ILEC Revenue Trends and Future Outlook

1. ILEC Revenue Trends and Future Outlook Charting Your Company’s Path to 2025

2. Revenue Trends Since the Transformation Order A-CAM I Short Term BCF Refunds $2B Cap Overlap Reverse Auctions $2B Target Expense Caps RoR Phasedown to 9.25% Expense Limitations Glide Path Local Rate Floor A-CAM II

3. December 2018 Report & Order Takeaways – Federal Support • Strategic Takeaways from the Order • There is more money designed to ensure sufficient, predictable support for rate-of-return incumbent eligible telecommunications carriers • Order reverses preceding trend of support erosion, creatinga more robust and predictable foundation aimed at a more substantive level of broadband. • Creates a precious window of opportunity where revenues are stable and robust to plan our pivot away from reliance on support revenues. 3

4. Predictability is a Relative Term Short-Term Revenue trends are quite positive Mid-Term Revenue trends are considerably more hazy: 5 Years – Competitive overlap re-evaluated for legacy carriers. Year 11 of ACAM?

5. Revenue Trends – Mid Term…Reliant on Adaptation • There is an inexorable link between margin potential and product relevance/value • Growth in our margin is directly tied to: • The intrinsic value in the products we offer to the marketplace • Our ability to breed awareness of what we have to offer and to actively sell our solutions

6. Relevance to the Customer • Not that long ago, the summit of customer relevance was the Triple Play bundle • Increasingly, our three-legged stool of relevance is being undermined by shifting customer preferences • This exaggerates the incline relative to the transformation we are all attempting to engineer • We must also address the prospect of broadband commoditization • We must carefully evaluate where we can inject ourselves to enrich our value proposition to both business and residential communities

7. Revenue Trends in the Mid-Term – It Depends… Mobile Usage Trends Mobile Only Broadband Users

8. Revenue Trend Outlook – It’s About Value • Verizon 5G Home Service • 300 Mbps to 1 Gbps • $70 per month • Star Link • LEO constellations • 4,425 satellites – Initial 60 launched on May 23rd, target 1,800 within next 2 years (authorized for 12,000). • Initial 800 deployment will provide coverage to United States • Target 1 Gig at low latency ~30 ms • Estimated ARPU $62.50

9. How Important is the Plan? • Kodak / Fuji Film – A case study: • In 2000, just before the digital transition, sales related to film accounted for 72% of Kodak revenue and 66% of its operating income against 60% and 66% for Fujifilm. – Pretty analogous to margin % driven by USF Support Revenues. • In 2001 Revenues associated with Film sales peaked, in 2010, the film market dropped to less than 10% of that level. If we move to a reverse auction format in the next 10 year period, will our margins from this source be similarly impacted? • In 2004, Fuji came up with a six-year plan called VISION 75 in reference to the 75th anniversary of the group. The stated goal “saving Fujifilm from disaster and ensuring its viability as a leading company with sales of 2 or 3 trillion yen a year.” • Took inventory of its capabilities, products and patents, diversified using acquisitions to complement pivot that exploited existing capabilities, eliminated capacity and downsized businesses that were trending down.

10. How Important is the Plan? • Kodak’s strategy less urgent and holistic, rooted in past position - imaging. • Lead to them being anchored to a framework defined by technological disruption – imaging. • Inability to differentiate their position based on value – moving into digital camera space which became increasingly commoditized – digital cameras. • Kodak – Filed for bankruptcy in 2012 – (34 million in operating income year before and a loss of 349 million loss in digital camera sales). • Contrasting – Fuji Film consistently posts annual profits between $1.5 and $1.8 Billion.

11. Projecting Steady State… Present 2029 2025 • In light of the uncertainty in the mid-term: • Competitive threats posed by evolving technology • Evolving technology changing the way customers perceive value • Impact of possible recovery changes….. • Our revenue trends and outlook will be directly predicated on our ability to: • Define strategically and competitively where we need to be not next year or year after, but where we need to be, financially and competitively, when these alternative technologies are in full commercial bloom, and when financial risk will be presenting itself.

12. Data / Metrics Lifecycle Metrics / Dashboards constructed without an underlying set of strategic goals are like a map without a defined destination Evaluation of tactical alternatives / options without a thoughtfully constructed longer-term vision can create a disjointed set of actions that may not reconcile well or gel to form a cogent thoughtful path A strategy and thoughtful set of tactics may be undermined by a lack of execution not anchored in a precise understanding of the relative performance of metrics that underpin your objectives

13. 2025 Strategic Vision Defining Foundational Vision • Replace 35% of regulated support revenue over the next 6 years, and 75% over the next 10 • Be the #1 provider of technology solutions and IT-based services in every market we operate in • Deliver a world class, objectively verifiable customer experience Once the vision is established – Your approach to analytics can begin to be constructed in a way that is relevant to your strategic focus, and to the tactics you construct to realize your company’s vision Example:

14. Identifying the Options, Then Defining the Path • What are the service and market opportunities that are most promising? • Margin • Size / Scale • What capabilities are required to capture opportunities present? • Capital • Staffing level and acumen • Systems • What is my window of time? • Income diversification goal • Perceived window of opportunity. Opportunities Time Capabilities

15. Defining Your Product Persona In the face of the erosion of relevancy of traditional products, companies will be faced with a foundational question…what is my desired product/ strategic persona? Do your capabilities define your opportunities, or do market opportunities define the capabilities you must assemble?

