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Dr. Hatim Zaghloul, CEO of Wi-LAN Inc., had reasons to be pleased as he sat in the lobby of the Boston Plaza Hotel between meetings at the Wireless Communication Association trade show in July 2001. Wi-LAN was readying for the launch of its innovative proprietary 3.5 Ghz W-OFDM wireless broadband system in the fall of 2001 that promised speeds of up to 192 Mb/s across distances of up to 20 km. This solution was over ten times as fast as existing broadband wireless systems on the market and could easily compete with other non-wireless broadband solutions such as DSL, satellite and cable. Furthermore, Wi-LAN had an impressive track record with standards bodies crucial in the communications industries. Zaghloul and his team had successfully incorporated Wi-LAN’s patented OFDM technology into an important IEEE published standard for wireless local area networks – 802.11a. As a result, any manufacturer wishing to implement 802.11a would be required to use patented Wi-LAN technology. Furthermore, the FCC had been successfully lobbied to allow OFDM to be certified for use in the unlicensed 2.4Ghz band after two previous unsuccessful attempts. For a relatively small new player like Wi-LAN to have achieved such significant accomplishments was remarkable, particularly against strong incumbent telecom and data communication competitors such as Cisco, Lucent, and Motorola.

Yet, Dr. Zaghloul and his company faced significant challenges. How could it succeed as a wireless technology and research company? How could it shape future IEEE standards to use its patents? Given its size, how should it collect royalties from incumbents? What rates should it charge? How could it succeed as a product company given the downturn in the telecom sector? What should be their focus: on marketing their wireless broadband products or pursuing technology agreements with players in these various segments? Were they correct in focusing on the wireless broadband market given the opportunities that lay in wireless local area networks, home networking, telematics and wireless road access. Refer to Exhibit 1 for its financial statements.

John Cunningham, MBA 2001 prepared this case under the supervision of Professor James Henderson, Babson College, as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Copyright © 2002 by James Henderson and Babson College and licensed for publication at Babson College to the Babson College Case Development Center. To order copies or request permission to reproduce materials, call (781) 239-6181 or write Case Development Center, Olin Hall, Babson College, Wellesley, MA 02457. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of copyright holders.

Wi-LAN 120-C02

Broadband Wireless

Industry BackgroundBroadband wireless technology consisted of radio transmitters and receivers capable of

communicating high data rates over some distance without wires enabling bandwidth intensive services such as video distribution, video on demand, video conferencing, high speed internet access, music downloads, and internet radio. The market for broadband wireless technologies had grown rapidly over the course of the late 1990’s. Several broad social and business trends such as the dramatic growth in the Internet and mobility resulted in a number of potential applications in which broadband wireless could offer tremendous value. The benefits of a broadband wireless solution included most importantly, high location flexibility (mobility), low fixed installation cost, and ease of expansion. Yet, challenges also remained in a number of areas, including security of broadcast signals and interference issues.

Fixed Wireless ApplicationsBroadband wireless technologies could serve a number of markets. On a broad scale,

wireless was categorized into the approximate $1 billion ‘fixed’ market in 1999 wherein transmitters and receivers were in fixed enclosed locations versus the approximate $90 billion ‘mobile’ market such as cellular and personal communication services. Within the fixed category, there were further distinctions resulting in dramatic differences in business models.

Wireless Local Area Networks (W-LANs): Within a short range, wireless LAN1

technology could offer the ability to interconnect networked computing devices without the expense and inflexibility of a wired infrastructure. This market had been forecast to exceed $1.6 billion in North America by 2005, representing a compounded annual growth rate of 27.1%2. They typically consisted of single central transceivers that communicated with multiple end devices in a point to multi-point fashion. W-LANs were expected to operate mostly in the unlicensed bands (2.4GHz and 5.XGhz), and to be free-standing at least as far as specialized wireless services – any internet or wider network connections would be done through the corporate network. As a result end-users purchased equipment through computer networking distribution channels such as systems integrators, VARS, etc.

Wireless Home Networking: Most industry observers believed that another opportunity for wireless LAN technology existed within the home as well. Over the last 10 years, capability and variety of in-home electronic devices had increased dramatically. More consumers, particularly in the U.S., were using increasingly sophisticated computing devices in their homes including in-home broadband Internet data connections and multiple computers. Furthermore, the boundary between home computing devices and appliances was blurring. For example, digital content from the Internet could be shared via a wireless home network across various digital platforms including televisions, stereos, gaming consoles and DVD players. Standard home appliances also had increasing intelligence built into embedded processors and operating systems. Proponents of home wireless systems were predicting that even home lighting, kitchen and laundry appliances, heating and air conditioning were other possible devices that could be controlled by wireless home networking systems in the near future.

1 LAN: Local Area Network, consisting of all the networked devices within one site.2 Frost & Sullivan, 1999

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While this market was in its infancy, expectations were for it to grow to $2 billion by 20053. Compared to wireless LANs, the channels for this market would be much more complex. Wireless cards needed to be built into consumer goods or sold separately through electronics and appliance retail channels. What was unclear was how specialized services would be sold –connections back to the Internet or other networks. There was a possibility that a service provider layer could develop that collected regular fees from consumers in return for offering connection and higher level services to their home wireless devices.

Wireless Metropolitan and Wide Area Networks: Expanding beyond a single location, corporate and academic campuses could also connect multiple sites using a wireless WAN4. Traditional narrow-band microwave systems fell into this category, and functioned as relatively simple point-to-point system. With the emergence of new robust broadband wireless technologies, the possibility was emerging to span longer distances with higher bandwidth. Indeed, the real wireless blockbuster application was for ‘last mile’ or ‘local-loop’ WAN services competing against cable, DSL and satellite technologies. Estimates were that this market could grow to $15 billion by 20055. ‘Local-loop’ was the term traditionally used by telephone carriers to indicate the final pair of wires running from the local telephone central office to the home or business. Conventionally this had been copper wire which was expensive to install and maintain6, and still might not deliver the kind of bandwidth needed for data applications. By the 2000, large businesses were rapidly converting to fiber-optic cables in order to deliver the adequate bandwidth and future capacity. However, there still existed a large opportunity for providing internet and telephony services to residential homes and small-businesses. Fixed wireless carriers for the most part within a licensed spectrum could now bring subscribers on-line faster with much lower up-front investments and long-term maintenance costs than cable or DSL. Fixed costs in wireless broadband represented 30% of total costs compared to 80-90% for cable and DSL. Long distance telephone carriers such as Sprint and Worldcom hoped to use wireless WANs as a way to enter the local telephony market. Wireless ISP’s such as Teligent, Winstar, and Metricom had also entered the market to sell wireless internet services.

Telematics and Wireless Road Access: Another developing wireless sector involved accessing mobile wireless data from within cars. Auto manufacturers were moving towards embracing ‘telematics’, a wireless service offering fully integrated into the automobile. A telematics equipped car could offer location based services7 as well as connect automotive systems back to dealer maintenance systems to report errors or scheduled maintenance needs. ‘Road access’ systems on the other hand, extended Internet access to computing systems within the car, allowing mobile workers to connect back to enterprise systems and other internet based resources. Both varieties of mobile access would require extensive national - perhaps international - networks. What was highly uncertain was how equipment and services would be sold. Auto manufacturers were aggressively pursuing telematics, attempting to ensure that systems would be sold with new cars and that services would be licensed through the

3 Frost & Sullivan, 19994 WAN: Wide Area Network, or a network that spans multiple sites/locations.5 Frost & Sullivan, 19996 For telephone and cable plant installations, typically 80-90% of system costs were fixed.7 By combining location tracking and network connection, Telematics systems could offer drivers

information and directions to closest services, for example: nearest Chinese restaurant, nearest movie theatre, etc.

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dealer/manufacturer network. Who would control Road Access was even less clear, but there would similarly be the need for consumers to obtain both hardware and ongoing data services.

Wireless Technologies: Spectrum and Transmission MethodsWhile wireless applications were simple to understand in concept, the underlying

technology was much more complex. To create a wireless system, one first needed an allotted frequency or area of the radio spectrum in which to operate. Secondly, companies needed to agree on standards for transmission within the spectrum. Refer to Exhibit 2 for a summary of the markets, standards, transmission method and allocation of frequencies.

