Project ELLA Project ELLA (European Link to Latin America)

South America Traffic Forecast

LA-EU Expected Traffic Growth Recent data released by UIT shows 103% growth in For the period 2019 – 2027 a 23.5% CAGR growth was considered. Growth trends for Internet were derived from expected growth rates for access speed, number of users and utilization per user in mobile and fixed services.

The Current Situation of Cables The route US-Europe has 8 cables with around 15.6 Tbps lit capacity and 49.5 Tbps demonstrated design capacity (Submarine Telecom Industry report 2012). Atlantis-2 is the only cable that connects Latin America to Europe directly. The cable has a maximum bandwidth capacity of 160 Gbps (capable of transporting only a small portion of the LA - Europe traffic)

Investment Opportunity Today the majority of traffic between Latin America and Europe is routed through the United States. Several submarine cables link Fortaleza (Brazil) to Florida (US) The business opportunity comes with the explosive growth of the data traffic. According to Cisco Visual Networking Index - that forecasts 49% (CAGR) IP traffic Growth for Latin America 2011 – 2016 (Brazil 53%), the dramatic jump in Internet traffic will occur as a result of four key factors: 1) More devices 2) More people 3) Faster speeds 4) More videos Then, the construction of a Submarine cable linking Latin America directly to Europe (ELLA - European Link to Latin America) will be a unique investment opportunity.

Cable Route Selection Several different routes and terminations were analyzed in order to determine the best alternative for ELLA. In Brazil, both Fortaleza and Santos were selected as potential landing station spots:  Fortaleza is much closer to Europe, but is still a long way from the most important economic centers (São Paulo and Rio de Janeiro).  Santos is far from Europe, but much closer to São Paulo and Rio de Janeiro. On the other end of the cable, several European landing station spots were analyzed:  United Kingdom, France and Spain: great connectivity to the rest of Europe, but these options is all considerably farther from Latin America than Portugal and the Canary Islands. For that reason, these options weren’t considered.  Portugal: Great connectivity to the rest of Europe and relatively close to Latin America  Canary Islands: Closest alternative to Latin America. Although there are several cables connecting the Canary Islands to Europe, it might be very expensive to hire these additional terminations to Europe (deals should be made before hand).

Selected route for ELLA cable. PHASE 0 Deployment of a redundant submarine cable between Fortaleza and Canary Islands. PHASE 1 Operation with termination agreements to carry the traffic from Fortaleza to Santos and from Canary Island to Europe. Deployment of terminations. Single submarine cable between Fortaleza and Santos. Single submarine cable between Canary Island and Portugal. Starting date of terminations commercial operation: January 2019 PHASE 2 Regular operation with agreements to guarantee terminations redundancies. Capacity fulfillment

Capital Expenditures ELLA’ capital expenditures (Capex) can be grouped in two main categories:  Submarine Cable and equipment  Land station construction Table below presents the project estimated Initial Capex, for Alternative 1 (US$ 196 million), being funded by 80% (US$ 156 million), with implementation from 2012 until Investments for Total Capex (US$ 345 milion, 20TB Capacity and Termination Brazil and Europe), will be made from 2016 to 2017 and will be financed with the results of the project. ROUTE LANDING STATIONS INITIAL CAPEX TOTAL CAPEX (MM USD) 20 TB CAPACITY (MM USD) 1TB Alternative 1 Forlaleza Canary Islands Termination Brazil Santos Fortaleza Termination Europe Portugal Canary Island TOTAL

Financial Plan and Scenarios The financial plan model was made for three scenarios (results below), all of them with expressive NPV.  Base Scenario, based on basic and conservative forecasts for market demand, ELLA’ market share and pricing.  Aggressive Scenario considers the same market demand of the baseline scenario, but at a price 15% lower for the services offered by ELLA. With a lower price you can gain a greater market share in Europe and LA-route a portion of LA-US traffic.  Low demand Scenario considering a lower demand in the market. ScenarioPAYBACKIRRNPV AnalysisYEARS% (US$ MILLIONS) Base %256.5 Agressive %539.4 Low Demand %115.2

Projected revenues are expected to reach US$ 269 million in year The estimated NPV is US$ 256 million, which translates into an IRR of 29.2% and a payback period of 6.8 years for the investment (after a three year investment period with no revenues). Base Scenario

This scenario assumes an additional 15% discount on prices. Because of the lower price, a higher market share was assumed on this situation. The projections are: revenues of US$ 429 million in 2021, an IRR of approximately 41% and a payback period of 5.2 years. Agressive Scenario

In the scenario, expected economics are still viable with revenues of US$ 155 million in 2021, an IRR of approximately 22.4% and a payback of 7.5 years. Low Demand Scenario

Summary There is no direct cable with significant capacity between Latin America and Europe and most of this traffic is routed today through the United States. The construction of a submarine cable linking Latin America (LA) directly to Europe (EU) will be well positioned to capture the traffic between Latin America and Europe offering lower prices and better services. The opportunity comes with an explosive growth of the demand for high capacity data transport. Projections show that demand (Tbit/s) will grow rapidly at around 32,1% CAGR between 2015 – From this traffic between 20 and 30% actually goes to Europe. The base case is very attractive and robust, offering above average returns and high upside potential. Projected revenues are expected to reach US$ 269 million in year The estimated net present value of the project is US$ million, which translates into an IRR of 29.2% and a payback period of 6.8 years for the investment. Also in the low demand scenario there is a payback of 7.5 years and in the aggressive case, are expected an IRR of approximately 41% and a payback period of 5.2 years

Conclusions We have studied different scenarios of traffic growth and business strategies. All the scenarios lead to solid earnings and a payback period of not more than 7 years. This proves our initial statements about the robustness of the business case.