FTTH Conference 2011 Workshop Financing FTTH Networks in Netherlands Mark Meijer REGGEFIBER

17 september 2010

Financing FttH Networks in the Netherlands

Directeur Corporate en Business Development

Jan Davids

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the Netherlands

Pre Conference Workshop 8 February 2011, Milan

Mark Meijer

Manager Corporate Finance Reggefiber

History

2 | 19‘Regge’ river + Fiber = “Reggefiber”

Vision

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FttH is future proof (end infrastructure)FttH is like real estate

Network has to be open

Why glass fibre ?

� Fiber to the Home is the only broadband infrastructure that can comply withthe exponentially growing broadband demands of the consumer and service providers

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CAPACITYSPEED

SYMMETRICALUNINIQUE

FIBER PAIR

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About Reggefiber

� Founded in 2005 by Reggeborgh

� Builds, owns, rents and operates passive (dark fiber) networks (FttH) in the Netherlands

� Since 19 December 2008 a joint venture of Reggeborgh – KPN approved byNMa and OPTA and regulated OPTA

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� Combination of KPN’s installed base of consumer clients with Reggefiber’sexperience in building and operating FttH networks

� Current shareholding: KPN 41% - Reggeborgh 59%� Under certain conditions KPN could acquire the majority of the shares

� Rental income has been regulated by OPTA to capped fees

� Balance Sheet total c. €900mn; strongly growing

Key figures

30 locations 55 locations

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Key figures

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Consumer broadband subscription packages

EUR 55– 110 (triple play)

Wholesale broadband accessEUR 35 – 42 (triple play)

● Deliver services to consumers● Communicate to consumers

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Wholesale agreements

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Business model – Parties involved & Value chain

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ODF AccessEUR 12 – 17.50 [*]

Indicative monthly price ranges per active

connection

Indicative monthly price ranges per active

connection

● Buy in capacity on Reggefiber’spassive fiber network

● Deliver wholesale fiber services to service providers

● Builds, owns and operates the passive fiber network

● Delivers open access to active operators

[*] excludes one-off fees, line rentals etc.

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ODF Agreement

Management Agreement

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� Monthly rentals paid by Active Operators to Reggefiber:� Fixed tariffs per Home Activated (fiber pair rental) dependent on capex : €12.00 – 17.50� Fixed tariffs for Area PoP rental (€500) and City Pop rental (€600)

� One-off fees:

Business model – Revenues & Penetration

Revenues

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� Area PoP connection: €3,000� fiber pair connection: €100

� A discount applies depending on the total number of Homes Activated / customers served in a certain area

� Rentals indexed anually with CPI

(*) one Area PoP can serve maximum 2,500 Homes Passed

Capital expenditure�CAPEX per Home Connected typically around €1,000,

consisting of labor (civil works, engineering: > 80%) and materials: < 20%

�Capex reduces 10% every year�CAPEX levels vary depending on local circumstances

(in particular urban density, rivers, canals, railroads)

Business model - Capex, Opex

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Operational expenses�Main items and model assumptions:

� General costs: 3% of gross rental revenues� Activation costs: €20,- one-off for activating one fiber pair� Management fee:€12,- per year per Home Passed

(payable by NEM subsidiaries to ReggefiberOperator B.V. pursuant to Management Agreement)

An example, how would you raise debt funding for such a project?

Typical cash flow profile of a FttH project

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Key issues Debt fundingIssue AnswerTrack record Many projects were evidencing already

mature cashflows that could beringfenced as a portfolio in a seperatevehicle: Ringfence

How to “secure” penetration Demand-based-role-out ensuring upfrontc. 30-40% start penetration

Regulated Billing entity “RFO” could notb t /b

Direct Agreement between RFO and the Ri f

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be a guarantor/borrower RingfenceNon-recourse Significant contribution of the sponsors:

c. 65% of the BS total at financial close and 45% at the end of the constructionFttH is very strategic to KPN

Hybrid debt structure. Various bankers from different backgrounds/desks: Project Finance/TMT/General CorporateLending

Learning by doing ☺

ReggefiberGroup B.V.

KPN B.V.Reggefiber

Reggefiber Group B.V.

KPN B.V.Reggeborgh

Secured credit facilities (€285m) from EIB and commercial banks for33 local Network Companies (NEM) in ‘ring fence’

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(G)NEMsubsidiaries

ReggefiberttH B.V. Reggefiber

Wholesale B.V.

NEM33 FttH projects

Reggefiber ttH B.V.

ReggefiberWholesale B.V.

KPN B.V.

KPN B.V.

Ring fence

Reggefiber Operator B.V.

NEM other FttH projects

Financing

Key characteristics

� Maturity c. 10 years� €285mn 50/50: EIB and commercial banks� Drawings and repayments show a roller coaster shape� Draw test: Total debt / Homes Activated < “fixed amount”� N D b /EBITDA

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� Net Debt/EBITDA covenant� After construction; DSCR-covenant and cash sweep� Security on network, receivables, bankaccounts, shares, etc� Minimum interest hedging requirement� Significant information requirements

Questions?

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Regional marketing is Key to create a local hype

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Information session

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Construction

No digging in the gardens! A garden rocket

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Thank you for your attention!

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