Spectrum: The radio spectrum was a scarce natural resource used by the military, aviation, broadcasting, cellular networks and public authorities. Different frequencies were used for different applications determined by national regulations. The width of frequency used also needed to be dictated, as signals could extend over either a broad or narrow range. National regulatory agencies would typically dictate frequency allocations, and would assign band names for each allocation. In the U.S. bands that were being targeted for broadband wireless use included LMDS, MMDS, ISM, and U-NII. Frequencies generally fell into two categories: licensed and unlicensed. A licensed frequency was typically divided into a number of sub-bands, which were then auctioned off by regulatory authorities on a regional basis to a fixed number of competitors8. An unlicensed band such as ISM (2.4 Ghz) and U-NII (5.X Ghz) on the other hand, allowed fairly unrestricted9 sale and use of transmitting equipment. The limitation of unlicensed bands was that users could be subjected to interference from other wireless products. This problem was especially apparent in the ISM band where security cameras, microwave ovens, baby phones, wireless local and personal area networking gear all operated. A corporate network might have its performance degraded by conflicting signals from another network in the building across the street for instance. A home network may have conflicting signals from different appliances (e.g. microwaves and wireless home networking gear) leading to potential network crashes. As some industry observers had stated, “2.4 Ghz has turned into a junk band.”

Transmission Methods: A number of dramatically different techniques were used to broadcast the signal over the allocated spectrum. Traditional radio technologies had fairly simply broadcast signals over a fixed frequency. However, engineers constantly sought innovative methods to use the radio waves more effectively, achieving higher ‘spectral efficiency’, as well as to solve problems related to bouncing radio signals and interference. Newer products used a variety of ‘spread spectrum’ methods to spread signals across sub-channels. In Frequency Hopped Spread Spectrum (FHSS), a transmitter and receiver agreed upon a pattern for rapidly jumping around a series of channels, and achieved up to 2 Mb/s data transmission rates. Direct Sequence Spread Spectrum (DSSS) on the other hand, used a more complex encoding system to transmit redundant signals spread across a wider bandwidth. By reducing interference, DSSS resulted in an ability to achieve data transmissions of up to 11 Mb/s.

8 Example: Analog cellular telephone bands had been licensed to 2 carriers in each geographic area. The next generation of PCS telephone bands were divided into 6 bands and accordingly up to 6 competitors could be licensed in each area.

9 Although users of equipment did not have to be licensed, equipment was subject to strict specifications regarding transmitting power and interference, and required approval for sale in each country.

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Another key technology in broadband wireless was Orthogonal Frequency Division Multiplexing, or OFDM. While OFDM spread signals across a wide spectrum, it used multiple channels with precise spacing10. OFDM offered a number of benefits over other transmitting methods. A high spectral efficiency meant that OFDM offered the promise of both higher capacities to the end-user, and the ability to use allocated frequencies more efficiently. This was very interesting to a range of players involved in the emerging wireless sector. Within licensed frequency bands, OFDM would offer the potential for either more carriers to be allocated, or for each carrier to achieve higher data transmission rates. Another key benefit of OFDM was ability to overcome a variety of interference issues. This made it highly attractive for applications operating in unlicensed bands as well.

Background on Regulations and Standards

In most countries, governmental agencies regulated broadcasting rights, such as the FCC in the U.S. These agencies would dictate what frequencies could be used, and often would license broadcasting rights to a limited number of carriers. However, they would not specify the standards for transmission within those allocated frequency bands. Companies with underlying transmission technologies had two choices. They could either attempt to make their proprietary technology the market or de-facto standard or they could influence the standards set by a recognized standards setting organization. The Institute of Electrical and Electronic Engineers (IEEE) was considered the official standard setting body for the communication and electronics fields in the US. The European Telecommunication Standards Institute (ETSI) was considered the official telecommunications standard setting body for Europe.

Membership in the IEEE was open to anyone with an interest in engineering or computer science. In return for membership fees, the IEEE provided a number of technical publications, access to conferences, and assistance in career development. Anyone could also participate in the standard setting process by joining the IEEE Standards Association. The standard setting process involved seven steps, which took in most cases up to 18 months to complete. Refer to Appendix A for a description of the processes. Standards were approved through a series of votes. The working group, made of interested individuals, had to approve the proposed standard before submitting it to the community. A 75% vote was required for approval of the standard.

In order to ensure proprietary technology (e.g. patents) entered into the proposed standards, companies either pushed for either leading the working groups or packing them with large numbers of employees or individuals that could be trusted to vote in the interests of the company. Furthermore, there was an incentive for companies to get approval for work that they had already completed since that would give them a leg up on competitors in the market. In such cases, many companies tried to recruit allies that would support the technology as well.

In the association, a careful categorization scheme was enacted. For example, the ‘802’ standard, governed networking, with 802.3 representing the well-known Ethernet standard, 802.11 involving wireless LAN networking (in the 2.4Ghz and 5.XGHz bands), 802.15 referring to personal area networking (in the 2.4GHz band), and 802.16 representing local-loop or

10 Orthogonal refers to sub-channels being spaced at 90 degree intervals

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broadband wireless access applications (in the 2.6-2.7/3.4-3.7 GHz bands (MMDS), 5.X GHz bands and 28 –31 GHz bands (LMDS)).

The first 802.11 wireless LAN standard was ratified for the 2.4 Ghz band in 1997, which allowed for a maximum of 2 Mb/s. However, this standard did not gain much attention from IT purchasers since it was not close to the 10 Mb/s speeds coming from wired Ethernet. In addition, the IEEE had no mechanism to enforce a single interpretation of the standard. As a result, several incompatible offerings were commercialized.

Realizing the weaknesses of the 802.11 standard, by September 1999, the IEEE published two supplements: 802.11a for the 5.X Ghz UNII band and the 802.11b for the 2.4 Ghz ISM band. The 802.11b WLAN standard used the DSSS transmission method reaching speeds of up to 11 Mb/s across short distances. Based on the lessons learnt from the original 802.11 standard, five industry participants headed by 3Com, created an ad-hoc consortium called the Wireless Ethernet Compatibility Alliance (WECA) to ensure a common interpretation of the 802.11b standard. In turn they tested and certified products from various players for interoperability with their own Wi-Fi logo.

The 802.11a WLAN standard was ratified in 1999 and used OFDM transmission method reaching speeds of up to 54 Mb/s on the 5.X Ghz bands, five times faster than 802.11b. The speed and bandwidth advantages were appealing to IT managers who were interested in reducing congestion on the wireless networks. It was with this standard that a small start-up based in Calgary, Alberta became known.

Wi-LAN Background

Hatim & Michel - A Company Is FoundedDr. Hatim Zaghloul received his Bachelor of Science in Electrical Engineering from

Cairo University, Egypt and had gone on to obtain both a Master of Science and Ph.D. in Physics from the University of Calgary. As a child, he had grown up traveling between his father’s diplomatic assignment in London and his mother’s home in Egypt. As a result, he often felt that he had an understanding of how differences of opinion developed. As one Wi-LAN employee stated “Hatim likes to say he ‘grew up hearing both sides tell the truth differently.’”

After completing his doctoral work, Hatim worked as a senior researcher at Telus, a Canadian telecommunications company involved in both traditional and wireless telephony services. Hatim’s work included planning the transition to digital PCS cellular, stepping through licensing and approval processes, as well as exploring key characteristics of broadcast transmissions. While at Telus, he developed a vision of what he called ‘Network Living’ with Michel Fattouche – a colleague from the University. In the early 1990’s, Hatim had brought Michel to Telus as a consultant, and with Hatim developed the core technologies for what would eventually result in the foundation of Wi-LAN’s patents.

