March 8, 1999     RECOMMENDATION:  BUY

CTC Communications Corp. (NASDAQ: CPTL)

Proven Marketing/Customer Service Program Driving Access Line Growth; Transition to Facilities-Based ICP On Track; Initiating Coverage with BUY Recommendation

Market Data: Exchange Symbol.....................CPTL (NASDAQ) Price of Common Stock (03/05/99)............$12.69 30-Day Average Trading Volume..........50,000 Shares Outstanding.........................10.3 mm 52-Week High/Low......................$14.43/$4.00

Corporate Information: Address..........................360 Second Avenue .................................Waltham, MA 02154 Telephone.............................800-883-6000 Fax...................................781-466-1306 Chairman & CEO..........Robert J. Fabbricatore Executive VP & CFO.............Steven C. Jones

Summary Investment Considerations

CTC Communications Corp. ("CPTL") is a rapidly growing integrated communications provider ("ICP"), offering a comprehensive package of services, including local, long distance, Internet access, frame relay and other data services, on a single integrated bill. CTC currently serves small- and medium-sized businesses in the Northeast and Mid-Atlantic states, operating 25 branch offices with approximately 175 direct sales people and 95 customer service representatives. We believe that CTC's sales and customer service program, honed over 15 years of telephony sales and service as Bell Atlantic's largest agent, is a key competitive advantage, and will continue to result in high access line growth and low customer churn. CTC is currently deploying a state-of-the-art, packet-switched data-centric network, which it calls its Integrated Communications Network ("ICN"). The first switches, advanced ATM+IP switches produced and financed by Cisco Systems, Inc., are currently being deployed in CPTL markets, and we expect CPTL will begin transitioning customers to its network in Summer 1999. Utilization of its own network should enable CPTL to provide its customers with an enhanced package of telephony services, with expanded margins.

We believe CPTL is significantly undervalued compared to its peer group, and that the market is not recognizing the uniquely strong sales and customer service system that CPTL is utilizing to grow access lines and retain customers. We believe CPTL will be able to get its ICN deployed, and will be successful at transitioning a significant percentage of the high-margin data services to its network beginning in the second half of this year. We recommend purchase of CPTL common stock by investors tolerant of the risks associated with small-cap equity investments.

I.    CPTL's Proven Sales and Customer Service Program

• Unlike many competitive ICPs and CLECs, CPTL has a proven sales and customer service program, and one of the largest direct sales forces in the Northeast region;
• CPTL's fully convergent billing and information systems is a strong selling tool, and provides for integrated marketing, customer service, provisioning and billing;

II.    Deploying State-of-the-Art Switching Facilities

• CPTL is currently deploying a state-of-the-art, data-centric packet-switched network ("ICN"), powered by Cisco switches; ICN should enhance CPTL's service offerings and expand margins.

III.    Strong Management Team; Blue Chip Financial Sponsorship

• CPTL is managed by a cohesive team with strong telecommunications backgrounds; many of the senior managers have been with CPTL for over 10 years;
• To finance the transition to a facilities-based provider, CPTL has recently entered into credit agreements with Goldman Sachs Credit Partners and Fleet National Bank as lenders (up to $75 million aggregate amount) and obtained a three-year vendor financing facilitiy for up to $25 million from Cisco Capital Corp.

IV.    Compelling Valuation — Investment Case Not Widely Understood

• CPTL trades at a significant discount to peer ICP/CLECs, despite its progress on deployment of the ICN; Investors should look beyond the pure-reseller valuation, and value CPTL as a facilities-based CLEC;
• We have a 12-month price target of $25 to $28 per share.

Company Background & Overview

CTC Communications Corp. ("CPTL") was founded in 1980 as an interconnect company (selling and servicing telephone equipment). In 1984, CPTL signed the first agency agreement with New England Telephone and Telegraph, and by the mid-1990s had become the largest marketing agent for Bell Atlantic as well as a reseller of long-distance and other services not provided by the local telephone companies. Investors should note that CPTL, as an agent, managed 280,000 local access lines for Bell Atlantic, which management estimates represented approximately $200 million in local telephone service revenue. Reflecting their ability to manage the business, CPTL recorded 18 consecutive quarters of positive EBITDA and net income as an agent, despite the non-recurring nature of its revenue stream (agency commissions were booked as revenue) and razor thin gross margins.

