“From TV to Telco” Transformation of Cable Industry February 6, 2002 – Miami, FL

1. “From TV to Telco” Transformation of Cable Industry February 6, 2002 – Miami, FL Ahmet Ozalp VP, Strategic Marketing Narad Networks

2. The Transformation started in Early 90’s • Broadband revolution has been transforming cable industry rapidly since early 90s Cable Industry Revenues • For most MSOs 50% of revenue growth is coming from non-video services • Cable modem penetration in U.S. is leading DSL 2 to 1 • Voice deployments has been lagging high-speed access, BUT momentum is building behind voice as the right technologies emerge Total: ~$39 Billion Source: Morgan Stanley

3. U.S. Cable Telephony Deployments -Where are we today? • Almost 15% of U.S. homes will have cable telephony available at the end of 2002 • More than 2 Million new cable telephony subscribers within the last 4 years • Penetration of upgraded homes > 16% • Predominantly “Proprietary Circuit Switched” technology Source: Morgan Stanley

4. Customer Premise NIU CM 6 MHz Channel 2 MHz => 24 Voice Circuits (TDM) How does it work ? Proprietary Circuit- Switched Telephony Architecture data IP Backbone Cable Headend CMTS Router HFC Access Network Fiber Nodes HDT voice Class 5 Switch PSTN

5. Circuit Switched vs. VoIP

6. Standardization Efforts by CableLabs DOCSIS 1.0 DOCSIS 1.1 DOCSIS 2.0 • Best effort high speed access • Quality of Service (QoS) for voice support • Improved modulation to increase upstream bandwidth Packet Cable 1.0 Packet Cable 1.1 Packet Cable 1.2 • Packet voice over DOCSIS in the access network • Support for Pure IP and Hybrid (GR-303) based approach in the Headend • Support for lifeline service • Interconnection of local packet cable zones via SIP protocol

7. Packet Cable - “Line Control Signalling (LCS)” based on GR-303 Hybrid Switched/Packet Architecture data IP Backbone Cable Headend Customer Premise CMTS Router MTA DOCSIS 1.1 or 2.0 GR-303 Gateway CM Fiber Nodes voice Class 5 Switch PSTN

8. Customer Premise MTA Router CM VoIP – Pure IP Architecture IP Backbone data Reginal Headend or Data Center Cable Headend Media Servers DOCSIS 1.1 or 2.0 Optical MAN Router CMS CMTS MGC Fiber Nodes Media Gateway voice NCS: network based call signalling (MGCP) MTA: Multimedia Terminal Adapter CMS: Call Management Server (softswitch) PSTN

9. Cable Telephony Economics • VoIP is expected to provide CAPEX savings of up to 40% for a new entrant • Savings $50 to $ 75 less for service providers with existing Class 5 infrastructure • Primary line monthly revenue per sub ~ $54 (AT&T) Revenue Payback in less than 12 months $600-700 $525 - 600 $400-500 Source: Morgan Stanley

10. Primary or Secondary Line ? Primary Line Secondary Line • Revenue per subscriber 1/3 of primary line (What happens then to local voice business?) • 25% - 30% less CAPEX per sub • Smaller upfront CAPEX • No need for major upgrade of the network powering infrastructure • High revenue per subcriber • Higher cost and complexity • Network or Battery power • E911 and other requirements • MSOs with existing voice offerings (AT&T, Cox) • primary line service via hybrid-IP or circuit-switched solutions • New players (AOLTW, Comcast, Cablevision etc) • pure VoIP or Hybrid VoIP solutions and mostly secondary line services only

11. Residential VoIP over Cable Projections (U.S.) 10% penetration 5% penetration Source: Kinetic Strategies

12. What about selling Voice Services to Commercial Customers ? • Commercial services market is significantly larger than the residential market • voice, VPN, internet access, T1/T3 connectivity and private lines, centrex, frame relay • The Cable plant passes 65% of businesses in U.S. • Specifically small and medium business market provides a major opportunity • underserved by the ILEC • too costly to serve with fiber, but easily reachable by cable 34% 52% 66% 48% Source: US FCC