The initial idea of using OFDM came as Hatim and Michel attempted to develop improvements to the TDMA technology that was in use in Telus’ cellular network. When a number of promising technologies failed to deliver the benefits that they had hoped, they soon began to realize that ‘design errors’ were much greater than the ‘channel errors.’ This insight

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meant that system components and the way that circuits needed to be designed introduced large errors. Yet, all the research was on improving the efficiency and use of the propagation channel. Hatim’s conclusion was that it was foolish to struggle to compensate for errors by making a broadcast more and more efficient. The question then emerged, ‘what transmission system could be designed with far fewer system errors, allowing us to use the channel most efficiently?’ OFDM became the answer, the system that in Hatim’s words ‘best fit the channel.’

Hatim and Michel had developed the basic technologies in 1991 while Hatim was still at Telus. While the OFDM was promising as an advanced wireless technology, Telus declined to actively pursue it since the technology was not being deployed in any upcoming digital cellular standards. Instead, the company let Hatim form Wi-LAN in 1992. The two researchers continued to develop and refine their approach developing key techniques such as ‘phase randomization’ for security purposes. A profound milestone occurred when a research colleague visited the lab in 1993, and much to their surprise pointed out that the phase randomization scheme would also solve several of the fundamental problems preventing OFDM from being commercially viable.11

By January of 1994, Wi-LAN had been granted a patent by the U.S. Patent and Trademarks Office, which the company called Wideband Orthogonal Frequency Division Multiplexing or W-OFDM.

Building A Viable OFDMBy 1995 Wi-LAN had proven the basic viability of their OFDM technology. In a key

meeting at Apple Computer, they were able to clearly demonstrate how they could overcome issues the personal computer company was working on. Wi-LAN knew that all the key OFDM researchers would hear about this development. As Hatim described it:

“The entire body of knowledge on OFDM existed in a small universe, and I know exactly where it is – everyone who is doing anything significant, who really knows about OFDM, are Stanford, Apple, Lucent, and us.”

Yet, despite proven concepts, several hurdles prevented products from hitting the market. Most important was the processing power required for the system. As Dr. Zaghloul stated,

“We kept changing semiconductor platforms, as technology advanced. At the end of 1997 when a number of companies announced plans to build 0.15 micron semiconductors, Wi-LAN I got excited since with .15 micron you can fit many processors on a single chip. Some of the radio work could be done – that’s what we were looking for.”

The ultimate goal for a viable W-OFDM system was to have one digital signal processing chip and 3 ASICs that incorporated all the critical circuits in order to drive cost down to a mass market level. To build the system with discrete components would have driven the price to a point that only a few markets would be interested. Hatim believed that the best move would be to have a technology that leapfrogged existing systems, and the limitations posed by current processors and discrete components would reduce the ultimate performance of the system. As a

11 The ‘peak-to-average’ and ‘selective fading’ problems had prevented OFDM from being implemented with economically viable designs.

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result, the founder felt that, at that time, around 1995, it was premature to bring W-OFDM products to the market – that there would be only one chance to succeed such that timing the opportunity would have to be managed carefully.

The MC-DSSS AlternativeWhile waiting for improvements in processing power, Michel and Hatim discovered and

enhanced the CDMA method of transmission12. Their development decreased the precision required of certain transmission parameters, and at the same time reduced interference issues and increased the spectral efficiency of the system. In 1996 Wi-LAN was granted a U.S. patent for the technology that Hatim had titled ‘Multi-Channel Direct Sequence Spread Spectrum’, or MC-DSSS. As Dr. Zaghloul described it,

“The FCC defined it [allowable technologies for certain bands] as Spread Spectrum. …I had the foresight to recognize that OFDM was a spread spectrum technique and to change the patent title to ‘Spread Spectrum’ – to use those words. As a result, we had a U.S. patent saying clearly that our solution was ‘Spread Spectrum’ – and that was proof I could use in a battle to redefine the certification with the FCC.”

The MC-DSSS technology had potential as a bridge to digital cellular markets and Wi-LAN began to issue ‘white papers’13 on their systems. In one of these, the MC-DSSS was touted as ‘a major improvement over CDMA and was the best technology choice for proposed 3G systems now being established.’ At the same time, if the MC-DSSS nomenclature held, it would qualify for use in those unlicensed frequencies (e.g. 2.4 GHz) where DSSS was permitted for data systems.

The First ProductsBecause Hatim had recognized that Wi-LAN still needed time to develop suppliers and

support for W-OFDM technology, he turned to the other technology in their stable. Wi-LAN first sold DSSS products14 for unlicensed bands, but Hatim knew the future was in stronger performing technologies. The company introduced in 1998, the Hopper Plus product line of Ethernet Bridges utilizing the MC-DSSS technology, with models first operating at a raw data rate of 4Mb/s, with the intention of increasing the data rates up to 12Mb/s by the year 2000. These systems allowed LAN data networks to be truly and effectively connected using wireless technologies across significant distances.

One of the high profile deployments of this technology was in Wi-LAN’s native Alberta, where networks of public schools were inter-connected and provided with Internet access. Additionally, Wi-LAN supplied these systems to carriers in a variety of countries for use by Corporate Enterprises, Public Departments and start-up ISP’s typically providing wireless internet to medium sized communities where cable and DSL were generally not available.

12 Qualcomm was the primary patent holder controlling and licensing CDMA to a wide range of PCS digital cellular carriers as well as equipment makers.

13 It was common for technology firms to issue white papers to explain and promote their developments under the guise of academic research.

14 The Hopper line operated at 1Mbps, the Hopper Plus line incorporated MC-DSSS and ran from 2-4.5Mbps

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Because rules varied from country to country regarding which frequency bands were licensed and unlicensed, and what transmission methods were permitted over each band, Wi-LAN’s Hopper Plus product line could function over a number of frequencies: 2-3Ghz, 3-4Ghz, 5Ghz. Wi-LAN’s technology was in use in the Netherlands,U.K., US, New Zealand and across Canada.

By selling MC-DSSS systems, Wi-LAN was also able to build additional presence, experience, and credibility in the wireless markets, as well as maintain cash flow for W-OFDM efforts. By putting products into the marketplace with relatively high data rates, Wi-LAN could begin to build a reputation as a developer of cutting edge wireless technologies.

Getting Ready for SiliconWith a full understanding of the importance of ASIC’s and support by the semi-

conductor industry, Hatim held a series of meetings in 1997 to demonstrate the capabilities and potential of the W-OFDM system. Several key and influential semiconductor manufacturers had the opportunity to see Wi-LAN’s system, and how they had solved key technological hurdles. Word soon spread through the OFDM research community about the techniques used in the Wi-LAN solution.

“My VP of Business Development called all the major semiconductor manufacturers and told them we had OFDM proof of concept – that we were ready for silicon. They were all alerted in January/February of 1997. A number of them came and saw demo of our discrete components – National came, and we did a presentation for Philips Board of Directors. It developed that TI would produce a chip that would work for us. They were making one, but we needed 3 to make it work.”

“Philips and National had all seen working prototypes – they now knew that phase randomization fixes the biggest problem for OFDM.” Hatim Zaghloul

However, since there was no industry standard around OFDM, there was reluctance on the part of the semiconductor firms to develop ASICs for Wi-LAN. Further patience was required.

Wi-LAN, The Technology Company

The IEEE 802.11a Standard EmergesBy early 1998, unbeknownst to Wi-LAN, IEEE meetings were being held around

developing an 802.11a standard for wireless LAN access in the 5GHz band. Its working group members were proposing OFDM as the transmission method. While Wi-LAN did not have a presence in the working group, others had learned of their methods to overcome problems in OFDM, and were proposing these approaches as industry standard solutions.

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“Lucent and NTT independently proposed OFDM solutions to IEEE strongly resembling Wi-LAN’s technology. It matched a LOT of the DETAILS of our actual implementation. I mean, many of these things are somewhat arbitrary – specific channel width, timing, number of channels, but their recommendations for the implementation standards matched exactly. This happened in May, 1998. Now there are only 10 labs today that really understand OFDM timing issues – it’s very complex.""There was a shocking similarity – far too many parameters were almost exactly the same – number of channels, number of channels used to clean the signal, number of channels to throw away, bandwidth, all these things are arbitrary…Philips alerted us that this was all in the standards proposal.” Hatim Zaghloul

Despite not being a committee member, Wi-LAN became aware of the fact that W-OFDM technology was being included in the standard. Yet neither the committee nor member companies had made any contact with them to discuss the patent issues. While they were not directly involved in the discussion, Wi-LAN began to monitor the situation closely.