In early 1998, CPTL announced that it had terminated its agency agreement with Bell Atlantic and would be operating as a Competitive Local Exchange Carrier, or CLEC. Central to its current strategy of being a leading CLEC in the Northeast region is the build-out of a state-of-the-art packet-switched network, based upon Cisco Asynchronous Transfer Mode + Internet Protocol (ATM+IP) switches, and leased transmission and access facilities. As will be described later, the transition to a "facilities-based" provider, rather than a reseller, is critical to providing a competitively priced package of integrated data and voice services, and expanding the Company's margins.

CPTL's Key Strategy Weapon - A Proven Ability to Sell and Provide Customer Service

One of the key competitive advantages of CPTL is its proven sales and service process, and its replicable branch office strategy. CPTL's selling process has been honed over 15 years as the leading agent for Bell Atlantic, and has resulted in a system that is generating high growth in access lines and a very low customer churn rate. It has also resulted in a fully convergent information and billing system, integrating marketing, customer care, provisioning, billing and financial, that is both beneficial to CPTL salespeople in the marketing/sales process and to CPTL clients in analyzing their telephony costs and needs. This billing system, which is a key selling tool, is available to customers in paper format, on CD-ROM, and over the Internet on a near real-time basis.

The history of the CLEC business is one that is populated by firms that employed the "Field of Dreams" strategy: if we build it, they will come. Companies plowed miles of fiber optic cable in the ground and populated cities with expensive digital switching systems — then they went out to get customers. CPTL, by virtue of a proven selling "system," has taken the opposite approach. CPTL has a proven sales and customer service process that we believe will allow them to continue to add customers and access lines at high rates (strong revenue growth), and will facilitate transitioning these customers to their proprietary network later this year (which, in turn, should drive margin growth).

Currently, CPTL operates 25 branch offices throughout New England, New York and Maryland. A typical branch office is staffed with a branch manager, eight to ten account executives, five to six network coordinators ("NCs") that assist in customer service activities and management of accounts, and a service manager that manages the NCs. The branch concept puts the CPTL sales team close to the customer base. Sales reps build close, long-term relationships with the customer, and the sales effort focuses on services such as network design and problem resolution, thereby accurately identifying customers' telephony needs, and typically, saving them both time and money. Additionally, the CPTL sales force pay is directly tied to revenues generated from customers — both initial sales and ongoing sales. This effectively aligns the sales force interests to both selling, and retaining customers, unlike some telephony resellers in the market today. We believe these structural issues — all part of the CPTL selling process — are what has resulted, and will continue to result, in strong access line growth and low churn. We also believe it will enable CPTL to get back into a very high percentage of accounts that it managed prior to the Bell Atlantic temporary restraining order (approximately 6,000 customers, representing almost 280,000 access lines). These CPTL-targeted customers averaged approximately 44 lines each, which is higher than many other CLECs' typical "lines per customer" statistics.

CPTL has a three-year corporate strategy to add another 15 branch offices in existing markets, and throughout additional mid-Atlantic states (New Jersey, Pennsylvania, Delaware, Virginia and West Virginia). We have included these expansion plans in our economic model (see below).

Target Market — Large, Lucrative NorthEast and Mid-Atlantic

CPTL's target market is the large, "data rich" Northeast and Mid-Atlantic states, in which approximately 60% of all US data traffic either originates or terminates. CPTL and leading market research firms estimate that the markets that CPTL targets in these states (10-300 voice access lines per customer location) represented approximately $16 billion in revenues in 1998, and will grow to $21 billion and almost $28 billion in 2001 and 2005 respectively (includes local, long distance and data revenues). The mix of services is expected to change dramatically as well. In 1998, data traffic represented 23% of total revenues, versus 48% for long distance and 29% for local. Data will become an increasingly large part of the pie over the next decade, and is expected to represent 50% of the total market by the year 2005. Ultimately, it is the greater margin data services that CPTL is targeting, and it is precisely the driver behind the deployment of a state-of-the-art, Cisco-powered ATM+IP packet-switched data network.

CPTL's marketing "sweet spot" is medium-to-larger sized businesses, which currently represent about 70% of their business mix (the remainder being small business with less than 10 to 19 employees per location). These businesses typically have between 20 and 300 lines per location. In terms of relative market size, the medium size businesses represent roughly 62% of total telecom spend in the region by all businesses. Roughly 13% of commercial establishments in CPTL's target region are characterized as the "medium to larger" businesses, with an estimated average monthly bill of between $2,000 to $60,000. We believe this middle market is greatly underserved by Bell Atlantic and by the larger CLECs like MFS and TCG that tend to focus on the metropolitan areas where the installed fiber base already exists.