13. SMB Services Revenue Potential Services Revenue per Customer ~ $8000 / month (100 – 250 employees) $175 - $3500 $250 - $1500 Monthly Revenue $200 - $1500 $200 - $1500 $100 - $1000 ~ $925 / month (10 – 20 employees) Source: IDC, Narad Analysis

14. Cable’s Upstream Bandwidth • Cable plant historically designed for broadcast... • The upstream spectrum is limited to 5Mhz to 42Mhz, out of which roughly 20Mhz really usable (noise and interference issues) • Only QPSK or QAM 16 possible • Both voice and data services are competing for the same limited upstream bandwidth • As penetration grows, bandwidth per user drops. • DOCSIS 2.0 is expected to provide 3 x the bandwidth – good for residential, but not enough for business customers !

15. Cable Modem Take Rates drops with Increasing SMB Size Cable Modem Penetration among SMBs • Cable modem penetrationfalls as the company size and needs grow • Issues: • bandwidth • QoS • SLAs • ability to support voice • symmetric bandwidth Number of Employees Source: AMI Research – 2001 Small Business Survey

16. Fiber to Business Gig-E on HFC Cable Modem (HFC) New Technologies are enriching the MSO’s Toolbox Customer Size Large Business Small and Medium Size Business (10 – 500 empl.) Very Small Business and SOHO Cost low high – very high low - medium

17. Gigabit Ethernet on HFC – How does it work? New Spectrum Added Current Cable Spectrum in Use ....... ....... downstream upstream (MHz) 5 42 50 750/860 1GHz 2.5Ghz 6 Mhz 100 Mb Upstream and Downstream 1 Gb Upstream and Downstream • Extends the usable spectrum well above 2GHz by switching and regenerating the packets within the access network • Adds symmetrical 1Gb on trunks and 100Mb on drops to customers • Coexists with current services (analog and digital TV, cable modem) • ATM-like QoS built into standard Ethernet model • Services: Tiered symmetrical HSA(1Mb – 100Mb), VPN, T-1/T-3, remote storage, centrex services

18. Optical Network Distrbution Switch (ONDS) Network Distribution Switch (NDS) Subscriber Access Switch (SAS) Gigabit Ethernet on HFC Deployment Example • Areas without businesses are untouched • No headend equipment required beyond a standard GigE port ... W W W W W W W W W W W W

19. Service Examples: TDM over IP and IP PBX Business Premise Router 100BT BIU + IP MUX Cable Headend Service Delivery Platform N x T-1 Media Servers Media Gateway CMS HFC with DICSIS and Gig-E Overlay IP MGC PBX Optical Switch/Router IP-Mux or T-1/T-3 or Router Fiber Nodes 100BT BIU Class 5 IP PSTN IP PBX

20. It is all about Bundled Services • High Speed Access • beat the competition by performance and price • 1Mbps to 100Mbps dedicated, flexible bandwidth • Security and performance guarantee (SLA) • Telephony • beat the competition by low price and/or quick delivery of services • Voice, Video Telephony, T1 PBX Access, IP PBX, Centrex • VPN • site-to-site, telecommuter access • Storage Services • remote file systems, data backup, disaster recovery

21. Summary • Cable Industry is transforming... • Data (CM) is leading the way, but voice may be the next killer application • Early adopters (circuit-switched telephony) will continue towards a hybrid-IP telephony at least initially • With VoIP reaching maturity, more MSOs will get into voice business • There will be a mix of primary and secondary line offerings • New technologies such as Gig-E over HFC will open up new opportunities in the business services (VoIP and other IP services) • In the next 5 years we may witness a transformation from “TV service provider” to a “super-carrier”

22. Questions ?

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