“We didn’t directly interfere with the competition yet. The IEEE committee was having a meeting in Holland, and the chairman, who also worked for Lucent, was alerted that Wi-LAN had ownership over the technology that they were proposing. Now by IEEE rules, they must seek approval for patented technologies – as long as they know they are patented and who the owner is. Yet they did not. So in the subsequent July meeting in La Jolla the topic was brought up, and they were asked ‘Did you contact Wi-LAN?’ of course the answer was ‘no’, and ‘Would you like to hear from Wi-LAN?’ and they had to, by the rules, say ‘yes’. So I stood up and read a prepared statement. It was carefully drafted using the IEEE rule language, which discusses ‘willing to make freely available a license at a fair royalty’ and things of that nature – I ensured that we were compliant with the rules. As a result they had to approve it, they had no alternative.” Hatim Zaghloul

Hatim’s statement was a ‘Letter of Assurance’, the required document for any patented technology to be included in IEEE specifications indicating ‘a license will be made available to all applicants either without compensation or under reasonable rates, terms, and conditions that are demonstrably free of any unfair discrimination.’15 Having enthusiastically supported the underlying technology until this point, it became very difficult for the committee members to withdraw the proposal. As a result, for companies to pursue the 802.11a standard they would be required to use Wi-LAN’s patents. Wi-LAN had now been able to put their core patented technology into one of the most important standards in the developing broadband wireless market.

Its first licensee turned out to be Philips Semiconductors in the summer of 1999, who paid $1 million for exclusive use of its patents for one year and intended to build ASICs for use in wireless home multimedia (another application of 802.11a standard.) Furthermore, Wi-LAN intended to use the ASICs in their upcoming W-OFDM products.

15 IEEE-SA Standards Board Operations Manual Section 6

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OFDM AlliancesAfter his fortuitous success with IEEE 802.11a, Hatim saw a larger opportunity for W-

OFDM: getting OFDM as the transmission method of choice in upcoming IEEE standards developments for broadband wireless access (802.16) and road access (802.11a/RA). In the fall of 1999, along with its new licensing partner, Philips Semiconductors, Wi-LAN came up with the idea of creating an OFDM Forum. In its first meeting in December 1999, 101 members from 60 companies including Ericsson, Nokia, and Alcatel agreed to join. The intent was not to make the OFDM Forum a mechanism to push Wi-Lan’s technology but to make OFDM pervasive in wireless applications. As the Wi-LAN’s Director of Business Development, Lee Warren stated,

"This is not a promotion of Wi-LAN's technology. This organization's purpose is to establish a single, compatible, global standard for OFDM technology in wireless applications. Some of the members may end up doing business with each other, but right now, things are very much in the formative stage. We're here to agree upon what the technology should be, and what it should be doing. This is to be an industry organization meeting, not a Wi-LAN meeting.”At the same time, Hatim’s approach was to show its potential collaborators and

competitors that not only was the W-OFDM technology the best, but also that royalties and patent enforcement would be reasonable – with an eye to ensuring that everyone would benefit from the system. Many who had been involved in the evolution of digital cell phone systems were wary of technology patent holders. Qualcomm had pushed their CDMA technology strongly to carriers and equipment makers, only to later exert an authoritarian control over the direction of the technology. Many believed that their high demand for royalties was influential in alternative cellular technologies like GSM gaining support. Wi-LAN claimed to deplore this type of arrangement, and Hatim spoke enthusiastically of charging minimal licensing fees, and offering great value to customers in order that they be able to profit in the marketplace and grow W-OFDM as a universal standard.

The Forum looked not only to promoting the technology already included under the IEEE 802.11a standards, but to ‘fast-tracking’ OFDM’s inclusion in additional standards such as 802.16 and ITS Dedicated Short Range Communications at 5.9 Ghz (included in IEEE 802.11a/RA discussions). As a result, the Forum broke into several working groups focused on these separate fixed wireless applications. Unlike the 802.11a process, Wi-LAN had pushed the OFDM Forum to be deeply involved in the 802.16 process – this time building support from within. By the middle of 2001, the Forum had an impressive list of supporters. Refer to Exhibit 3 for its members.

At approximately the same time, two other associations had emerged around OFDM technology. Networking giant, Cisco, positioned its OFDM solution, called V-OFDM, under the ‘New World Ecosystem’, later changed to the ‘Broadband Wireless Internet Forum’ (BWIF). V-OFDM solutions involved using multiple antenna technology to overcome many of the problems associated with OFDM. While BWIF had been participating in 802.16 processes, they withdrew because the participants felt the open standards procedures were simply too slow. Instead, they were attempting to promote a purely independent standard for V-OFDM based on its technical benefits. Furthermore, to encourage adoption, they offered a ‘royalty free’ solution unencumbered by patented technologies.

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"We're not part of the .16 group, as we have the Broadband Wireless Internet Forum [BWIF], which is solely based on multicarrier Docsis. We've been met with much support-with our competition falling by the wayside. With the [802].16 group still two years from having standards-based product [for MMDS], that leaves us the only ones standing. Sprint and Worldcom (owners of MMDS licenses) need to deploy services with this generation of technology now. All the parts needed to create a supply chain and an ecosystem exist. It's time to get it moving." Steve Smith, Director of Marketing, Wireless Broadband, Cisco

Refer to Exhibit 3 for the other members in BWIF.

A third less prominent ‘Wireless DSL Consortium’, emerged, spearheaded by Iospan Wireless, touting another flavour of OFDM called MIMO. Similar to Cisco’s solution, MIMO-OFDM used multiple antennas. However, the Wireless DSL Consortium held a moderate position between the other two associations – neither disclaiming nor exclusively supporting the IEEE 802 committee processes. Furthermore, the strength of Wireless DSL Consortium was in its strong member support among the existing MMDS community – licensed fixed wireless network operators such as Sprint and MCIWorldcom who owned an existing customer base. The Consortium also claimed to be seeking an ‘end-to-end’ solution that included all elements of the connection, whereas both of the other organizations focused mainly on standards for lower level transmission technology, leaving implementation of higher levels of the system to individual member companies. Transition from previous generation systems would naturally be a key concern for Consortium members, who had current customer bases that would need a smooth conversion to any new technology. Refer to Exhibit 3 for a list of the members in Wireless DSL.

FCC 2.4Ghz CertificationOn a separate front, Wi-LAN had begun a battle with the FCC to allow OFDM

technologies to be used over the unlicensed 2.4Ghz band (ISM). Unlicensed bands could be critical to low price / high volume wide area network systems that could be widely deployed by unlicensed wireless ISPs.

In 1999, Wi-LAN submitted an application to the FCC for approval of OFDM in the ISM band. The technical standards indicated that ‘Direct Sequence Spread Spectrum’ was permitted. To all industry engineers, this represented a particular technology that was widely recognized as not including OFDM. However, Dr. Zaghloul’s approach was to look closely at the language used by the FCC. The term ‘Spread Spectrum’ was broadly defined in certain FCC documents as a technology that used more bandwidth that necessary for transmission. OFDM certainly met this criteria, despite the fact that applied definitions of Spread Spectrum and OFDM were very different. After being denied on both an initial application, and a subsequent appeal, Wi-LAN pursued a little known option to petition the Commissioner.

