October 8th, 2003 Into the LAN: The Integrated LAN/WAN Services Opportunity © 2003 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

Today’s presentation 01: Context: Introduction and Rationale 02: Opportunities and Challenges 03: Segmentation 04: Market Potential 05: Pricing Approach 06: Competitive Landscape 07: In Conclusion

Introduction and Rationale LAN/WAN Integration Formation of a partnership All services completely integrated Customer becomes dependent on service provider Procurement of LAN/WAN Equipment Simple transaction No additional services requested by customer Little opportunity to establish customer loyalty Managed Services Development of a relationship Different services provided under separate contracts Increased loyalty

Type of Business High Low SmallMediumLarge Degree of Product/Service Customisation Average size of Transaction (Value) Basic Transaction (Voice Services) Standardised Product Business (Data Network Service) System Business (Managed Service) Project Based Business (Integrated LAN/WAN Service) The rationale behind the concept is the ability to increase customer loyalty and ARPU by moving the customer relationship from a single transaction to a project based business relationship Rationale

Managed services are increasingly important for Network Operators The European Managed Network Services market continues to grow This indicates an increased propensity to out-task non-core activities such as ICT The use of a number of services requires increasing integration assistance from service providers

Increased loyalty leads to increased ARPU The sales cycle in the ICT sector is taking longer as businesses are more focused on finding the most cost-effective solutions, and avoiding unnecessary expenses Service providers therefore need to concentrate more on locking in existing customers and increasing that customers loyalty to the service provider The provision of a fully managed end-to-end integrated solution offers additional cost benefits to both service providers and customers as well as enabling the service provider to up-sell new applications and services

However significant challenges exist Challenge 1: Overcoming End User Perceptions Very Reliable Unreliable High Service Capabilities Low Service Capabilities Service providers need to prove their capabilities in the provision of this service. Many are well positioned in the WAN space but need to promote their strengths in the LAN environment

Integrated Services Challenge 2: Introduction to a host of new, aggressive competitors Network Integrators Service Providers Equipment Vendors Systems Integrators IT The distinction between Voice and Data is disappearing All players in the global ICT market are attempting to move into new markets to facilitate growth This is particularly true in the managed network services space where all competitors are feeling the pressure If Service Providers don’t expand their capabilities they will risk losing their existing customer base Tel. Services Applications Significant challenges (continued)

Understanding the target customer segments and selecting the most profitable of them is a key component to a successful strategy The Telecommunications market can broadly be broken into four segments: The Consumer Market The SME Market Large National Enterprises Large Multinational Enterprises There is a need to identify the segment or segments that have the most profit potential and which are most aligned with the components of the service on offer Market Segmentation

Large National Enterprises High Low High Attractiveness of supplier to customer: Value delivery Price/benefit positioning Available alternatives Attractiveness of customer to supplier : Customer size/growth/profitability Repurchase loyalty Small to Medium Business Consumer Market Very Large Multinationals Market Segmentation Consumer market is immediately disregarded The small to medium business segment is not very attractive to suppliers Very large multinationals are not attracted to concept in terms of value delivery The large national enterprises satisfy requirements of all involved

Market Potential Measurement Methodology Measuring market size is extremely complex due to variations in definition and recording methods Measuring market potential of the addressable market is a better indicator of opportunity WAN Revenue Generation is impacted by: Size of Company no. of sites no. employees Vertical Industry Bandwidth Requirements LAN Factors to consider: Ratio of screens to employees Vertical Sector Average spend per screen Overall Potential Integrated LAN/WAN Revenues = Sum of individual WAN and LAN

Market Potential This market measurement includes revenues from WAN, LAN infrastructure hardware and services. It does not include desktop applications and software. There is much scope for up-selling Growth will be slow this year with greater acceleration in 2004 as obstacles are overcome. This year is more about education and proving capability.

Pricing Approach Pricing should be simple and transparent A single bill is perceived to be an important benefit Pricing will generally be based on a matrix format from a simple offer to a complex one Contract duration will typically be in the region of 3-5 years Setting the right price for a solution is of paramount importance. Suppliers need to arrive at a price that suits the customers while at the same time earning themselves a premium Price will be related to risk and level of responsibility assumed by the service provider Pricing model will be very customer specific. Network operators need to maintain a level of flexibility to best satisfy customer needs

Network Competencies Service Competencies COLT C&W BT IBM EDS Infonet Equant Incumbents and alternative operators have the network capabilities, experience and other competencies in the provision of such a service System Integrators and consultants have a high level of service competence but lack on the network competence Global service providers are highly competent WAN providers but are not well positioned to provide LAN services Competitive Landscape

Market Research Service providers need to understand how customers use the service, competitor strengths and weaknesses, alternatives and cost of failure Segmentation Matching customer attractiveness to supplier attractiveness is vital to the success of the service Service Design Customised design to suit individual requirements is required. SLAs should also be customer specific. Service Roll- out Needs to take into account change management, due diligence and organisational design Conclusions and Recommendations

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