Competition: CPTL competes primarily with Bell Atlantic in its target markets, as well as some other CLECs and the resellers. BA, and the larger CLECs such as TCG (now part of AT&T) and MFS and Brooks (now part of MCI WorldCom), typically focus on the larger end of the market for reasons of scale and optimizing in-region sales and service resources. Other companies, including telephony resellers, are also present to a much lessor extent, but focus mainly on small business customers. The medium, underserved end of the market, CPTL's niche, has and will respond very favorably to the customized sales and customer service approach of CPTL.

CPTL's Integrated Communications Network (ICN)

Central to CPTL's corporate strategy is the deployment, and subsequent transition, of customers to its state-of-the-art, Cisco-powered packet-switched ICN. By deploying its own network, CPTL will be able to greatly expand its telephony service offerings, enhance customer service, and grow its margins. Prior to the ICN becoming operational, CPTL is building its installed base of access lines by reselling the services of other telecom providers to targeted customers who can be transitioned onto CPTL's network, or "on-net," over time.

CPTL is currently deploying 22 advanced ATM+IP wide-area switches manufactured by Cisco Systems, Inc. into switching sites in the Company's existing New York and New England markets. These initial switches, the "Phase I" deployment, will be interconnected by leased transmission facilities from Level 3 Communications, LLC ("Level 3") and NorthEast Optic Network, Inc. ("NEON"). CPTL has arranged to co-locate its switching hubs in Level 3 and NEON points of presence buildings along selected fiber routes. The initial network topology will consist of three self-healing SONET-based fiber rings, permitting full circuit redundancy and route diversity.

CPTL intends to access its customer locations with leased broadband connectivity such as T-1, DSL, wireless or fiber optic facilities. Initially, CPTL will offer dedicated long distance and data services over the ICN and will continue to lease local dialtone from the local phone company. Given the revenue mix of its targeted customer base, CPTL believes it can transition 70% of a customer's revenue to its ICN without integrating local dialtone into the network. Based on development activities at Cisco and other equipment suppliers, CPTL believes that it will be able to incorporate dialtone functionality into its packet-switched network within 24 months. By continuing to offer leased dialtone in this interim period, CPTL should avoid the significant costs associated with circuit switching equipment.

Simplying Customer Transition to "On-Net": CPTL's network strategy should simplify significantly the transitioning of customers on-net since a disconnection from the incumbent local phone company (typically Bell Atlantic) and a reconnection to CPTL will not be required. To transition CPTL customers on-net, CPTL will simply have to reprogram the customer's PABX and/or WAN routers to direct long distance and data traffic to the CPTL broadband connection to the ICN. CPTL can simply send in engineers in the evening or over the weekend, reprogram the customer's PABX, and do on-site testing prior to cut over. This strategy will allow customers to retain their existing phone numbers, and provides for built-in redundancy of a separate physical connection to the incumbent local phone company. We see this as a major advantage with respect to transitioning customers on-net.

CPTL believes it will be able to begin transitioning selected customers on-net for beta testing in the second quarter of 1999, and will begin transitioning its broader customer base in the third quarter of 1999. We believe CPTL's "smart-build" deployment offers many advantages. First, the strategy is cost effective — both through deployment of packet switching and use of leased transmission facilities — which could afford CPTL leverage in pricing of higher-value-added services. Second, the network is flexible and scaleable, providing the ability to grow rapidly, and should afford CPTL customers enhanced reliability and service levels. We believe CPTL's strong customer service program will enable them to transition target customers to their ICN fairly rapidly.

Legal Issues

Federal: In January 1998, CPTL filed suit against Bell Atlantic ("BA") claiming that BA had failed to pay CTC approximately $14 million in agency commissions "in an attempt to impede CTC's ability to effectively compete." In February, 1998, a temporary restraining order (TRO) was issued against CPTL, based upon non-compete language in the BA/CPTL agency agreement that CPTL terminated. This TRO prohibited CPTL from selling services to its customer base until July 31, 1998, when the court dissolved the TRO that allowed CPTL to go back and market to about 6,000 customers (representing approx. 280,000 access lines) with which CPTL had a prior business relationship. In the same ruling that dissolved the TRO, the court (1) denied a motion by BA to have the TRO replaced with a Permanent Injunction, (2) enjoined CTC from using any confidential information of BA acquired while acting as an agent, and (3) enjoined CTC from using Bell Atlantic trademarks, trade names and commercial logos. CPTL has stated publicly that it returned all confidential information to BA, and it doesn't use BA trademarks. Although very positive, the dissolution of the TRO did not address Bell Atlantic's policy of charging contract termination penalties to customers who switch from Bell Atlantic to a CLEC (see discussion below). Thus, CTC was still effectively precluded from accessing about 75% of the access lines it managed as an agent.