12

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“So we submitted the application to start the entire process – knowing that it would be denied, and began replying with arguments. The FCC then said that it had to pass the technical test of being ‘direct sequenced’ which it did. And the Head of Engineering (at the FCC) said to me “you’re technically right, but this opens the door for all kinds of other devices”, which was why they couldn’t approve it. We lost on appeal, and then went to the step of petitioning the Commissioners. At that point Cisco supported our petition, in order to show that they weren’t opposed. The appeal and petition delayed the process by a year to 16 months.” Hatim Zahgloul

Some felt that the Cisco support was insincere – that they were enjoying the appearance of embracing open standards and industry cooperation when Cisco had every expectation that Wi-LAN would be summarily rejected. In fact, the FCC had begun to recognize a sea change in regulation. Besides Wi-LAN, many other organizations were seeking changes to ISM and other unlicensed bands to allow current engineering technology to provide better, more advanced services to consumers. In what appeared a recognition of the inevitable, the FCC Commissioners, issued a rule-change opening the flood gates to indeed ‘all kinds of other devices.’ While explicitly supporting the original decisions to deny, they at the same time directed the agency to grant Wi-LAN a waiver for certification until the new rules were in effect.

The standards and regulatory processes had resulted in big wins for Wi-LAN. The IEEE had put them in a position to get the attention of competitors and allies alike, and had put them into the IEEE standards process. The FCC decision had not only been helpful in terms of obtaining permission to operate, but also had significant symbolic value. The decision had been widely publicized in industry press, and gave credibility to Wi-LAN, the Forum, and W-OFDM as a respected technology.

Hatim and his management team acknowledged that there was an important balance to maintain – between pushing for ‘de-facto’ market acceptance, pursuing industry, engineering, and regulatory endorsement, and carrying on the daily business with current customers. Having gotten a foothold, Wi-LAN was now inside, sitting at the table with the key players.

“Now the standards are much less of a drain. It’s really harmonious for us – an extension of everything else we are doing, with some compromises…” Hatim Zaghloul“There is a tight link between the day-to-day and the standards activities. There is no wall there – the work informs the standards process, and the standards process helps to dictate where the work is going.” Sisso El-Hamamsy, Chief Operating Officer

However, it would take time before the new wireless LAN and WAN standards would take off in the market, resulting in increasing royalties for the company. In the meantime, Wi-LAN had to succeed as a product company as well.

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Wi-LAN 120-C02

Wi-LAN, The Product Company

Building AlliancesIn conjunction with commercialization of MC-DSSS systems, Wi-LAN began to build

alliances and make acquisitions to not only support the current product lines, but also to build a base for their future W-OFDM products. The capital market environment in the late 1990’s had been almost ideal for technology companies. Investors and the banking community were feverishly enthusiastic about new technologies, and wireless was one of the areas that received particular attention. As a result, Wi-LAN had been able to raise funds for acquisitions as well as product development.

Hatim saw the need to use alliances, acquisitions and investments on two dimensions. The first was based on promoting market segments: wireless LAN’s and WANs were two of the specific areas that Wi-LAN promoted and encouraged through the use of investments and alliances. Many of the contract deals were based on the idea that Wi-LAN would provide currently approved and available MC-DSSS products to customers with the intention of upgrading them to their advanced technology W-OFDM products in the near future. The second was based on the supply chain – ensuring that upstream and downstream, all the services and products necessary to make Wi-LAN solutions viable and valuable to customers were in place. Refer to Exhibit 4 for a list of some of these alliances, partnerships and acquisitions. For example, by signing on with contract manufacturer Solectron, Wi-LAN saw a tremendous advantage. As the Chief Operating Officer Sayed-Amr (Sisso) El-Hamamsy described:

“The Solectron deal offers great advantages… We have learned from them how to specify and design a product, how to do it with high quality and do it well. That is a strategic asset that they have created for us… this has added to Wi-LAN’s value. If we were working with a smaller supplier we would still have a product, but it would not be to the completion level – documentation, specification… and they have knowledge of how to take it to the next level of cost improvement as the volume increases.”

Building RevenuesWhile the market and supply chain alliances were being established, Wi-LAN was

pushing forward in building its broadband wireless revenue streams, with the intention of being cash flow positive by the end of 2002. However, with the rapid decline of internet and telecom sectors during the end of 2000 and early 2001, there were significant changes to the business plan. Some expected contracts did not appear and others were delayed or scrapped. For example, the highly anticipated MMDS contracts from Sprint, MCIWorldcom, and Inukshuk (in Canada) did not occur. Rather they all delayed their deployments because of reduced capital expenditures and the overextended telecom market. Existing highly touted contracts with Wi-LAN, such as the 5 year $1 billion creation of a fourth generation cellular network through a start-up called 4GNT did not emerge due to lack of funding. Other contracts, for example, with Tele2 UK and Telia Globalcasting were delayed due to lower than anticipated demand for wireless broadband.

Bankruptcies of high profile LMDS start-ups such as Winstar and Teligent in 2001 did not help the perception of fixed wireless broadband as a successful business model. Through

14

Wi-LAN 120-C02

both equity and vendor financing, these companies built out nationwide networks with the expectation that the customers would come quickly. For example, at the time of its Chapter 11 filing, Winstar had 30,000 business customers resulting in revenues of more than $700 million in 2000. However, the revenues were not enough for Lucent to call in on its vendor financing loans to the company pushing it into bankruptcy.

As a result, what was already a scaled back forecast in November 2000 for $50 million in wireless broadband sales for fiscal year 2001, had to be further cut by May, 2001. Additionally, alarming financial pressures were building due to the forecasts that were not obtained. Of the $72 million that Wi-LAN showed as current assets for the second quarter of 2001, $32 million was in inventories, and $22 million was in accounts receivable. This hardly seemed like the time to reduce marketing or R&D spending, however operations were still not profitable, and the $10 million in cash would not last long. Refer to Exhibit 1 for Wi-LAN’s financial statements.

Next StepsZaghloul’s ultimate vision was ambitious and futuristic. He continued to talk with

missionary zeal about ‘Network Living’, a time where every device used by man would be wirelessly interconnected – from future mobile phone and PDA devices to garage door openers preferably with W-OFDM inside. Wi-LAN would be the technology enabler for every manufacturer and service provider in these market segments. By providing a robust and broad wireless communications technology, the visions of broadband wireless multimedia would be enabled. The telecommunications business would be forever changed; carriers would be merely providers of the pipes, regardless of what was carried – voice, data, or video. W-OFDM would be the glue that allowed devices of all types to exchange rich and complex data directly through the airwaves. There was still much to do if Wi-LAN was to fulfill Hatim’s vision of being the technology provider to both mobile and fixed wireless markets. Hatim would have to continue to position the company both as a beneficial technology provider and as a provider of products. Yet there were significant challenges he faced concerning both of these activities. How could he ensure the daily survival of his company and continue to pursue market opportunities?

As a technology company, Wi-LAN had been surprisingly successful. The OFDM Forum was considered a real success as its proposals for IEEE 802.16 and IEEE 802.11a/RA had been accepted. Furthermore, Wi-LAN’s successful lobbying for OFDM at 2.4Ghz led to a new contentious wireless LAN proposal called 802.11g at 2.4Ghz. All of these open standards had the W-OFDM patent implicated. Furthermore, with the decline of the fixed wireless market, the other associations declined in importance. The Wireless DSL Consortium shut down 9 months after it was formed. One of its members, ADC Telecommunications decided to sell its fixed wireless equipment business due to lack of demand. Furthermore, Cisco decided to drop its efforts in V-OFDM in 2001, also due to lack of significant demand. Thus, the OFDM Forum was the only real OFDM consortium standing by mid 2001. The OFDM Forum did not require exclusivity of technology and had encouraged players of all sorts to work together to grow a market where all could profit. Hatim believed that was its key to success.

However, Wi-LAN still faced several issues concerning building OFDM as the technology of choice including IEEE802.11g, legal challenges, royalty collections and market development.

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Wi-LAN 120-C02

In May 2001, the IEEE 802.11g working group voted in favour of Intersil’s OFDM technology over Texas Instrument’s internally developed “packet binary convolution coding” (PBCC) method. However, the OFDM proposal did not generate the required 75% vote required for approval resulting in another vote at a later date. Many industry observers thought that the 802.11g standard would never be approved since TI would have enough members to block the OFDM proposal. While this was not crucial, it could provide a set-back in the Wi-LAN’s ability to collect royalties for the ISM band.

