Mobile Internet Startups predicting the next big win

1. Mobile Internet Startupspredicting the next big win Sanjay JhawarVice President, Wireless, cirlab! July 2001

2. The Parent: CIR Group • CIR = Compagnie Industriali Riunite • one of Italy’s most significant industrial groups, founded in 1976 • publicly traded in Milan (CIRX) • FY2000 : revenues €2.52 billion, capital employed €1.05 billion, net income €86 million • controlled by the De Benedetti family • mission: create shareholder value through dynamic management of investment portfolio and taking an active role in management of operating companies • focus on media, utilities, telecom and automotive components • some major telecom and new media investments by CIR: • L’Espresso/Kataweb (49.6%) • leading Italian portal with 256 million monthly page views & 6.6m unique users (March 2001) • H3G (12.9%) • 3G wireless license winner in Italy, currently building mobile network. JV with Hutchison Whampoa (who owns 78.3%) • broadband access providers : eVia and CasaWeb

3. De Benedetti Group Success Stories • (Hutchison, CIR) • recently awarded 3G-UMTS operator license in Italy • Europe’s largest wireless market with 73% penetration • (now part of Vodafone Group) • established in 1994 within Olivetti • 2nd wireless operator in Italy and Europe with 10+m customers, 43% market share • largest value creation in Italy since WW II • (now owned by ENEL/Wind) • established in 1995 within Olivetti • the 2nd fixed line operator in Italy with +5MM customers • acquired by Vodafone in Mannesmann takeover, recently sold to Wind for $6.5bnCorporate Venture Capital Fund • established in 1985 to focus on emerging technologies • total investments for $200MM • 29% IRR since inception, 35% IRR since 1992

4. Who is cirlab? • cirlab! is a seed and early-stage value-added venture investor founded in 1999 and funded to €30m by CIR Group, focused on • wireless Internet services, applications and software technology • digital media and broadband content • other software and services • Objectives • invest in European, US and Israeli businesses where Europe is the major market • exploit Italy’s mobile market size and our connections here and elsewhere • be active partners in building the business, spending a lot of time outside of board meetings working closely with management • Team backgrounds • seasoned entrepreneurs, technologists, marketers and finance professionals with top-level operational experience in the US and Europe in our chosen sectors • extensive personal networks in Italy, UK, US, France, Sweden, Israel and elsewhere

5. cirlab! mobile portfolio

6. Current outlook for mobile Internet  • 3G delayed, slow start to GPRS • Operators with high debt and declining ARPU cutting all non-essential spending, looking to share 3G radio access networks • Nokia, Ericsson, Motorola, Siemens, Lucent, Alcatel cut earnings estimates, downsize and cut back vendor financing. • Comverse warns but so far nothing from Openwave. • Market slump causing venture investment slowdown : many startups struggling to raise money. • European wireless startup investments (data from Tornado Insider): • €171m invested in March • €227m invested in April • €127m invested in May • €92m invested in June

7. DoCoMo 23.0m KDDI 7.2m J-Phone 6.7m Shinsegi (Korea) 0.5m Sprint PCS 1.3m Verizon 1.0m AT&T Wireless 0.6m Nextel 1.1m BT Cellnet 1.5m France Telecom 0.7m Telefonica 0.5m Omnitel 0.1m TIM 0.1m Others 1.65m Total 46.0m Active mobile Internet subscribers Source: Motorola 5/01

8. Current outlook for mobile Internet  • Regular mobile Internet users in Europe growing from 2.5m in 2000 to 170m in 2004 (Forrester, 9/2000) • GPRS commercial network launches in several countries, many in soft launch • GPRS smart phones finally coming at the end of this year to Europe? • NTT DoCoMo on track for October 3G commercial launch • High hopes for XHTML (WAP/iMode convergence), Java phones, instant messaging, MMS • Killer app is still mobile email – but now for enterprises. Momentum behind standardised mobile middleware from IBM, Microsoft, Oracle • 2nd generation operator mobile portals rolling out • European mobile ASP’s iTouch (UK), Acotel (Italy) & Aspiro (Sweden) had successful IPOs in last 12 months. • No shortage of VC funds waiting the right mobile investment opportunity

9. Complete solution partners already spending big money promoting the category – but missing the piece that unlocks the whole value chain they bet their business on Compelling business driverbuyers take risks to spend money with a startup that was budgeted elsewhere Buyers Value chains Gatekeeper position with few current competitors and with technology and other barriers to entry End-users Technologymegatrends End users actually caresolves a real (not imagined) need. Structurally improves value for money. Go with the wind not against it leverage long term investments made by others. Predicting the next big win Market timing is critical. Advanced technology is not enough

