Acquisition of Scalable Communications PLC

2 October 2010

ALTERNATIVE NETWORKS PLC

("ALTERNATIVE NETWORKS" or "THE COMPANY")

ACQUISITION OF SCALABLE COMMUNICATIONS PLC

Alternative Networks, the business communications service provider, today announces the acquisition of Scalable Communications PLC ("Scalable"), a computer network integrator delivering converged solutions to business customers in IP Network, IP Security and IP Telephony.

SUMMARY

* Acquisition of Scalable for an initial consideration of £7.5m cash, plus an estimated £2.5m deferred consideration payable on achieving management's growth targets.

* The acquisition is expected to be earnings enhancing for the current financial year ending 30 September 2011, and beyond.

* The acquisition of Scalable is a key component of Alternative Networks' established strategy of expanding its managed data networking services and building on their converged voice / data / mobile offering.

* Scalable's customer base complements that of Alternative Networks and further strengthens its presence in the larger SME market.

* Scalable has performed strongly in the last two years, despite the economic downturn, delivering sales growth of 17% and EBITDA growth of 38% in 2009. EBITDA for the year ending 31 December 2010 is expected to be £1.4m, up 45% on 2009.

James Murray, Chief Executive of Alternative Networks, commented:

"It has always been our strategy to build an integrated platform of managed data services. We have been following Scalable for some time and recognised the value it can deliver to our business and the scope it offers to achieve this objective.

"We are therefore delighted to have completed this acquisition, which makes strong financial and commercial sense. It is our second acquisition in less than a year and represents a key milestone in our efforts to secure a leading position in the provision of converged networking services.

"We will now be even better placed, not only to cross sell these services across a growing customer base, but also to make further complementary acquisitions and continue to deliver long term shareholder value."

ALTERNATIVE NETWORKS PLC

ACQUISITION OF SCALABLE COMMUNICATIONS PLC ("Scalable")

Deal summary

The acquisition of Scalable is for an initial cash consideration of £7.5m.

Deferred consideration up to a maximum of £4m, of which the first £1m is in shares, is payable dependent on performance in the period to 31 December 2011. If Scalable achieves their own management profit targets in this period, which represents significant growth, a total of £2.5m would be payable.

The acquisition is expected to be earnings enhancing in the first full year and beyond. Scalable is targeting £1.4m of EBITDA for the year ended 31 December 2010, up 45% on 2009. As at completion, Scalable is performing in line with management expectations.

Strategic objective achieved

·; Scalable provide Alternative Networks with a strong platform on which to grow managed data networking services into our customer base and the wider market. This is an area which Alternative Networks has sought to penetrate and which is becoming an increasingly significant share of customer communications spend; particularly as a cornerstone of the converged voice/data/mobile solution.

·; Alternative Networks has known Scalable for several years and it was a primary target for the Group, because they understand how the Group's existing product set fits into the converged environment. Scalable's legacy expertise in IP assists its understanding and implementation of converged network infrastructure. This will be a key asset to the Group as traditional telephony products migrate to Session Initiation Protocol ("SIP"). Scalable's management are all expected to remain with the Group.

Synergy and integration benefits

·; Alternative Networks' and Scalable's respective customer bases are highly complementary with both companies selling directly into similar verticals purely in the business arena.

·; Cross selling opportunities are strong with only Mitel pbx product sets being common to both companies.

·; The development of Scalable's Network Operating Centre will allow the enlarged Group to broaden the range of managed services to all Group customers.

·; Both companies are currently leading Mitel Premier partners. Aside from some operational synergy the combination will further enhance the Group's position with Mitel as they develop their virtualised PBX solutions and integrated mobile offering.

·; Scalable is a customer of AKJ, Alternative Networks' wholly owned billing services provider. This will facilitate the integration of the billing and provisioning of customers' networks services.

Information about Scalable

·; Scalable is a computer network integrator which specialises in delivering converged solutions around IP Network, IP Security and IP Telephony exclusively to business customers, typically large SMEs and mid enterprises, in the public and private sectors.

·; Its key partners are Extreme, Mitel, and Juniper. The products are set out further below.

·; Significant customers include Charles Russell LLP, Bank of Cyprus, Fulham Football Club, and Liverpool Women's NHS Foundation Trust.

·; Scalable has 53 employees, and operates from offices in Wooburn Green in Buckinghamshire. It also has offices in the City of London.

·; Scalable has grown strongly even through the economic downturn. In the year ended 31 December 2009, the audited accounts show sales of £12.5m, representing annual growth of 17%, and EBITDA was £0.9m up 38%.

·; Scalable is highly cash generative with over 80% cash conversion of EBITDA into operating cash flow in the last two years.

·; At 31 December 2009, Scalable's gross assets were £5.6m.

·; Scalable has already invested in a Network Operating Centre from which it monitors, maintains and supports customers' network infrastructure, providing pro-active fault resolution.

·; More information may be found at www.splc.co.uk

Deferred and contingent consideration

The Deferred consideration is based around achievement of gross profits on contracted support and sales of network solutions and hardware. The maximum will only be payable should profits significantly exceed existing management targets.

Subject to the agreement of completion accounts, Net Tangible Assets ("NTAs") in excess of £0.25m will also be paid to Scalable's owners. In addition, a further payment of up to £0.25m will be payable in respect of tax relief obtained on the exercise of the options in Scalable, a tax advantage which is not included in the NTAs.

Scalable product set and accreditations

·; LAN and WAN equipment and services from Extreme Networks (Platinum Partner), and Juniper Networks (Elite partner, Juniper Partner of the Year 2010).

·; Network security solutions from F5 (Silver Partner).

·; IP PBXs from Mitel (Premier Partner).

·; High bandwidth, managed network and hosting services from Exponential-e (Platinum partner).

·; SIP trunking, disaster recovery and conventional telephony networks solutions from Gamma Telecom. Gamma is the leading provider of SIP solutions to the reseller community, and Scalable is Gamma's premier reseller of SIP.

·; Support services - Scalable provides contractual support to a concentrated base of only 170 customers. They have successfully avoided selling into less remunerative smaller customers.

About Alternative Networks plc

Alternative Networks is a leading UK independent business communications service provider. The Company provides a fully converged communications portfolio including fixed line, mobile, voice, data and systems solutions directly to over 4,000 business customers in the SME and small corporate market. Over 40% of its revenues are from mobile solutions, where it is a service provider for Vodafone and O2 and provides the full range of corporate solutions. Established in 1994, and listed on AIM market in February 2005, AN has a stated twin track strategy of organic and acquisitive growth. Organic growth is fuelled by gaining market share in the larger customers in the SME market, cross-selling new products into its expanding customer base, and minimising customer churn through excellent managed service. Since flotation, the Company has acquired and integrated two significant acquisitions, accounting for approximately 25% of today's revenues. In the last financial year, sales were £90m with underlying operating profits of £9m, and the Group currently has no debt. AN has offices in London, Theale and Manchester and currently employs over 400 staff.

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