April 22, 1999 RECOMMENDATION: BUY

CTC Communications Corp. (NASDAQ: CPTL)

CTC's Integrated Communications Network (ICN) Qualifies for Cisco Powered Network Program; Deployment of Cisco-Powered Network Throughout New England On Schedule; Smooth Transition at CFO Position Anticipated

Recent Considerations

CTC Communications Corp. ("CPTL") and Cisco Systems, Inc. (NASDAQ: CSCO) announced this week that CPTL's ICN has qualified for the Cisco Powered Network program. We believe this reflects CPTL's commitment to quality, and to the deployment of the latest, state-of-the-art networking equipment. We also believe that having the Cisco equivalent to "Intel Inside" on its ICN network will be beneficial in marketing its data services to customers and facilitating the transitioning of customers from leased facilities to CPTL's network. CPTL also stated that deployment of its ICN is on schedule, and the Company plans to begin offering fully integrated data network services this summer to its customers in the Northeast.

Yesterday, CPTL announced that Steve Jones, EVP and CFO was resigning to pursue other interests, and that John D. Pittenger, EVP — Finance and Administration, will assume Steve Jones' responsibilities. We have spoken with senior management and know that this was a personal decision based on family geography and has nothing to do with the plans and/or performance of the Company and its management team. We believe that the management transition will be smooth and we have the highest confidence in the capabilities of John Pittenger.

Despite a 40% increase in value since our initial BUY recommendation on March 8, 1999 (and a 200% increase in average daily liquidity), 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 in a timely manner and will be successful at transitioning a significant percentage of the high-margin data services to its network, beginning this summer. We continue to recommend purchase of CPTL common stock by investors tolerant of the risks associated with small-cap equity investments. Our 12-month price target range for CPTL is $25 to $28 per share.

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 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 and Fleet Bank as lenders (up to $75 million aggregate amount) and obtained a vendor financing facility 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 Overview

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.

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.

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.

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 our initiating coverage report of March 8, 1999, available on our website at www.SmallCapsOnline.com). 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.

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

Contact SmallCaps Online LLC — 212-554-4158

Sources for Additional Information

The following are website addresses offering related information, and links to other sources of information.

www.ctcnet.com CPTL's corporate website

www.SmallCapsOnline.com SmallCaps Online's site for company information and research

www.FCC.gov Federal Communications Commission homepage

www.SEC.gov U.S. Securities and Exchange Commission, with links to EDGAR filings

The information in this report has been obtained from sources which we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC has performed investment banking, consulting or other services for and may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material, or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document which is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.