10. 2.5G operators spend money on? • Subscriber acquisition in highly penetrated markets and for newer entrants • Subscriber retention and ARPU protection for established players • Manage GPRS expectation gap – optimized applications • Avoiding SMS > GPRS revenue transition issues • Threat from internet portals – subscriber ownership • Migration of legacy architectures to Internet accessibility • Voicemail, IN, billing • Working with their portal partners, introduce new applications on Internet time yet integrate with an existing telecom architecture • Integration of user experience across architecture

11. 3G operators spend money on? • build brand - new technology image • rapid time to market • start generating cashflow asap to cover interest payments • new entrants must get established before incumbents can migrate legacy systems • fill bandwidth • price to stimulate demand, maximum possible proportion of data revenue • minimize costs of providing commodity voice services • capture customers from 2.5G • new entrants encourage number portability • allow users to migrate existing services with better QoS • new terminal types to support new applications • reduce costs of software upgrades • open services mode for new entrants • differentiated middleware, external apps • improve periods of under utilization

12. Other motivated buyers • MVNO’s • Service differentiation without Radio Access Network • Subscriber acquisition • Cross branding tie-ins • Well funded mobile portals and ASP’s • Especially operator owned entities eg Vizzavi etc. • Application integration with telecom services, to capture operator revenue sharing • Large enterprises • Mobile office • Mobile business process support - vertical applications

13. anywhereanytime productivity entertainment community personalization content adaptation difficult to configure difficult to use End-user value-for-money special device + • Reduce airtime needs, device costs • Allocate bandwidth to higher value services • Increase dynamic personalization • Address intrusion • Careful with easy of configuration and use, intelligent design for latency etc. personalized dynamically context aware(relevant, appropriate) airtime urgent extra monthly fee value cost intrusion - delay

14. Value chainlocation based services • Still evolving • Several pieces not yet in place • Issues not yet well addressed • cost of location sampling • push services • privacy/availability apps transactionand billing positioningtechnology locationmiddleware proximity detection privacy & availabilitycontrol appplatform CPSSnaptrackCellpoint Signalsoft Xypoint InirU iProx Teltier Personity Phone.com MicrosoftIBM Sun Webraska Akumitti ItsAlive GeePS Airflash uBmobile Portal s/w Geneva

15. Value chainmobile advertising • Early days • Many pieces not yet in place • Issues not yet well addressed • privacy • anti-spam • reverse billing to advertiser, or credits to users • balance between richness of media and cost of delivery • integrating multiple touch points – TV, billboards, Bluetooth, web, print availabilitycontrol contextawareness(e.g location) contenttransfor-mation pushservices brandowners/retailers advertisingagencies mediabuyers profiletargeting privacycontrol Phone.com CMG Ecrio Airflash NikeP&GStarbucks Phone.com IBM Oracle McCannJWT InitiativeMedia Mediatude Lumeria Privada Ayeca Angara Teltier Personity Teltier interactivity CMG, Hiugo, Iteru

16. Value chainmobile media distribution • Still evolving • Several pieces not yet in place • Issues not yet well addressed • billing other than for traffic • QoS • broadcast and point-to-multipoint to reduce spectrum needed for distribution Clientsoftware mediacreators contenttransform-ation transactionand billing pt-to-pt,multicast,broadcastgateway radioequipment digitalrights mgmnt DSPCPU Real Networks Microsoft Disney Atomfilms CNN Universal BMG Sony Microsoft Real NetworksMicrosoft Celltick Fantastic Streamingvendors Ericsson Nokia Motorola Lucent ARMTI Motorola Intel Analog Dev

17. Technology Megatrends • Signalling: telecom protocols >> Internet • Parlay • SIP • OSA • Internet megaservices – distributed component services, usable by 3rd party general internet applications • SOAP • .NET/Hailstorm • AOL IM, ICQ, Yahoo Messenger, MSN • Mobile mass storage • 512MB compact flash cards • 1GB CF size microdrives

18. Hard disk storage capacity at constant cost2X in 12mo 1GB 340MB Mobile WAN bandwidth at constant cost: 2X in 30 mo 2MbpsUMTSlow mobility, few users 384kbpsUMTSpacket 144kbpsUMTSCSD 40kbpsGPRS 14kbpsCSD 9.6kbpsCSD Moore’s Law not the whole story Processor power at constant cost 2X in 18mo Log(performance) Moore’s Law Mobile WAN’s and 3G phones will beclient-server NOT network computers t

19. Insights for potential startups Critical gaps needing solutions • Cached media, overnight delivery, digital rights management • Server management of rich clients • Internet applications accessing telecom functions • Integrated voice/visual interface; billing; network presence • Quality of Service management on 2.5G • IP multicast/broadcast over 3G • Cross application megaservices • application pre-rating • proximity detection, cellular positioning and Bluetooth • mobile media distribution over multiple operators:a mobile “Akamai” • dynamic personalization bridging internet and telecom