Telwares Communications, LLC Proprietary Copyright © 2005 Telecommunications Industry Update “The New Telecom Era – Leveraging Carrier Consolidations”

Telwares Communications, LLC Proprietary Copyright © 2005

Telecommunications

Industry Update

““The New Telecom Era –The New Telecom Era –

Leveraging Carrier Leveraging Carrier

Consolidations”Consolidations”

November 17, 2005


WIRELINE MARKETS


Wireline Market Dynamics

Impact of Industry ConsolidationImpact of Industry Consolidation

• Merging carriers cannot afford to lose customer base which keeps/heightens competitive environment

• Flexible terms and conditions are required to mitigate risk resulting from industry consolidation and to take advantage of pricing reductions (and preserve them longer term)

• Client should immediately seize opportunities to secure leading edge contracts before merger(s) consummate

Short-Term: Short-Term:

Long-Term: Long-Term: • Watch service levels during network/operational integration

• Additional workforce reductions/rationalization

• New culture within each carrier will shape customer experience

Now is the time to perform complete market/carrier/technology due diligenceNow is the time to perform complete market/carrier/technology due diligence


What Mergers Mean for Enterprises

♦ Less true competition (in long-run) Stabilizing (potential up-tick in) pricing Less customization of contract terms

♦ Changes in service and support Expect account team changes Non-contractual support will erode Integration of invoicing platforms could make already-poor billing even worse

♦ Network migration Merger synergies will dictate migration of customers to most efficient network Customer diversity plans (multiple carriers, different routes,

etc.) will be altered

♦ More regulation Excuse to step away from aggressive, custom-pricing behavior Special access (in connection with LD networks) may fall

under different rules


Volume/Commitment

Pri

ce

• Commitment size or volumes do not completely dictate price

• Pricing is situational, depending on the variables at that moment. Result: different prices for similar customers

• Carriers will continue to look to maximize profit, with highest possible price AND minimizing rate write-down

• However, better pricing with lower commitments are available, with key knowledge and application of leverage in today’s dynamic environment

Carrier Marketing

Leading Rate Trend

Contract #3

Contract #1

Contract #2

Price/Volume relationship remains situational…

Renewing Contract


Purchase by Verizon will compete well with SBC/AT&T Combination of financial strength, embedded access/local

relationships, and wireless will drive powerful enterprise market

contender

Definite culture change for MCI (and risk to enterprise business)

Watch out for departure from aggressive pricing/contract terms (MCI

legacy)

Look for MCI to remain aggressive through 2005

Acquisition approved and executed 1st Qtr of 2006 (MCI

Shareholders approved on 10/06, DOJ and FCC approved at the

end of October)

Acquisition approved with only two significant concessions:

MCI/VZ will have to divest themselves of fiber into 350

buildings in the VZ territory

VZ will have to offer unbundled DSL

CA and NY are the two states left to formally approve

Diversity issue for legacy MCI companies in the northeast Verizon will now control almost all telecom services for many clients

MCI


AT&T

SBC’s acquisition of AT&T will create strong company

Perhaps, stronger than many believe reasonable in terms of continued

competition

Legacy AT&T value = enterprise customers and strong global network

Will focus on sticky solutions, such as managed (EVPN) networks

Culture integration (or clash) will be key

Expect deal to consummate in December 2005 (DOJ & FCC have already

approved and CA is the last state needed for formal approval)

AT&T/SBC will need to divest some fiber into 350 buildings in the SBC

territory

SBC will have to provide unbundled DSL

With large existing market share, the combined entity could easily

disrupt many customers’ diversity and vendor-positioning strategies

(e.g. – now single provider)

Clients of AT&T should anticipate some network and account support

issues potentially before and after the acquisition is complete


Sprint

Merger with Nextel created a very strong wireless combination

Strongest wireless push into enterprise, although coverage not

as good as Verizon or Cingular

Focus on achieving merger synergies and associated debt

distract from potential merger with remaining RBOC

Profitability focus has pushed Sprint away from larger

enterprise wins

Delay in rolling out MPLS strategy has weakened Sprint’s

reputation with large enterprises

Look for Sprint to maintain focus on its current enterprise

customers (retention), while also looking to expand wireless

into current base

Sprint is aggressively pushing the one contract-one account

team for both their wireless and wireline services

Publicly stated they will migrate their existing Frame Relay

customers to their MPLS based network by end of 2007


Changing times at the FCC Kevin Martin replaced Michael Powell as Chairman

Continued push for limited/no regulation on internet services, such as VoIP

Review of 3 large mergers will take up staff’s resources in 2005/2006

FUSF will be reviewed in 2006 (Cable Broadband currently exempt)

Focus on broadband and DSL expansion to more areas of U.S. (Just approved

that DSL network providers do not have to share their networks; a big victory

for the LECs)

Regulatory Climate


KEY CONTRACT COMPONENTS FOR TODAY’S ENVIRONMENT

• Flexible Revenue Commitments:

Term vs. Annual

No more than 70% of expected runrate

• Degradation of service/support, pre and post merger

• Stabilized pricing for all elements

• Market review with remedy

• Term extension options in the event prices increase

• Business protections for:

Business downturn, divestiture, technology change,

Technology Migration, Network optimization, etc.

