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January 3, 2003


PRINCETON, NJ (January 3, 2003) – In its year-end review and forecast of the global Yellow Pages industry, The Kelsey Group, the leading research and consulting firm focused on the directory industry, reports a top-to-bottom transformation of the Yellow Pages business continued in 2002, driven in large part by investors buying directory publishing groups from cash-strapped telecommunications companies. According to the firm, amidst this wave of change, the U.S. Yellow Pages advertising medium generated advertising revenues of $14.08 billion in 2002, representing a 1.3% growth rate over the previous year.

"Even in a down economy, Yellow Pages provides the steadiest growth of any media," according to Charles Laughlin, vice president and director of The Kelsey Report®, The Kelsey Group's Continuous Advisory Service addressing the Yellow Pages industry. "No other medium has demonstrated the consistent year-to-year growth of Yellow Pages going back almost two decades."

The Yellow Pages industry faced significant challenges in 2002, including the change of ownership of many key publishers from phone companies to investment consortia, the growth of online alternatives, and rising competition amid a tough environment for small businesses, which are the bread and butter of the industry.

"What was unique about this year was the amount of change that was taking place in this industry. Telephone directories are increasingly a non-core business for telecommunications companies, while investors are drawn to the profitability and stability of Yellow Pages," said Laughlin.

In 2002, phone company publishers QwestDex and Cincinnati Bell Directory were acquired by private equity investors, and Sprint Publishing & Advertising was acquired by Yellow Pages sales and marketing company R.H. Donnelley. Private equity investors already own two of the industry's largest competitive or independent publishers - Yellow Book and TransWestern Publishing. In addition, across the border in Canada, the leveraged buyout firm Kohlberg Kravis Rogers acquired Bell Canada's Yellow Pages business for $1.9 billion.

One of the consequences of this change in ownership will be the increasing pace of competition, as private equity owners look for growth and cash flow by launching new directory products in markets that lack significant competitors. The result will be more choices for advertisers, downward pressure on prices, as well as a certain degree of market confusion.

"Increasingly, there is no such thing as the Yellow Pages in a particular community. Multiple books have always existed in some high-growth markets, but two or three directories will become the norm most everywhere," explained Neal Polachek, senior vice president of The Kelsey Group and head of the company's Yellow Pages business practice.

The Kelsey Group projects total revenue growth of 1.9%, to $14.35 billion, for 2003, despite industry upheaval. A blend of publishers expanding into new markets, stronger independent publishers and Internet Yellow Pages, which are anticipated to account for nearly $500 million of that amount, will maintain industry growth. Meanwhile, publishers will continue to hold down costs to preserve industry margins and cash flow stronger than in any other medium.

About The Kelsey Group
The Kelsey Group is the leading provider of strategic research and analysis, data and competitive metrics on Yellow Pages, electronic directories, small-business advertising and local search. Beginning in 1986, the company has built a reputation as the leading analyst firm covering the directory publishing community, providing advisory (The Kelsey Report® and Interactive Local Media), publishing (Global Yellow Pages™ and Local Media Journal™), consulting (more than 300 individual assignments) and conference services (60 events).

For more information contact:

Eileen Pacheco
(781) 556-1026
[email protected]

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