Telco eMarkets - Establishing a PwC Point of View

1. PRELIMINARY - NOT FOR DISTRIBUTION Telco eMarkets - Establishing a PwC Point of View May 24, 2000

2. Summary Slide • Of the three main eMarket Trading Zones that will likely emerge in Telecommunications industry, the Telco/Equipment Provider zone should command PwC’s most immediate attention • Trading Zone II (Telco Procurement and Provisioning) is the most attractive eMarket space, due to: limited competitive activity; our good client relationships and deep industry and process expertise; and the large potential transactive and value-added services opportunities that this zone might support • Trading Zone III (Corporate-Telco Demand) and Trading Zone I (Communication Equipment Manufacturer Procurement) • Several scenarios are being developed to assess the market formation initiatives and results most likely to emerge in the future; these scenarios are distinguished by varied levels of eMarket functionality, concentration and consolidation • PwC needs to consider and articulate a cross-industry eMarket architecture vision, to guide eMarket partnering, investment and implementation efforts

3. Lg Bus. Eq. & Svc Users Outside Plt Svcs The Telecommunications supply chain “web” is complex, with multiple of component suppliers, manufacturers, distributors, OEMs and end buyers Telecommunications Business Web Contract Manufacturers Telecom Wholesale Svc Providers Chip Makers Residential Eq. & Svc. Users Distributors Telecom Retail Svc Providers Comm Equipment Sm Bus Eq. & Svc Users High end components Cust. Care & Repair Svcs Low end components Distributors Mktg and Advert. Svcs Indirect Goods and Represent trade with/by distributors

4. Three eMarkets will dramatically simplify the supply chain business web Future Telecommunications Web with eMarkets Contract Manufacturers Wholesale Svcs Providers Chip Makers Outside Plt Svcs Residential eMarket eMarket Retail Service Providers Comm Equipment High end components eMarket Sm Bus. Cust. Care & Repairs Low end components Lg Bus. Distributors Mktg & Advertising Indirect Goods Trading Zone I Trading Zone II Trading Zone III and Represent trade with/by distributors Represents trade with/by horizontal exchanges

5. Specific challenges for Trading Zone II eMarkets • Fragmenting Trading Zone market leaders • Integrated service providers -> wholesales and retailers, (as well as fixed vs wireless and voice vs data) • Integrated equipment providers -> developers and producers (as well as carrier-focused and consumer focused) • Commoditization of core product (minutes) • Technology generation shift from circuit switching to IP networks, with leader in new world (Cisco) unlikely to play in eMarkets (as they are already so “e-enabled”) • Opportunity for make vs buy assessments (related to emergence of wholesalers) • Need for inter-trading-zone supply chain views (related to separation of developers from producers) • Large, complex, difficult to configure products • Procurement and trading of time-wasting assets (services)

6. Trading Zone II, the Telco Procurement space, appears most promising eMarket Opportunity Ranking PwC Priority First Second Third Trading Zone II Trading Zone I Transaction Volume Trading Zone III eMarket Value Add Low Medium High SHADING represents Competitive Intensity

7. Telco Trading Zone II e-Market Value Proposition - Production planning more efficient - Real-time logistics knowledge - Engineering data transmitted effectively - Suppliers’ quality easily compared x Quality Service Illustrative Customer Value = x Cost Time - Elimination of NVA steps and intermediaries - Suppliers’ prices easily compared - Real-time ordering and inventory knowledge - System integration eliminates delays

8. Several different eMarket models indicate the need for scenarios on how the Telco eMarket environment will form and evolve eMarket Degrees of Freedom Open (Multi-tier) Proprietary (Multi-tier) Proprietary (Single-tier) Membership is restricted to a single lead buyer (e.g. an OEM) and all of the companies that comprise its supply chain andis focused on facilitating transaction between members and providing basic services such as logistics. Membership is restricted to a single lead buyer (e.g. an OEM) and suppliers with whom it has a direct relationship andis focused on facilitating transaction between members and providing basic services such as logistics. Membership is open to all companies within the relevant supply chain andis focused on facilitating transaction between members and providing basic services such as logistics. First Generation Membership is restricted to a single lead buyer (e.g. an OEM) and suppliers with whom it has a direct relationship andis focused on facilitating transaction between members and non-members while providing value added services such as supply chain integration. Membership is open to all companies within the relevant supply chain andis focused on facilitating transaction between members and non-members while providing value added services such as supply chain integration. Membership is restricted to a single lead buyer (e.g. an OEM) and all of the companies that comprise its supply chain andis focused on facilitating transaction between members and non-members while providing value added services such as supply chain integration. Second Generation eMarket between Component Manufacturers and Telco Equipment Providers eMarket between Telco Equipment Providers and Service Providers eMarket between Telco Service Providers and Consumers