Diversity (now looking at new, combined companies)

• Account team support commitments

• SLAs on key network metrics


KEY TAKEAWAYS

• Acquisitions will most likely be approved no later than the

end of the first quarter 2006

• To-be-acquired LD companies still seeing difficulty in

marketplace (stretch to make revenue/EBIT plans)

• Therefore, competitive pricing still the rule… but with

potential for short-term expense reductions if revenue not

materializing

• Eventual rationalization of pricing post mergers

• Carrier emphasis on managed solutions, applications, and

the “bundle” vs. plain transport

• Further industry consolidation

• Good timing for contract pricing renewal and reinforcement

of service/support requirements

• AT&T/SBC looking like SBC vs. MCI/Verizon which is a

combo.


WIRELESS MARKETS

Page 9


The Wireless (Broadband) Question

• The reality of broadband wireless in terms of global scale, domestic distribution, and willingness of providers to let go of tradition

• Service providers are largely inventing the same wheel

• Leadership in IT infrastructure investment

• Enterprise will play the lead role in installing ubiquitous wireless technology above and beyond the organization

• Resolution will come from demand, invention and expectation

A challenge in the global marketplace for the IT and Business A challenge in the global marketplace for the IT and Business leaders of large enterprise...leaders of large enterprise...


Wireless Sourcing Dynamics

Legacy industry practices help drive the current state and Legacy industry practices help drive the current state and climateclimate

• Pricing complexity and structure is consumer-centric, and is designed to preserve a high margin environment to support expectations

• “Boilerplate” environment for contracting practices – less than sophisticated against enterprise demand set for flexibility and risk mitigation

• Account support and general administration is less than adequate against the requirements for successful program management

• Business critical technology messaging – combined with a casual urgency in real terms

• Consolidation requires a steadfast game plan for preserving base and balancing build outs

• Heavy investment continues in new technology and coverage / capacity

Carriers:Carriers:


Wireless Sourcing Dynamics

New challenges emerge in enterprise sourcing and mobility…New challenges emerge in enterprise sourcing and mobility…

• Fluid environment for technology, billing, account support and application are heightened by consolidation activity

• The target market for the industry – and what is driving advancement

• Supporting the technology, and the associated costs / accountability

• Policy, security and generating visibility• Balancing the bandwidth and application

demand• The international question, and strategy• Mapping WiFi, WiMAX, RFID and other

technologies•Reality versus myth•Timeline and application

• A true disparity in enterprise experience across verticals and size / population


Mergers, Acquisitions, and New Branding

• Continuing Orange and Blue challenges in approach, model, and support• Billing system challenges and integration efforts• Implied “instant” giant lacks in some areas of reality• Maintain a cautious eye on account support• Approach sourcing efforts aggressively

Cingular / AT&T Wireless:Cingular / AT&T Wireless:

• Nextel delivers valued spectrum, heavy enterprise base and PTT powerhouse

• Engineering company meets marketing company

• Unique position among Tier 1 players with both wireless and wireline assets

• Market leader with voice and data SLA’s – which are unfortunately diluted

• Hampered by lingering (and realized) network perceptions

• Be aware of migration efforts around billing and technology

•Complex billing integration

•PTT application users must exercise all means of communication with the combined entity

Sprint / NextelSprint / Nextel

• Combined network footprint, internal efficiencies and base lead to potential Tier 1 play• Niche plays in large enterprise will begin to offer compelling stories• Watch for more of this Tier 2 activity

Alltel / Western Wireless:Alltel / Western Wireless:


Enterprise Strategies

Four Key Strategy Drivers – The Foundation of Best Four Key Strategy Drivers – The Foundation of Best PracticesPractices

Page 13

Drive Savings:Drive Savings:• Drive market leading price

points• Utilize market leverage• Simplify the structure

•Pricing and support• Terms and conditions

•Flexibility / Risk Mitigation•Accountability

Simplify the Program:Simplify the Program:• Consolidate the supplier base• Address functional

requirements• Take ownership of the asset• Understand the demand set

•Profiles, applications

Leverage the Technology:Leverage the Technology:• Utilize established control• Map wireless to key initiatives• Drive synergy and efficiency

across infrastructure• Take advantage of broader

application spectrum

Enforce the Strategy:Enforce the Strategy:• Drive behavior and experience• Define and support the process• Generate leverage• Provide risk mitigation

•Legal, IP, security, etc…• Set baseline for future

sourcing, security, technology, process


Enterprise Strategies

• Eliminate as much complexity as possible in the pricing structure• Drive price points that support flexibility in application• Generate savings to assist in funding overall management strategy• Demonstrate real return on investment, and make it last across the lifecycle

Financial:Financial:

Operational:Operational:• Use policy as a strategic bridge to mitigate risk, drive behavior, and support the

ongoing sourcing / management efforts• Maintain visibility and accountability with robust inventory / asset management• Executive sponsorship and priority

• Terms and conditions that speak to the volatility of the marketplace, and the practical business environment

• Look to stabilize the experience – support, MTTR, and relationships• Address changes in technology – speak in contract language ahead of the curve

Contractual:Contractual:

Technical:Technical:• Separate the market hype from enterprise reality – plan based on good intellectual

property• Utilize sourcing and policy events to generate momentum in mobility planning• Address the mobile device from a network / IT infrastructure standpoint

Documents

Telwares Communications, LLC Proprietary Copyright © 2005 Telecommunications Industry Update “The New Telecom Era – Leveraging Carrier Consolidations”