CPTL and Bell Atlantic announced last week that they had settled the federal court litigation in the United States District Court in Portland, Maine. The terms of the settlement were not disclosed, although CPTL announced it will receive cash and other consideration in settlement of the dispute over commissions earned by CTC while it was a sales agent for Bell Atlantic. We await CTPL's filing of further information for details on the financial implications of the settlement, and we're hopeful that CPTL gained full access to its former agency client base, allowing it to compete more effectively in its target market. Regardless, we view it as very positive that the protracted legal action is resolved, and the associated costs (financial and management distraction) eliminated.

States: In January 1998, BA imposed a policy change requiring customers (currently under contract for service) who choose to do business with a CLEC to pay a contract termination fee. CPTL filed petitions for emergency relief in each New England state and New York, claiming BA's policy is anti-competitive and represents a barrier to local competition. Hearings have been ongoing in each state over the past 12 months, and emergency relief from BA's policy has been granted in Maine, New Hampshire, Massachusetts, Rhode Island and New York. It is our understanding that the ruling in Massachusetts is under appeal and that a definitive order has not been issued yet in Maine or Rhode Island. Thus, we believe that CPTL is only converting contracted services in New York and Rhode Island at the present time. CPTL's petition in Vermont is still pending a decision by the Vermont Public Utilities Commission.

As mentioned above, management has estimated that approximately 75% of the lines it managed as an agent were under some type of contract. Therefore, we believe that getting full and unfettered access to its former agency customer base will be a significant value driver when, and if, it happens.

Management Team

CPTL has a cohesive, highly experienced management team led by founder Robert Fabbricatore. Of the ten top managers, six have been with the firm for over 10 years, and all have extensive telecom industry experience.

Robert J. Fabbricatore, a founder of the Company and a Director since its inception in 1980, became Chairman of the Board of Directors in March 1983. He served as President from October 1993 to August 1995. Mr. Fabbricatore has been instrumental in CPTL's evolution into a rapidly growing integrated communications provider.

Steven P. Milton joined CPTL in 1984 as a Branch Manager and worked as District Manager and Regional Manager before assuming duties as Vice President, Sales and Marketing. In August 1995 he assumed the title of President and Chief Operating Officer.

Steven C. Jones joined CPTL in April 1998 as Executive Vice President and Chief Financial Officer. Mr. Jones has in-depth experience in telecommunications investment banking. From 1994 until 1998 Mr. Jones held various investment banking positions at Merrill Lynch & Co., most recently Vice President. From 1991 until joining Merrill Lynch, Mr. Jones was an Associate at BT Securities Corp.

John D. Pittenger has served as Executive Vice President, Finance and Administration since April 1998 and as Treasurer and Clerk since August 1989. Mr. Pittenger served as Vice President, Finance from 1991 until April 1998, and as Chief Financial Officer from 1989 to April 1998.

Frederick Kunzi joined CPTL as Vice President and Chief Technology Officer in September 1998. Mr. Kunzi has over 25 years experience in information technology. From 1985 to September 1998, he was employed by Digital Equipment Corporation, most recently as Senior Manager, Global Network Services where he was responsible for Digital's worldwide enterprise network infrastructure serving 60,000 domestic and international clients.

Michael H. Donnellan joined CPTL in 1988 as a Regional Sales Manager, and has worked as Training Director and in product development. He was named Vice President — Operations in 1995 and became an executive officer of the Company in 1997.

Thomas Fabbricatore joined CPTL in 1982. In his 17 years with the Company, Mr. Fabbricatore has held various positions in sales, management and operations. He was named Vice President — Regulatory & Electronic Media in 1991, and became an executive officer of the Company in October 1997. Thomas Fabbricatore is currently the Vice President of Marketing.

Jeffrey Lavin joined CPTL in June 1998 as Vice President Corporate Development and was elected an executive officer in November 1998. From December 1996 to May 1998, Mr. Lavin was Vice President of Sales, Americas/Asia Pacific for NovaSoft Systems, Inc., a software development corporation providing enterprise document and workflow management solutions for Fortune 500 companies. From 1979 to 1996, Mr. Lavin was employed by Comlink Incorporated, a communication network integrator, most recently as Senior Vice President.