While Hatim was interested in growing the OFDM markets as a whole, he was also interested in collecting royalties on his W-OFDM and MC-DSSS patents. How would Wi-LAN be able to enforce its patents and royalties as a small player? The company had already taken legal action in 2000 against Cisco’s recently purchased company, Radiata for allegedly marketing OFDM products in Canada. However, the suit was thrown out of court because Radiata stated that their products were not for sale in the country. Despite these legal maneouverings, only one company, Philips, had signed a licensing agreement with the company. Yet three other companies had already developed IEEE 802.11a OFDM chips: Atheros, Intersil and National Semiconductors. How should Wi-LAN approach these companies. Furthermore, what were their interests?

Wi-LAN also faced another set of issues concerning whom to approach for royalties. Interestingly in the mobile wireless industry, companies such as Qualcomm and Interdigital had approached the makers of the equipment such as the phones or base stations as a way to collect their royalty streams. Typically the royalty amount was between 1 and 5% of the manufacturers price of the equipment.

Wi-LAN faced a further set of challenges in each of the markets for fixed wireless. The demand for substitute transmission technologies in the wireless LAN and WAN markets were increasing at a rapid pace. For example, millions of WIFI cards for the 802.11b standard had already been sold. Furthermore, approximately 10% of the US population had already subscribed to cable or DSL. While Hatim believed the approach taken by the OFDM Forum was the right one, he was still concerned that 802.11a, 802.11g or 802.16 would never really take off.

As a product company, the company also faced significant risks. First, he faced competitive threats from a number of other wireless broadband equipment players, each providing their own proprietary solution. These companies included Iospan Wireless, Alvarion, Airspan, Hybrid, and Vyyo. Alvarion was the largest of the group with approximately $100 million in sales. The others were in the same situation as Wi-LAN, declining sales, canceled orders etc. For example, Hybrid and Vyyo both saw their MMDS opportunities with their clients Sprint and Worldcom respectively dry up. Refer to Exhibit 5 for a summary of the financials of its competitors. Given the desperate situation of some of their competitors, gaining business from remaining network operators became that much more difficult.

Secondly, Wi-LAN faced non-traditional competition from other sectors. Hatim was anxious for the 802.16 standard to be finalized so that fixed broadband wireless systems could be more easily and cost effectively deployed competing on a united front with cable and DSL. To date, these alternate transmission systems had a head start on wireless broadband having reached a combined 10% of the US population. While Wi-LAN’s proprietary broadband wireless

16

Wi-LAN 120-C02

solution offered significant advantages, the company knew that in order to truly drive demand, open standards would have to be implemented.

Thirdly, the company faced product risks. How would the company manage the transition from offering proprietary W-OFDM based solutions to IEEE802.16 compliant systems? Wi-LAN first had to consider how to transfer over those networks that had already deployed their proprietary system in a cost effective manner. Secondly, they had to convince network operators that it was worth their while to invest in their proprietary system rather than wait for a standardized system.

Hatim’s enthusiasm, like that of many entrepreneurs, was hard to suppress. Uncertainties abounded, but Hatim was confident in his approach. Being a lifetime chess player had taught him to look several steps ahead at all times.

“Every piece of information I hear – someone tells me this, or I read that or something else happens – goes into the model that I have in my head and I have to ask ‘does it fit the model?’. And…maybe I reject it or perhaps I adjust the model. I am always modeling the business, the market, the competitors – always. And then I check the models, the simulation and outcomes against the actual events.” Hatim Zaghloul

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Wi-LAN 120-C02

Exhibit 1

Wi-LAN Balance Sheet

Assets July 31, 2001 Oct 31, 2000 Oct. 31, 1999Current Assets  

Cash $ 8,709 $ 13,790 $ 14,993 Accounts Receivable $ 14,839 $ 26,446 $ 3,025Trade Notes Receivable $ 567 $ 457 Inventories $ 17,520 $ 25,869 $ 2,376Prepaid Expenses $ 1,513 $ 7,659 $ 51  $ 43,148 $ 74,221 $ 20,445

Capital Assets $ 6,311 $ 11,121 $ 386Long-Term Investments $ 3,144 $ 2,156 $ 428 Trade Notes Receivable $ 184 $ 846 Goodwill & Intangible $ 24,378 $ 47,847 $ 71

  $ 77,165 $ 136,191 $ 21,330

Liabilities      Current Liabilities      Lines of Credit $ 12,268 $ 17,735 Accounts Payable $ 28,170 $ 24,983 $ 1,870 Notes & Acquisition Costs $ 5,107 $ 6,899 Deferred Revenue $ 114 $ 1,029 $ 1,181Customer Deposits Payable $ - $ 1,872Warranty Liabilities $ 1,023 $ 871 Current Cost of Excess Space $ 1,240 Current Capital Lease $ 269 $ 269 Redeemable Preferred Shares $ 252

  $ 48,191 $ 53,389 $ 3,303 Long-Term Debt $ 267 $ 267 $ 262 Capital Lease $ 337 Cost of Excess Space $ 2,672 Non-controlling Int. in Subsidiary $ 1,825 $ 7,829

  $ 53,292 $ 61,485 $ 3,565 Shareholders' Equity      

Share Capital $ 147,211 $ 107,544 $ 32,459 Contributed Surplus $ 400 $ 400 $ 400 Deficit $ (123,738) $ (33,238) $ (15,094)

  $ 23,873 $ 74,706 $ 17,765       

Liabs & Shareholders' Equity $ 77,165 $ 136,191 $ 21,330

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Wi-LAN 120-C02

Exhibit 1 Cont’d

Wi-LAN Income Statement

July 31, 2001

Oct 31, 2000

Oct.31,1999

Oct. 311998

RevenueProduct16 $ 66,870 $ 62,275 $ 5,923 $ 5,414

Wi-LAN Broadband $ 11,300 $ 14,893 $ 5,923 $ 5,414License & Technology $ 353 $ 1,116 $ -- $ --

$ 67,223 $ 63,391 $ 5,923 $ 5,414Cost of Sales $ 48,152 $ 40,446 $ 3,197 $ 3,316Writedown of Inventory to Market $ 3,979 $ - $ - $ -

$ 15,092 $ 22,945 $ 2,726 $ 2,098 Expenses

Sales & Marketing $ 22,186 $ 13,759 $ 1,788 $ 2,674Research & Development $ 11,381 $ 9,849 $ 2,798 $ 2,394 General & Administrative $ 10,321 $ 9,770 $ 1,120 $ 1,287 Product & Customer Services $ 9,063 $ 8,164 $ 771 $ 858 Business Development $ 1,841 $ 2,215 $ 280 $Depreciation & Amortization $ 2,887 $ 2,208 $ 220 $ 168 Special Charges $ 18,438 $ - $ - $ -

$ 76,117 $ 45,965 $ 6,977 $ 7,381

Operating Loss $ (61,025) $ (23,020) $ (4,251) $ (5,283)

Amortization of Goodwill $ (8,621) $ (5,541)Loss on Impairment of Assets $ (31,491) $ - Non-controlling interest in DTS Loss $ 8,391 $ (4,555) Dilution Gain on DTS $ - $ 5,629 Interest, Bank Charges, Preferred Share Premium $ (1,755) $ (1,622) $ (92) $ (99)Interest Income $ 4,730 $ 2,979 $ 139 $ 354 Foreign Exchange Loss $ (729) $ (1,018)Equity in losses of investments $ (848)Net Loss Before Tax $ (90,500) $ (18,144) $ (4,505) $ (5,876)Income Tax $ -- $ -- $ -- $ -- Net Loss $ (90,500) $ (18,144) $ (4,505) $ (5,876)

Loss Per Share $ (3.48) $ (0.83) $ (0.24) $ (0.36)

16 Other product revenue came from its DTS subsidiary.

19

Wi-LAN 120-C02

Exhibit 1 Cont’dWi-LAN Financial Data

Wi-LAN stock price vs. Toronto Stock Exchange 300 Index

20

Wi-LAN 120-C02

Exhibit 2

Alternative Wireless Network Technologies

Technology Application Coverage Standard Operating Frequency

Data Rate Maximum Cell Radius

Key Constraints

Personal Area NetworkingBluetooth Peer-to-peer,

HomeGlobal IEEE802.15 Unlicensed

2.4Ghz (ISM)721 Kbps max 5-10 meters Near line of sight

requiredInfrared Peer-to-peer,

HomeGlobal IrDA Infrared light Up to 11 Mbps Around 10

metersFull line of sight required

Wireless LAN (Mainly indoors)WLAN Low mobility

mainly indoor solutions in office or home networking environments

North America (IEEE)

802.11 FHSS Unlicensed 2.4GhZ (ISM)

1 or 2 Mbps 10-500 meters Interoperability between different suppliers. Near line of sight requirements.

