples – Jan 2013 Mean Enterprise Value Growth Lending Multiple Transport/ Data Center 13.0 x (DC’s) 10 – 20% 3.5 – 6.0 x Cable 7.3 x 5 – 10% 3.5 – 6.0 x Wireless 5.2 x 0 – 5% 2.5 – 3.5 x Telco 5.7 x -5 – 5% 1.5 – 3.0 x Credit Impacts Operation Shifts Importance of Debt Service 20% Movement in 5 Years Options Still Exist For Funding Telephone 23% 2012 Leverage Must Be Moderate Business Plan Must be Prudent Heightened Due Diligence Will Be Pricing to Risk Bank Will Have a Greater Focus Management Diversification Performance To Plan 2016 Debt Service 52% Television 25% Telephone 6% Television 20% Debt Service 74% 3.) Active Regulatory Period Pressure on Telco Operations Limitations on USF Support Phase Down of Switched Access Cost Recovery Corporate Operations Expense Limitation Rate of Return Re-Prescription And More Pressure on Telco Operations USF and ICC Reform is Our Reality Industry Continues to Advocate We Are Well Represented Yet That May Not Solve Your Specific Challenge Some of Us May Have Serious Issues Regulators They Continue to Regulate May Not Have Your Best Interest In Mind Surprise! 4.) New Revenues and Markets Positive Action Can Be Taken Revenue Generation Possibilities Actions We Pursued Large Scale Project Security and Home Automation Leverage Available Networks Both Wired and Wireless Partnering Positive Action Can Be Taken Additional Revenue May Be Generated By New Services New Customers Low Capital Options Funded Per Customer Partnerships Cost Savings Expertise Revenue Generation Possibilities Many Carriers Have Developed New Services Regulated & Non‐Regulated Monitoring/Security Home Networking Computer Literacy/Support VoIP Hosted PBX Ethernet Transport to Wireless Dark Fiber Colocation Revenue Generation Possibilities Or Attempted to Leverage Existing Assets Assets Owned and Operated Switching Services Installation & Repair Customer Service Billing & Collection Accounting/Regulatory/Management Assets of Others Wireless Networks Interconnected Networks Capital Investment Labor and expertise Security & Home Automation ClearView Next Generation Security Interactive Security Energy Management Home Automation Video Monitoring Leverages Backhaul Wireless and IP Networks on Verizon, ATT, T-Mobile Video and Secondary on Any IP Connection Easily Offered Beyond Exchange Industry With Growth Spurt Projected Annual Revenue Growth Business intelligence Apps Energy Information Services Hosted Access Control Managed Access Control Managed Video Hosted Video Video Verification Monitored Residential Fire Intergrating Alarms and HVAC Video Guard Replacements Intergrating Secuirty on IT Networks Security via Mobile Devices Alternative Alarm Signal Transmission 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% Interactive Security Complete Web Control A New Reality for Customers Energy Management Measure Energy Usage Multiple Measurement Levels Set Energy Goals Query Current Usage emPower Control Lights Operate Appliances Thermostats Home Automation Intelligent Operations Smart Schedules Activity Patterns Geo-Services Home Control Garage Doors Window Blinds Video Monitoring Video Is The Most Popular Feature Live Streaming Video Alerts Cloud Storage Network DVR Leverage Other Networks Western Independent Networks Expands Our Reach Offers Transport Network Throughout Oregon And The Greater Northwest Region Leverage The Networks Of 25 Shareholder Companies Expands Our Opportunities Oregon Broadband Partnership Participation With Others Integra Century Link Wave Broadband LS Networks INDATEL (National Coverage) Partnering ClearView Particularly Suited to Working Together Current Have 7 Partners Sharing Common Brand Knowledge Marketing Sales and Technical Staff Facilitates Quick Entry Partnering Oregon Cable Group Created in 1999 Recently Joined Current Have 4 Members Sharing Headend Equipment Capital Projects Knowledge Technical Staff Partnering Western Independent Networks Equity Partner Network Partnership Services Utilized Point to Point Special Access Ethernet Transport Internet Backbone Access IP Voice Aggregation Peering NOC and Maintenance Services Partnering Possibilities Abound Jointly Provided Services Infrastructure Sharing Wholesale Purchasing Management/Labor Contracts Look Around You What’s Happening in Your Neighborhood? Are You Part of The Discussion?