16. OTT Monetization – One Angle In addition, this client is charging $100 per hour to come out and assist customers establish the service.

17. IT Professional Services – One Company’s Experience

18. Leveraging CBOL With the ascension of mobile and decline in perceived value of fixed voice, the market share of voice has slowly and consistently declined Many ILECS index broadband market share to access lines, which tends to significantly understate available market Re-examining existing broadband rate structures and aggressively marketing CBOL is likely the most meaningful short-term revenue/margin opportunity

19. There’s Gold in Them There Hills New Annualized MARGIN Created

20. Attacking Both Axes • Most clients have between two-thirds and three-fourths of their subscribers on the lowest package • Many tend to note that “other places may be different, but our folks are cost conscious and they’ll always opt for the bottom tier” • Rebuttal • Marketing must be a never-ending focus • Consumers will respond if they see value – we must make them see value Core objective – Drive upward progress in both ARPU and Market Share

21. Creating Value, Driving Awareness Acceptance of Mobile We must sharpen our saw relative to presentation of value. Creating a compelling message to drive further broadband adoption within our territories is a perfect primer in honing our ability to message value beyond our borders.

22. Employing an Analytical Decision Making Process Finite Finite Finite

23. Assessing / Assembling Your Weaponry • Rapidly Changing Technology and Evolving Consumer Preferences = The Need to Quickly Evolve. • This reality in turn requires capabilities we, as an industry, have been light on. • Creating and Efficiently Evolving Product and Service Capabilities, and proactively enhancing the customer experience. • Breeding Awareness of such products and creating a sales / growth driven culture. • These are skillsets that must be embraced as key organizational needs, with a priority placed on their acquisition and integration. Time Opportunities Capabilities

24. Assessing / Assembling Your Weaponry Based on Financial North Star….. • Do you have sufficient capital capabilities to underwrite the desired / identified level of diversification? • Do you have a forecasting model in place that forecasts required capital indexed to your desired mid-term financial end-point? • Is there a perceived upper level of leverage imposed by your board that is less than what the business would otherwise support? • Are you positioned well to socialize financial needs with capital sources? • Is capital capacity an issue? • How are companies addressing capitalization? Time Opportunities Capabilities

25. Importance of Forecasting Models • Create a model that can provide a vision of financial performance of the company through 2025 • Critical to understanding progress. • Will I reach my destination on within my allotted time? • Are there obstacles I need to navigate around.? • Creates an analytical framework for assessing different options.

26. Assessing / Assembling Your Weaponry Based on Financial North Star….. • Does your desired operational position require you to procure and operate platforms, or secure access to products to package and deliver to customers? • Does limited scale impact your ability to secure and integrate diverse products into an integrated whole? • What kind of dashboards/operating data are you pulling today from what sources to help operate your system • What insight do they provide? • How have they helped optimize your financial and operational performance? • What is the protocol for sharing and reviewing the information? Time Opportunities Capabilities

27. Assessing / Assembling Your Weaponry Based on Financial North Star….. • Have you boiled your strategic plan, and associated elements into a chronologically based timetable – and set of Capital / Operating budgets and associated capitalization plan – a true 2025 Plan? • Does this sequenced plan fully integrate desired end-states for: • Level of Desired Income Diversification by Year • Product Position and Market Expansion Targets • Technology Platform Milestones • Staffing • Bylaws • Capital Structure Time Opportunities Capabilities

28. Assessing / Assembling Your Weaponry Based on Financial North Star….. • Assessing your cadence • – Do You have the diagnostic tools necessary to quickly understand the elements driving your business • Customer Support – Net Promotor Score, churn. • Tech’s number of installs per day, fully loaded labor rate, allocation of truck rolls across business lines. • Financial ARPU by product, EBITDA by product net growth to target. • Average Investment Per Acquired Subscriber • Are you examining NPV and IRR when comparing strategic / tactical alternatives? • Continually examine your relevant KPI’s and recast Forecast based on observed values to assess compliance with Budget. Time Opportunities Capabilities

29. Opportunities, Capabilities, Time, Can We… Present 2029 2025

30. What If We Don’t Have The Horses? • Significant income statement diversification is a big deal and requires: • Addressable markets • Sufficient scope of products • Right staff complexion • Capital • Often, the two most vexing issues are: • Markets • Capital • Potential Option…Partner / Collaborate

31. Electric Coops – A Rising Force • 834 distribution and 63 G&T electric cooperatives • Coops serve more than 19 million homes and businesses, spanning 42 million people across 2,500 of the 3,141 counties in the U.S. • Coops own and maintain 2.6 million miles, or 42%, of the nation’s electric distribution lines, covering 56% of the nation Electric coops could open markets and provide capital sources that are beyond your inherent reach Proactivity is essential. JSI has worked with many RLECs to assess business cases and frame the specifics of the relationships

32. Conclusions • Business is Darwinian. To remain successful we must continually adapt. • Our window of time to adapt is the next 5-7 years. • Alternative Technologies are on the way • FCC modifications to existing support structures are more likely than not. • Don’t be Kodak! Create a 2025 Strategic Plan and set of accompanying tactical elements. • Start at 2025 – Where do you want to be competitively and financially and reverse engineer that vision. • Incorporate diagnostic tools / data to insure that you’re on course. • Forecasting model, and utilization of financial templates for NPV and IRR • KPI’s. • Commit to this reality – Can’t go through the motions – its about your survival and prosperity.

33. Questions?