WLAN North America (IEEE)

802.11 DSSS Unlicensed 2.4Ghz (ISM)

1 or 2 Mbps 10-500 meters

WLAN North America (IEEE)

802.11b DSSS

Unlicensed 2.4Ghz (ISM)

2.4 – 11 Mbps 10-500 meters

WLAN (OFDM)

North America (IEEE)

802.11a FHSS

Unlicensed 5Ghz (UNII)

54 Mbps 5 km

Home RF Home Solutions Global HomeRF FHSS

Unlicensed 2.4GHz

1 or 2 Mbps Under 100 meters

Near line of sight required

HiperLAN (OFDM)

Low mobility mainly indoor solutions

Europe (ETSI) 7.2 HIPERLAN

Unlicensed 5Ghz

23.5 Mbps 10-200 meters Near line of sight required

UWB (Ultra wide band)

Low mobility and mainly indoor solutions

US (support from FCC)

No published standard

Spread spectrum

20 Mbps 10-200 meters

Wireless WANWireless Local Loop

Residential Network Connectivity

Europe No published standard

Licensed 3.4-3.6Ghz

4 to 25 Mbps depending on channelization

2.8km to 26.6km

Line of sight requirement for two way systems and high power for long distances

LMDS Broadcast TV and residential network connectivty

US No published standard

Licensed 27.5 – 31.3 Ghz

1.5 to 2 Gbps downstream to 200Mb upstream

3 –12 km

MMDS Broadcast TV and residential network connectivity

US No published standard (802.16 emerging)

Licensed 2.5 – 2.7 Ghz

T1 downstream, 512K upstream possible

Up to 65km

Source: Adapted from Durlacher Research, Helsinki University of Technology, 2000

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Wi-LAN 120-C02

Exhibit 3Membership in OFDM Alliances

OFDM Forum (led by Wi-Lan and Philips Semiconductors)

Principal Members Associate MembersAlcatel (network equipment company) 3Com (network equipment)Alvarion (fixed wireless equipment company) CABA (association of appliance mftrs.)Intersil (semiconductor) Fujitsu (semiconductors)Nokia (network equipment) Intracom (network equipment)Philips Semiconductors (semiconductors) Iowave (network equipment)Runcom Technologies National Semiconductor (semis)Sasken Communications Sony (consumer electronics)Ericsson (has since left the Forum) Sumitomo (various)Motorola (joined in 2001) Wipro Technologies (network equip.)TCFIWi-LAN

Academic GovernmentCarnegie Mellon University Industry CanadaGeorgia Tech Radiocomm Agency UKIMEC Research Institute ChinaSoongsil University US ArmyUniversity of CairoUniversity of Oulu UC BerkeleyUniversity of Singapore

Small Business Small Business (cont’d)Beamreach RF IntegrationComsilica RF SolutionsDIBCOM SiWorksEllipsis Digital Unique Broadband SolutionsEncore Systems Vaka TechnologyImprov Systems Wavesat TelecomLittlefeet Wi-Comm CommunicationsNavini Networks Wireless MatrixNextcomm Won TechnologyPacific Broadband Zeevo

22

Wi-LAN 120-C02

Exhibit 3 Cont’d

Membership in OFDM Alliances

Broadband Wireless Internet Forum (led by Cisco)

Principal Members Adopter Members (cont’d)Analog Devices (semiconductors) GRDBroadcom (semiconductors) InnocomCisco (networking equipment) Magnolia BroadbandCorrelant Communications MotorolaCalifornia Amplifier LCCMoseley MarvellSpike Broadband (fixed wireless networking equip.)National SemiconductorTexas Instruments (semiconductors) NBandToshiba (semiconductors) NetVoiceVyyo (fixed wireless networking equipment) RemecVectrad Networks SigtekWj Communications SRTelecom

TalityAdopter Members TandbergAgilent TelaxisADC Telecommunications Unique Broadband SystemsAPC WavecomAndrew WavesatBechtel WaveIPBroadtel WFI3Com ZygateFluorDenali CommunicationsGenistaGetronicsCelplan

Wireless DSL Consortium

Prinicipal Members

Iospan WirelessNortel NetworksADC TelecommunicationsConexant SystemsVyyoIntel

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Wi-LAN 120-C02

Exhibit 4

Selected Alliances, Partnerships, Deals17

Year Company/Organization Type Notes1999 DTS Acquisition Manufacturer and service provider for

transmission equipment for telecom carriers. Strategically refocused on wireless carriers and services.

1999 Amplify.net Investment Developed traffic management and tracking systems for a range of communications providers.

1999 Telia Globalcast Distribution/Contract Telia Globalcast distributed wireless communications equipment in Scandanavias and Baltic countries. Parent company Telia was a significant communications service provider for region. Telia committed to purchasing W-OFDM products for wireless local-loop broadband connections

1999 Philips Licensing Philips was a semiconductor manufacturer and manufacturer of a wide range of consumer and business electronic devices. Licensed W-OFDM technology from Wi-LAN for variety of consumer devices.

1999 BCT.TELUS Trial BCT.TELUS was communications service provider, established trial point-to-point proof of concept broadband connection using Wi-LAN equipment. Telus was a Canadian telecommunications carrier.

1999 RSL COM Contract RSL COM was a Canadian broadband communications provider. Wi-LAN equipment would be used for local-loop connections to public institutions - libraries, schools, etc – in B.C. and Alberta.

2000 Supernet Alberta Contract Province-wide effort to provide broadband connectivity to remote municipalities committed to using Wi-LAN technologies. Consortium was led by Bell Intrigna and included Cisco Systems, Microsoft, Nortel Networks, 360 Networks, AXIA Netmedia, and TotalTelcom.

2000 Air2Lan Alliance/Contract Air2Lan was a U.S. wireless broadband provider. Committed to building a network of broadband service using Wi-LAN technology for wireless local loop. Wi-LAN committed to provide service and technological support and consulting as well as equipment.

2000 Til-Tek Acquisition Til-Tek was a Canadian developer and manufacturer of antenna technologies for mobile phone and wireless data applications. Was wholly acquired by Wi-LAN.

17 Source: Wi-LAN press releases and public information

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Wi-LAN 120-C02

Exhibit 4 Cont’d

Selected Alliances, Partnerships, Deals

Year Company/Organization Type Notes2000 Ericsson Canada Alliance Ericsson was a manufacturer of a wide range of

telecom and data transmission equipment. Wi-LAN and Ericsson agreed to work together to develop market opportunities for wireless data equipment and services in Canadian markets using W-OFDM equipment MCS in 2.5Ghz bands.

2000 Northwest Telephone Contract Northwest telephone was a communications service provider in Washington state. Signed deal to first source MC-DSSS equipment, then W-OFDM equipment as available.

2000 Skybernet Contract Skybernet was a communications service provider located in the Netherlands and operating in the Benelux countries (Belgium, Netherlands, Luxembourg). Signed deal to first source MC-DSSS equipment, then W-OFDM equipment as available

2000 Tele2 UK Contract Tele2 UK was a British wireless broadband services provider. Since 1998 Tele2 UK had been using MC-DSSS equipment from Wi-LAN, more recently had trialed prototype W-OFDM equipment and was now signing an agreement to expand services using new W-OFDM equipment.

2000 Telcor Acquisition DTS purchased Telcor, a company engaged in transmission equipment sales, installation and service.