9. The future shape of Telco (and other) eMarkets will likely be influenced by the functionality of the eMarket, concentration of the participants within a Trading Zone, and consolidation across the related Trading Zones Universe of eMarket Scenarios H Concentration H Consolidation L L L Functionality H

10. Dimension I: Functionality Future Range of eMarket Functionality Definition: scope of product and technical capabilities available on the eMarket Low Medium High Narrow Catalog Direct/Indirect Standardized Broad Catalog Direct/Indirect Standard/Complex/Configurable Broad plus Associated Svcs Catalog, Exchange, Auction Direct/Indirect Standard/Complex/Configurable Product Focus Supply Chain Integration Single Tier Only Ordering Only Single Tier Only Order plus Value-Added Svcs eg, forecasting, auto replenish, order tracking, inventory views Multi-Tier Order plus Value-Added Svcs plus Collaboration Functions for Design and Project Mgmt Content/Product Specs Basic Catalog Content Mgmt Policy Mgmt Sophisticated Search Tools Compatibility Suggestion Engine Configurator All Medium Functions plus Off-exchange Searching Bundle Mgmt (seller) Bundle Suggestion Engine (Buyer) Order Mgmt Capability Expectation Support Certainty High • Transaction fee erosion will • demand new functions/svcs • Some eMarkets have moved • beyond Low already High

11. Dimension II: Concentration Future Range of eMarket Concentration Definition: extent of eMarket dominance and level of competitor cooperation within a supply chain tier e.g., market share of the top 3 eMarkets in the tier Low Medium High Multiple Proprietary Exchanges Competing Open Exchanges Single Open Exchanges Exchange Openness CompetitorCooperation Low Medium High Expectation Support Certainty High • However, competition and rivalry • could spawn multiple markets • Tier consortia have already • started to form • Liquidity/Economies of scale • and standards simplicity favor • concentration Moderate

12. Dimension III: Consolidation Future Range of eMarket Consolidation Definition: the extent of eMarket adoption/membership into single eMarket across mutliple trading zones Low Medium High All 1 2 Participating Trading Zones Infrequent Occasional Level of Participation Additional Channel Exclusive Channel Expectation Support Certainty High • Cost savings and other benefits of • connectivity and collaboration will • drive broad supply chain adoption • Standards complexity will drive • eMarket consolidation • Strong supply chain members could • force participation Moderate

13. Three scenarios seem mostly likely to occur Characteristics of the Scenario Dimension Scenario I Scenario II Scenario III Functionality L H H Concentration L H H Consolidation L L H Description FIEFDOMS Functionality lags, and, while eMarkets multiply, none gain substantial liquidity and network benefit STALEMATES Fears of power and margins erosions prevents consolidation, despite inter-industry cooperation and high functionality UBËR eMARKET High consolidation maximizes the benefits of high functionality and concentration

14. PwC needs to develop a cross-industry viewpoint on eMarket architecture • eMarkets may eventually be comprised of local VACs, interconnected with both “Exchanges for Exchanges” and numerous “value added services nodes” that push the performance envelope for specialized niches of exchange functionality (and hence choose to be outside any exchange, but connected to all) • If this view prevails, PwC may take a leadership position in eMarkets by • adopting the vision early, and working with exchange developers and prospective participants to avoid “rework” when the vision emerges as reality • adopting a leadership role in building the Exchanges for Exchanges and the standards and protocols that will make those entities feasible, leveraging existing relationships with EAI software companies where ever possible • seek out and partner with/invest in highly attractive niche “exchange technology and functionality” companies, and guide those partners along a path to success