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Industry Overview

Industry Overview. Guido M. Schuster Senior Director SIP Solutions 3Com, USA. Overview. Market and Utility IP Centrex Opportunity Fundamental Value Proposition Small Business Market Research Economics Replacement Cycle Adoption Criteria ISP Market Research Economics

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Industry Overview

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  1. Industry Overview Guido M. SchusterSenior Director SIP Solutions 3Com, USA

  2. 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

  3. IP Centrex Services LAN PBX Long Distance Toll Bypass Industry Perspective - O(3 years) Market Consumer SO Enterprise LE LAN Utility Last Mile Long Distance New Services Wireless

  4. IP Centrex Opportunities US Market Example 5,000,000 small broadband offices • Business set phone and features • Terminal Adapter based services 4000 ISPs Customer Reach 2,000,000 broadband homes

  5. Fundamental Value Proposition Small Business Spending per Month per User Small Business Spending W/ IP Centrex 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 Savings = 32%

  6. SIP Solutions provides small businesses a cost savings over traditional telephone systems Estimated Annual Cost Savings vs. PBX 35% ($12,474) Estimated Annual Cost Savings vs. Multiline 41% ($7,726) Estimated Annual Cost Savings vs Multiline – 6% ($491) (1) 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

  7. 20-25% of Small Offices Plan to change phone systems every year 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.

  8. 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

  9. Service Provider Financial Model Months before positive ROIC Variables of Model N = number of steady state customers m = 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)

  10. Financial Model for Distribution Channel (ISP) in Wholesale Case 4000 ISPs Customer Reach - sell CPE - sell Service US Market Example Equipment sold via SP Channel small broadband offices Equipment Vendor $ $$ Wholesale Network Provider Wholesale Service including Billing and Customer Service

  11. Service Provider can achieve Positive Cash Flow Year 1 Conservative Business Case Ramp up from 500 subscribers in Q1 to 10,000 in Q8 Channel Partner Complete Service

  12. 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

  13. Industry Overview Guido M. SchusterSenior Director SIP Solutions 3Com, USA

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