2000 Wireless Matrix Distribution Swedish distributor took on Wi-LAN equipment line for sale across Europe.

2000 CSI Services Alliance CSI performed engineering, installation, and maintenance services for transmission equipment to U.S. wireless carriers. CSI and Wi-LAN agreed to jointly pursue customer opportunities.

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Wi-LAN 120-C02

Exhibit 4 Cont’d

Selected Alliances, Partnerships, Deals

Year Company/Organization Type Notes2001 General Dynamics Services Alliance General Dynamics Wireless Services

provided engineering and installation services for broadband wireless installations. Companies agreed to cooperate on specific customer projects to provide wireless broadband systems.

2001 UC Wireless Acquisition Wi-LAN directly acquired UC Wireless, a wireless broadband equipment development and manufacturing company located in California. UC Wireless was rooted in military wireless systems had a proprietary system for extending and interconnecting nodes in a wireless network called ‘VINE’ that it claimed offered significant advantages over traditional cell systems including non-line-of-sight issues.

2001 Solectron Supply Wi-LAN signed agreement with Solectron, the premier electronics contract manufacturer to build Wi-LAN wireless equipment.

2001 Symbol Contract/Licensing Symbol is an established manufacturer of business wireless systems used for various automation and data communication tasks. Wi-LAN agreed to supply wireless transmission equipment and Til-Tek antennas to Symbol as OEM (to be rebranded as Symbol solutions).

2001 Netcom AB Contract Netcom AB was the Swedish parent to Tele2, and contracted to use Wi-LAN W-OFDM equipment to build out wireless broadband networks in Northern Europe.

2001 T-Speed Contract T-Speed was a wireless service provider to U.S. businesses and agreed to purchase MC-DSSS equipment, and transition to W-OFDM equipment as it becomes available to build out a U.S. wireless data network.

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Wi-LAN 120-C02

Exhibit 5

Income Statements of Competitors, as at Dec. 31, 2000

Alvarion Vyyo Hybrid AirspanSalesCost of SalesGross Margin

SGAR&DOperating Exp.Operating Income

Interest Expense/GainOther Gains/LossesIncome Before TaxTaxIncome After Tax

101.555 .6 45.9

30.412 .5 42 .9 3.0

7 .0

10 .0

10 .0

15.410 .6 4.7

31.513 .1 44 .6

(39.9)

4 .7

(35 .2)

(35 .2)

22.823 .1 (0.3)

28.16 .7

34 .8 (35.2)

(1.3)(0 .7)

(37 .2)

(37 .2)

30.218 .8 11.5

23.717 .3 41 .0

(29.6)

(1.7)5 .6

(25 .6)

(25 .6)

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Wi-LAN 120-C02

Exhibit 5

Balance Sheets of Competitors, as at Dec. 31, 2000

Alvarion Vyyo Hybrid AirspanCash and EquivalentReceivablesInventoryOther Current AssetsTotal Current Assets

P.P.E.GoodwillIntangible AssetsAccum. AmortizationLong Term InvestmentsOtherTotal Assets

Accounts PayablePayables AccruedCurrent Portion of LTDOtherCurrent Liabilities

Long Term DebtOther LiabilitiesTotal Liabilities

Paid In CapitalRetained EarningsTotal Shareholder’s Eq.Liabilities and Shareholder’s Equity

125.327.544 .3

197.1

6.1

48.31 .3

252 .8

15.9

21 .4 37.3

3 .1 40.3

218.1(5 .6)

212 .5

252 .8

127.82.96.02 .4

139.2

4 .0

143 .2

15 .6

15.6

229.0(101 .4) 127 .6

143 .2

1.97.77.30 .5

17.4

2.0

0 .3

19 .7

11 .1

11.1

5.50 .1

16.7

126.0(122 .0)

3 .0

19 .7

123.014.88.23 .5

149.0

6.81.25.3

(5.3)

0 .3 157 .3

10.1

6.61 .2

17 .9

15 .8

33.7

214.3(90 .7) 123 .7

157 .3

28

Wi-LAN 120-C02

Appendix

Steps in the IEEE Standards Development Process

Step 1: Securing Sponsorship. The first step in the IEEE standard-setting process was to find a sponsor for the proposed concept. The sponsor was an IEEE-approved organization that coordinated and supervised the standards project from inception to completion. There were several professional societies within IEEE that were active in standards development. If the proposed standard fell within the scope of one of those societies, then it would serve as the natural sponsor. If the standard covered an entirely new area, then the person or organization proposing the standard had to find a society within the IEEE willing to sponsor the project, or work with an intersociety group (made up of members of more than one IEEE society.)

Step 2: Requesting Project Authorization. The next step was to submit a Project Authorization Request (PAR) to the IEEE-SA Standards Board. The IEEE-SA Standards Board was an 18-26 person group appointed by the IEEE-SA Board of Governors. The Standards Board included six standing committees, each of which was responsible for a specific aspect of the standards-setting process. The New Standards Committee (NesCom) was responsible for reviewing PARs to ensure that 1) the proposed standard fell within the scope and purpose of the IEEE; 2) the proper society was involved; and 3) interested parties were appropriately represented in the development of the standards. After reviewing the PAR, the NesCom made a recommendation to the Standards Board on whether or not to approve the PAR.

Step 3: Assembling a Working Group. If the Standards Board approved the PAR, the next step was to organize a working group to develop the proposed standard. The working group included any individual interested in, or affected by, the standard. According to IEEE-SA rules, all working group meetings were open; anyone had the right to attend and contribute to working group meetings. Working group meetings were typically a week long, and were held every two months or so.

Step 4: Drafting the Standard. The primary role of the working group was to prepare a draft of the proposed standard. The IEEE published a preferred “style manual” for drafting a standard. The IEEE Standards Style Manual set strict guidelines for four “clauses” of the standards document. Clause 1 was an overview of the proposed standard, including its “scope and purpose” based on the PAR. Clause 2 contained any references to source materials. Clause 3 contained any definitions, and Clause 4 contained the core technical material. The working group typically divided up responsibility for writing specific sections of the draft among themselves. The technical editor of the working group was responsible for: 1) compiling the work into one document; 2) ensuring it had a consistent writing style; and 3) ensuring that it adhered to the IEEE Standards Style Manual.

Step 5: Balloting. Once the draft was finalized it had to first be approved by the working group. Working groups typically established their own voting procedures and rules. Once approved by the working group, the standard was subjected to a vote by a “Balloting Group” made up of members of the broader IEEE community. To form a balloting group, the IEEE

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Standards Department sent an invitation-to-ballot to any individual who had expressed an interest in the subject matter covered by the standard (the “balloting pool”). Those individuals who responded affirmatively to the invitation-to-ballot became the balloting group, provided they were IEEE members or had paid a balloting fee. Members of the balloting group were expected to vote according to their individual consciences. However, in practice, large companies often submitted a large number of employee names to be included in the balloting pool, hoping they would vote along company lines.

To ensure that IEEE standards were truly consensus standards, the IEEE required that the draft of the proposed standard receive a response rate of at least 75% (i.e. at least three-quarters of all ballots sent out must be returned) and that responding ballots indicate at least 75% approval. Individuals placing negative votes were encouraged to proved detailed written reasons for their vote. If the 75% approval threshold was not reached, the sponsor was required to address each comment and attempt to resolve each objection. The draft was then recirculated for another vote.

Step 6: Review Committee. Once 75% approval had been achieved, the draft, ballots and comments were submitted to the Review Committee (RevCom)—one of the six standing committees of the Standards Board. The RevCom reviewed the submittals and examined them to ensure they met all of the IEEE-SA Standards Board Bylaws and stipulations set forth in the IEEE-SA Standards Board Operations Manual. The RevCom then made a recommendation to the IEEE-SA Standards Board regarding the approval of the submitted standard.

Step 7: Final Vote. After reviewing the RevCom’s recommendation, all members of the IEEE-SA Standards Board then placed a final vote on the standard. A majority vote was required from the Standards Board for final approval. In almost all cases, if the RevCom recommended approval, the Standards Board voted unanimously in favour of the standard.

Source: Adapted from standards.ieee.org and Atheros Communications, HBS Case #9-802-973.

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