Industry Overview

Guido M. SchusterSenior DirectorSIP Solutions3Com, USA

Overview

Market and Utility— IP Centrex Opportunity— Fundamental Value Proposition

Small Business Market Research— Economics— Replacement Cycle — Adoption Criteria

ISP Market Research— Economics— Distribution Model— Cash Flow Model

Summary

Industry Perspective - O(3 years)

MarketConsumer SO Enterprise LE

LAN

UtilityLast Mile

Long Distance

NewServices

Wireless

Long Distance Toll Bypass

LAN PBX

IP CentrexServices

IP Centrex Opportunities

US Market Example

4000 ISPs

2,000,000 broadband

homes

5,000,000 small

broadband offices

Business set phone and features

Terminal Adapter based services

CustomerReach

Fundamental Value Proposition

Small Business Spending per Month per User

Local $40

Long Distance $30 $60 (lets get back to this)

Enhanced Services $25

ISP $5 $8

Tel. Equip (5 years) $10 $7 (no on premise PBX)

------------ ---------------- --------------

Total $110 $75

Small Business Spending W/ IP Centrex

Savings = 32%

Small Business Economics

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

SIP Solutions PBX Multiline SIP Solutions PBX Multiline SIP Solutions PBX Multiline

Other

Service

Hardware

7 Person Business

15 Person Business

35 Person Business

SIP Solutions provides small businesses a cost savings over traditional telephone systems

Note: (1) Other includes installation, support, software upgrades, bandwidth cost for voice and maintenance (including moves, adds and changes)

(2) Costs represent 5 year spending discounted back

(1)

Estimated Annual Cost Savings vs

Multiline – 6% ($491)

Estimated Annual Cost Savings vs.

Multiline 41% ($7,726)

Estimated Annual Cost

Savings vs. PBX 35% ($12,474)

Current and Planned Phone Systems

— Only half indicate full satisfaction with current phone systems— Key Dissatisfactions:

lack of expandability limited feature set

— 1 in 4 Very Small Companies and 1 in 5 Small Companies are planning to install new phone systems within the next 12 months.

— About 1 in 5 Very Small Companies appear to shift from Key Systems to PBX as they grow into Small Companies.

20-25% of Small Offices Plan to change phone systems every year

Decision Criteria for Adoption for Small Business

Unaided Criteria of Adoption— Cost Savings required and number 1 criteria— Ease of Use and Simplicity— Time Savings and Productivity— Expandability— Simple set up and maintenance

Aided Criteria— One Bill— One place to check messages (UMS)— Call filtering based on personal information

Service Provider Financial Model

ROIC Sensitivity to Number of Regional Customers

010203040506070

0 2000 4000 6000 8000 10000 12000

Number of Customers

Po

siti

ve R

OIC

in

M

on

ths

Sensitivity of Phone Price on ROICwith 2000 planned Regional Customers

05

101520253035

0 200 400 600 800

Phone Price

Mo

nth

s b

efo

re

Po

siti

ve R

OIC

Months before positive ROIC

Variables of ModelN = number of steady state customersm = phones per customer (4)s =service fee ($60)c = customer aquisiton cost ($150)f = fixed operational costs/month ($50000)I = one time investment ($800,000)p = client equip cost ($395)

Financial Model for Distribution Channel (ISP) in Wholesale Case

US Market Example

4000 ISPs

WholesaleNetworkProvider

small broadband

offices

Customer Reach- sell CPE- sell Service

EquipmentVendor

Equipment sold via SP Channel

Wholesale Serviceincluding Billing and Customer Service

$$

$

Service Provider can achieve Positive Cash Flow Year 1

Ramp up from 500 subscribers in Q1 to 10,000 in Q8

Conservative Business Case

Cash Flow - Base Case

$(1,000,000)

$(500,000)

$-

$500,000

$1,000,000

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

OneNumberPartnerProgram

SystemPurchase

Cumulative No. of Subscribers

500 855 1,462 2,500 3,536 5,000 7,071 10,000

Channel Partner

Complete Service

Summary

Market and Utility— IP Centrex Opportunity— Fundamental Value Proposition

Small Business Market Research— Economics— Replacement Cycle — Adoption Criteria

ISP Market Research— Economics— Distribution Model— Cash Flow Model

Industry Overview

Guido M. SchusterSenior DirectorSIP Solutions3Com, USA