The Chaos of Telecom

1. The Chaos ofTelecom Tim Owens Cronin Communications towens@cronincom.com 202-232-1107

2. The Deals and Developments That Defined the Last Year • Midwest Wireless sold to AllTel for $1.1 billion. • Rural Cellular Corporation sold to Verizon for $2.7 billion, or $3,700 per subscriber. • Sprint spun off its wireless service and redubbed its local exchange service “Embarq.” • Verizon failed to find a buyer for its rural New York exchanges. • BUT, FairPoint is buying all Verizon lines in Maine, New Hampshire and Vermont. • The Rural Utility Service has awarded 70 loans in 40 states for $1.2 billion to serve 582,000 customers. Cost = $2,100 per home.

3. The Deals and Developments That Defined the Last Year • The FCC passed new CPNI rules to protect customer privacy, creating huge headaches for carriers. • More than a dozen rural ILECs announced their sale in 2007. • Adelphia sold to Comcast and Time Warner – both are now offering VoIP service to compete with telcos. • The FCC is auctioning more spectrum, but ignoring the needs of rural telcos. Consultants are very busy!

4. Telcos have lost approximately 20% of their access lines in just 5 years.

5. In areas where voice service has been rolled out, Time Warner already claims 11% of the market share.Midco claims 40% in some areas it serves.

6. Digital Phone from Time Warner Cable It's time for a better residential telephone service that understands how important your time is. Don't be bound by traditional rate plans that charge you different rates depending on when you call. With Digital Phone service from Time Warner Cable, you can call anyone in the United States and Canada, as often and as long as you want, for as low as $39.95 a month. Plus, get the most popular and convenient calling features like Call Waiting, Caller ID, Call Forwarding, Speed Dial and more at no extra cost. Vonage offers unlimited long distance plans starting at $24.95 per month.

7. An estimated 12% of homes have eliminated landline service and are Wireless Only! 80% of the population has a wireless phone.

8. There are now about 200,000 cell towers across the United States.

9. Why Telcos Hate Selling Cellular • Retail intensive. • Inventory management. • High churn rates. • High non-pay rates. • Programming phones. • Little or no profit. • CSRs are not sales driven. • Inferior product. • Damages the telco’s reputation. • No billing integration.

10. High-definition televisions are already in 18% of homes, many of which do not subscribe to high-def.

11. Triple Play Rate $ 99.95 Set Top Box #1 7.95 Set Top Box #2 5.95 Set Top Box #3 5.95 One Premium Channel 11.95 High Definition 7.95 Digital Video Recording 7.95 Video on Demand (2x per month) 10.00 $157.65 * Plus Up-front Costs! Cable Modem $ 39.00 Wireless Router (estimate) 50.00 Inside Wiring (estimate) 50.00 Installation 4.95 $143.95  * Plus taxes and surcharges. Digital services really add up!

12. How’s Your Telco Doing? Voice Wireless Video Data Networks CLEC

13. Service Monthly Rate Months of Service Years of Service Local Voice 1% 100 8.3 years Long Distance 1% 100 8.3 years Cellular 2% 50 4.2 years Broadband 1.5% 66 5.5 years Video 2% 50 4.2 years Triple Play .5% 200 16.6 years Life of the Account

14. How’s Your Telco Doing? • Voice. • Decline of 3% of access lines per year, due to DSL, wireless and competition. Compounds very quickly. • Data. • A profitable line-of-business. Telcos usually have about 50% of the market share. • Video. • You break even in Year 18. • Wireless. • Lots of equity. No annual profits. • Networks. • Can be very profitable, depending on customer base. • CLECs. • All over the map.

15. Flavors • Voice • Local • Long distance • VoIP • Managed • Unmanaged

16. Flavors • Video • Cable • IP Video • MPEG-2 • MPEG-4 • Satellite • Fixed wireless • Wi-fi

17. Flavors • Wireless • Cellular • PCS • Satellite • Wireless VoIP • Wi-fi • Fixed wireless • MMDS • LMDS • 700 MHz • 900 MHz • 2.6 GHz

18. Flavors • Data • DSL • Cable • Fiber • Fixed Wireless • Satellite

19. Flavors • CLEC • Resale • Overbuild • Fiber • Cooper (DSL) • Fixed wireless

20. What About Fiber • National obsession. • Verizon FiOS • SBC Build-out • Superior technology. • Unlimited bandwidth • Redundant plat • Fewer outages • IP platform

21. What About Fiber? • Getting cheaper, but: • Trenching from the pedestal • Boring under sidewalks and driveways • Splicing to the network • Internal wiring of the home • Optical Network Terminal (ONT) = $600 Per Premise

22. Revenue

23. Consolidated Revenue Over the Past 10 Years • Increased by 10% or more. • ARPU goes from $30 for telco revenue to $90 for the triple play. • Profitability decreased by 10% or more. • Access and USF decreased by 10% or more.

24. Which Telcos Are Doing Well? • Own a cable network. • Delayed fiber to the home. • Cashed out on wireless. • Member of a state or regional network. • Poor wireless coverage in the area. • High cost. • Maximizing settlements, interconnection and other revenues.

25. Which Telcos Might Not Be Doing Well? • Not collecting full revenues from interconnection, settlements, USF, access etc. • Fiber to the home. • IP video deployments. • Wireless agents. • Overextending on new initiatives, such as CLECs, wireless and acquisitions.

26. What’s New in Customer Service? • No more DSL tiers. • Bailing on wireless. • Heavy on video. • 30 minute provisioning interval. • Technical CSRs • Integrated billing systems. • On-line everything.

27. Your Job As a Manager – “Take Nine” • Manage by the numbers. • Establish protocols. • Contain losses. • Grow subscribers and revenues. • Cross train. • Hire and recruit strategically. • Allocate resources effectively. • Operate efficiently. • Automate. • Obtain management support.

28. DiscussionQ & A