Internet Finance & Equipment, Inc. How & Why to Become a CLEC Jim Hollis, President Internet Finance & Equipment, Inc. & Joseph Isaacs/CEO ISG-Telecom Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Introduction Joseph Isaacs (ISG-Telecom) Jim Hollis (IF+E) 727-738-5553 800-919-4521 President/CEO President IF+E & ISG-Telecom Specializes in ISP to ISP/CLEC turn-key solution Strategic Partnerships with Nortel, ReCom, Cisco, 3Com Newbridge Networks, Siemens, Lucent, Foundry Networks, Cobalt & Others Complete Integration Package Complete Financing & Funding Package Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

What Is a CLEC? Competitive Local Exchange Carrier Essentially, a new local dial-tone provider A CLEC has the same rights & responsibilities as the ILEC (Incumbent Local Exchange Company) Important: becoming a CLEC enables a large retail customer to become a peer wholesale customer Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Why Become a CLEC? CLEC's are peers of ILEC's, not just customers Arbitration ability in front of Public Utility Commission and FCC Inter-company reimbursements and settlements Access and reciprocal compensation revenues Opportunity to build fiber networks on local rights of way Ability to buy UNE (unbundled network elements) from ILEC at regulated low rates Allows for more flexible set-up of services than regular customers of the ILEC can get via ILEC tariffed offerings Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Benefits of Being a CLEC State by State mandated 13 to 25 percent below-tariff wholesale rates on circuits and services for switchless reseller CLECs; Greater discounts of 20 to 45 percent below- ILEC tariff retail rates on circuits and services for facility-based CLECs; Availability of carrier class services and UNE’s unavailable at retail levels; Most importantly, the ability to profit from the telecom services used by your existing customer base and community by taking on the billing and marketing functions Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