David E. Mahan joined CPTL in October 1995 as Vice President, Marketing and Strategic Planning. From 1993 to 1995 Mr. Mahan held various management positions at NYNEX including Vice President Sales Channel Management.

Anthony D. Vermette joined CPTL in 1987 and has held the positions of Branch Manager, Director of Market Development, and General Manager, New England region. In 1996, Mr. Vermette was named Vice President — Sales, and became an executive officer in October, 1997. Mr. Vermette has 18 years of experience in technology sales and service management.

Financial Information and Valuation Discussion

With the guidance of management, and based upon analysis of comparable companies, we have generated five-year financial projections for CPTL (see below). The model is driven off growth in access lines (local), long distance penetration of the local customers, and the eventual penetration of these customers with higher margin data services. Given CPTL's growth in access lines over the past two quarters, we believe our growth in access lines could be conservative, especially if CTC is allowed to transition former agency customers who have contracted services with Bell Atlantic.

Margin assumptions are broken out in to local, long distance and data, with differentiation in data over time as customers are transitioned to CPTL's proprietary network. Again, we have erred on the side of conservatism with respect to transitioning customers, and feel that the current management team could deliver much higher growth and higher migration to on-net than included in our model.

Valuation: From our assumptions pages, we generated a five-year income statement forecast, with quarterly estimates for 1999 and 2000. From these data, we generated valuation analyses using a discounted cash flow method, a terminal P/E multiple method and a terminal EBITDA multiple method. We believe we have been sufficiently (if not excessively) punitive in our discount rates (17% to 25%), and are comfortable with the range of multiples being used. Regardless of the valuation methodology, CPTL's share price appears undervalued at its current level. We believe fair value to be in excess of $35 per share, and an appropriate 12-month price target of $25 to $28 to be achievable.

Comparable Company Comparison: We have included in our model a comparable company analysis that includes eight other competitive local exchange carriers (CLECs). When looking at a valuation comparison in this ICP/CLEC sector, we look at Enterprise Value/Access Lines in Service as an appropriate gauge of value. As reflected in the model, CPTL trades at a significant discount to its peer group. Again, we believe this reflects their low profile among the Wall Street community in general, and the institutional investor community specifically, and that the market is valuing CPTL as a reseller rather than a facilities-based CLEC.

We think it is interesting to look at "Revenues per Employee" as well, as it supports our belief that CPTL has a unique sales and customer service program, which can not only sell access lines, but sell them efficiently. CPTL is generating approximately $100,000 of revenue per employee, approximately twice that of its peer group.

"Why is CPTL undervalued?" We believe there are a number of possible reasons, few of which have to do with CPTL's current business or prospects. First, the small-cap sector has been in a cyclical bear market (by anyone's definition) for several months now. Companies with good businesses, management teams, strategies and prospects have been sold indiscriminately, and there are many like CPTL that have suffered from this sell-off. Second, CPTL's transition from a pure reseller to a facilities-based ICP or CLEC has required a considerable investment in people, equipment and financial resources. Like other facilities-based providers, the financial statements (losses, increases in debt, etc.) look dramatically different than in prior years when CPTL generated quarter after quarter of EBITDA and net income. We expect that this has driven out some investors that have failed to appreciate the current business strategy. Additionally, the market has been generally negative on pure telephony resellers. Lastly, CPTL has generally gone unnoticed by investors, analysts and the Wall Street community. We believe this will change as the Company executes its current strategy, starts transitioning customers on-net, and continues to show strong growth in access lines as it has during the past two fiscal quarters.

Earnings Model and Valuation Analyses: See Below

Summary Balance Sheet ($000s) — FY Ends March 31
Cash & equivalents A/R Total Assets Long term debt Shareholders' equity	3/31/98A $2,168 17,288 $30,967 7,130 11,579	12/31/98A $2,597 26,462 $67,529 35,958 (18,405)

Risk Considerations

This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of CTC Communications Corp. For a complete description of risks and uncertainties to CPTL's business, see the "Risk Factors" section in CPTL's SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:

• Market risk: Investors should consider technical risks common to many small-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
• Business risk: CPTL has limited experience in managing its own telephony network, and has limited or no experience in transitioning customers to its owned and operated facilities. There can be no assurance that CPTL's business or the markets in which it competes will materialize or achieve the desired levels of revenues or profitability as expected.
• Competitive risk: The telephony business is extremely competitive, and many perceive the barriers to entry to be low. Added competition could lead to price competition and lower margins.

For Additional Information

Sources for Additional Information

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