Cable TV and broadband market consolidation in Lithuania 2007 - 2013

1. Cable TV and broadband market consolidation in Lithuania 2007 - 2013 Case Study: Cgates

2. Cgates 5 years journey

3. A bit of history.. 2007, the Baltics • Cable TV and internet market 2007, Lithuania • No of operators: 50 cablecos and more than 200 ISPs.. • Total market is 470k TV subscribers and 500k internet subscribers • The biggest player is Init group with 22% of TV market. Viginta (now – Cgates) is No 8 with 4% • Irrational competition, especially in Vilnius – 6 operators, incl. Tele2 • Cable TV bills are twice lower vs Latvia & Estonia • New player in pay-TV market – TEO LT • Cable TV and internet market 2007, Latvia • Consolidated TV market with 2 major operators – Baltcom and Izzi • Izzi sale process • Lattelecom real / rumored sale process with big names (e.g. Blackstone) • Cable TV and internet market 2007, Estonia • Consolidated TV market with 2 major operators – Starman and STV • Starman is just taken private by consortium of PE funds

4. A bit of history.. 2007, CEE and Western Europe • Central and Eastern Europe: • on-going consolidation of regional operators in Poland – Aster City, Multimedia Polska, Vectra. All backed by PE funds and institutional investors • very active Liberty Global in Czech Republic, Hungary, Slovenia • Western Europe: • active consolidation processes in Netherlands (Casema, Ziggo), Belgium (Telenet), Germany (UnityMedia, KBW, Kabel Deutschland), UK (Virgin Media), Sweden (ComHem) • and again, all are backed by major PE funds

5. Investment Rationale in 2007, SEB Venture Capital • Growing markets in terms of revenues and subscribers, both TV and internet • Strong cash flows generating and cycle resistant business • Potential to build No1 operator in the country – as market is very fragmented • Good examples of already consolidated markets in Latvia and Estonia • On-going consolidation in CEE and Western Europe • “Baltic tigers” situation as we were called those days. Everybody was looking at our region • Capital availability, both equity and senior/leverage financing

6. So, who to deal with? VDNET (Viginta) But, why them? EBITDA is not a Chinese word Transparent Acquired 3 companies Have the same vision Both TV and internet services In Vilnius (capital) Investment Target in 2007, SEB Venture Capital • Potential Targets • cablecos and ISPs

7. 5 major acquisitions. 30m EUR of capital, incl. bank loans, invested Investment tranche 4. New shareholder Investment tranche 1 Investment tranche 2 Investment tranche 3 190 000 71 500 Lehman collapse 41 000 18 500 4 500 9 600 32 000 2x in size Consolidation Process: Acquisitions

8. Transfer of finan&admin functions New CEO New HQ Start of new CRM project New management team One call centre Launch of IP-telephony New Sales and marketing department One brand Cgates Launch of Digital TV 190 000 Outsourced telemarketing Transfer of finan&admin functions 71 500 One brand VDNET 41 000 18 500 4 500 9 600 32 000 Consolidation Process: Integration

9. Consolidation Process: Challenges and Achievements • Challenges: • 10 different brands • 60 different products and services • 7 in-house built primitive CRM and billing systems • Different financial accounting principles • Different cultures • Need for professional management team • Achievements: • Centralized functions, unified products and services • Unification of networks and technologies • One CRM and call centre for 7 cities • Change in TV service pricing • Launch of new digital TV and IP-telephony services • Professional and ambitious management team is a mix of experiences from mobile, fixed line, cable TV and IT industries • EBITDA profitability of company grew from 30% to 45% +

10. My key takeaways from pay-TV market consolidation • consolidation strategy – or set of simple questions, like, why you need it? Why not to expand naturally? Is it scale you need or market share? Timing/good momentum, eliminating competitors or something else. You will need a clear rational answers • acquisition targets – who are they? Who are your primary targets and how will landscape of the market change during consolidation process? Are they for sale? • team– if you plan to do multiple acquisitions you will need 2 teams, one as in-house M&A boutique to structure and make acquisitions and another team – to integrate and realize synergies • integration – start integration early, even before you make acquisitions. Develop your “First 100 days plan” • don’tbe afraid to make mistakesbecause you will 

11. THANK YOU!