CLEC Versus ILEC Unlike ILEC's, CLEC's are not restricted to local and intraLATA business CLEC's can offer long distance service bundled with local service and additional telecom services ILEC's have years of cost studies posted with PUC/PSC to justify their high rates....now they can't lower them to compete with CLEC pricing Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Why ISPs Should be a CLEC? The best news is ISPs are superbly positioned to move into the Competitive Local Exchange (CLEC) business. ISPs have a built-in customer base, particularly for data access which naturally leads to gleaning new revenues from the existing customer base by selling data circuits at retail while paying the wholesale rate and by adding voice services and features on a consolidated bill. Furthermore, additional and auxiliary services that the ISP can resell include long distance, conference calling, calling cards, and their own internet service, on a single bill broken out by customer identification codes and other management reports. Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Why ISP’s are Positioned to be a CLEC ISPs have advantages in local, long distance, and data services through strategic alliances, bulk purchasing of long distance minutes, voice over IP deployment, consolidated billing, and the ability to deploy the latest in switching equipment without the expense of legacy equipment that the ILEC’s have that may not be able to deliver high speed digital services. Access to existing ILEC network at discounts on a pure resale basis as well as in converting their current circuits from retail pricing to wholesale pricing. ISPs can additionally configure their systems to deploy tandem switches in each LATA to gain free inbound T-1s from the ILEC while consolidating their modem pools at the tandem for cloud access. Virtual co-location is also available. No existing baggage and relatively low regulatory requirements compared to the ILECs’ regulated rate of return and cost study legacies for pricing. Information services for LAN/WAN customers including web page design and hosting, help desk services, configuration, and maintenance services for company internal communications systems. Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Basic Local Call Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Basic Long Distance Call Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Tandem Switch vs. Class 5 Switch Tandem Switch (class 4) Built for incoming/outgoing calls to a central point in the LATA for Data Carriers & Long Distance ILEC's must provide inbound trunking at no charge to the CLEC’s tandem switch with CLEC’s running return fiber to ILEC's tandem Class 5 Switch Built to handle all voice & data Modules available to partition switch into voice switch plus tandem ID Many CLEC's have one (1) main switch with small remotes in the COs ILEC's tend to have full class 5 switches in each CO Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Equipment Needed For Voice: For Data Only: Class 5 Switch (x) Co - Located xDLCs Fiber - installed @ $10 Per foot (or leased) For Data Only: Class 4 Tandem Switch Fiber Router (x) CO - Located xDLCs Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Support Services Needed For Voice: Operator Services Customer Service Billing Back Office Directory Assistance Repair/Install E911 Numbering Resources Switch Maintenance Regulatory Maintenance Tax Compliance For Data Only: Customer Service Billing (simplified) Back Office Repair/Install E911 Numbering Resources Switch Maintenance Regulatory Maintenance Tax Compliance Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Hubs and Routers Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Creating a CLEC Step 1- Form (new) separate corporation - This prevents the co-mingling of regulated income from non-regulated income -Allows the ISP company to be first and largest customer of CLEC company Step 2- Determine which types of services are to be offered; -Data only..........Long Distance, too? -Voice only........Conference calling? -Voice & Data....Other telecom services? Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Creating a CLEC Step 3- Gather necessary checklist items for state PUC certification application -Financials & proforma -Background of principals -Corporate data Step 4- Draft a tariff based on state PUC's requirements -Level of detail varies significantly -Timing varies significantly -States have individual requirements for free DA calls & Lifeline services Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Creating a CLEC Step 5- Determine prior to tariff preparation if CLEC will be switchless or facilities based Step 6- Prepare state's form for certification and file with state PUC/PSC either prior to sending or with the completed tariff Step 7- Negotiate or opt-in to an Interconnection Agreement - connects new CLEC's network & switch to ILEC's or other CLEC's, spells out how payments, trouble tickets, network alarms, etc. will be handled - sets rates for Resale or Unbundled Network Elements from ILEC Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Creating a CLEC Step 8- For Non-Facilities Based (switchless) Resellers, a decision must be made as to whether to buy out of the wholesale tariff or negotiate a term and Volume Agreement with the ILEC’s and/or CLEC’s Step 9- If long distance is to be offered, carrier and rate must be established Step 10- If switchless reseller, procedures and training are established Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Creating a CLEC Step 11- If Facilities-Based, the following services must be obtained via ISG Partners: -Customer service E911 -Back Office & SS7 connectivity -Billing BB Interconnection to ILEC -Operator services Connection to Tandem(s) -Numbering Resources Equipment set-up -Repair/Installation Switch Maintenance/Repair Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Creating a CLEC Step 12- Beta Test System and Update LERG with new switch ID (3 months) Beta test billing Beta test new order processing (back office) Sales, Marketing & Product training Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

17 support categories every ISP/CLEC needs to consider Business Office Accounting Office Customer Service Center Equipment Provisioning Service Activation Network Administration Network Data Administration Maintenance Maintenance (Switching / Transport / Access) Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Support Categories (Cont’d) STP / SCP (Signal Transfer Point / Signal Control Point A.K.A. SS7) Repair Service Bureau Disaster Recovery Directory Assistance Operator Services Security Facilities 911 Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Process Timing Phase I - Generally, Tariffs can be prepared and filed within 30 days from the time all corporate information is available. State PUC approval time varies from 1 day to 6 months. Phase II - The timing here varies tremendously depending on the equipment selection method and speed at which the ISP decides on the equipment type and vendor. Delivery time on switches varies from 1 month to 4 months depending on the complexity of the configuration. This can be done simultaneously with Phase I. Phase III - Again, this is done during the equipment selection and deployment process. When the switch is being set up, configuration tie in to various support vendors is established. Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com

Conclusion Becoming a Switchless Reseller or a facilities-based CLEC has many benefits - financially as well as to ensure survivability in a very competitive market environment, it is not a simple process that can be done overnight. Financially, the best operational margins come from being a facilities-based CLEC, which can require a significant capital investment in a switch or tandem/voice switch. Fortunately, this investment is often more than covered by the savings gained from reduced ISP telecom costs. Copyright 1999 IF+E (800-919-4521) www.internetfinance.com & ISG-Telecom (727-738-5553) www.isg-telecom.com