October 10-13, 2006 San Diego Convention Center, San Diego California Cable Telephony & VoIP Alan Taylor Mindspeed Technologies, Inc.

October 10-13, 2006 San Diego Convention Center, San Diego California Agenda PacketCable networks and migration to SIP The VoIP marketplace The competition Who will win?

October 10-13, 2006 San Diego Convention Center, San Diego California Current PacketCable VoIP Network

October 10-13, 2006 San Diego Convention Center, San Diego California Problems with Cable Telephony Very slow in defining and implementing standards –Cablelabs started work in 1997 –PacketCable 1.0 issued in 2000 –PacketCable 1.5 issued in 2005 Many MSOs initially offered Voice service via a tandem circuit switched network creating legacy infrastructure Network equipment needs to go through a lengthy certification process to ensure inter-operability Service requires additional ATA equipment at the customer premise

October 10-13, 2006 San Diego Convention Center, San Diego California MSO Advantages Bundled services –Single bill for voice, data and video –Discounts for bundled service selection –Bundled services proven to improve customer retention Quality of service guarantees –Cable companies deploy their VoIP over a managed network providing PSTN quality and reliability Reduced cost –VoIP cable telephony is approximately half the cost of circuit switched phone service Deployed infrastructure –MSOs already have incurred the capital expense of deploying an all fiber network –Adding VoIP requires minimal incremental investment

October 10-13, 2006 San Diego Convention Center, San Diego California Why PacketCable 2.0? Moves to a complete SIP implementation –Replaces MGCP with SIP to distribute intelligence to the end-points –Allows integration of wireless and wireline phone service –Enables service mobility/integration –Support for video telephony/conferencing PacketCable 2.0 specifications expected to be released in Q1’07 PacketCable SIP aligns with the IMS architecture defined in 3GPP Release 6 PacketCable networks will slowly migrate to an all SIP network, while providing support for previously deployed architectures

October 10-13, 2006 San Diego Convention Center, San Diego California Next Generation PacketCable Network

October 10-13, 2006 San Diego Convention Center, San Diego California Managing the Transition? Existing cable telephony customers attracted by the PSTN voice-quality, low cost and bundled services –Need to provide customers a smooth, transparent transition path to a new IMS based network while continuing to support legacy equipment Control of CPE and media gateway typically co- located in the PacketCable softswitch today Two paths to network migration –Separate the functions of CPE control and media gateway control Move CPE control to IMS application layer Avoids any database conversion for legacy customers

October 10-13, 2006 San Diego Convention Center, San Diego California Managing the Transition…cont. –Leave existing softswitch architecture in place Add new application layer service that supports SIP based end-points New application server provides protocol conversion layer between SIP and MGCP based softswitches Final migration step –Move remaining softswitch functionality to IMS –Perform database migration Each MSO may choose a different paths based on their existing network deployments

October 10-13, 2006 San Diego Convention Center, San Diego California Fixed Mobile Convergence (FMC) FMC will allow cable operators to complete their quad- play service offering The MSO’s key strengths in FMC are: –Last mile ownership –Existing subscribers relationship –Service bundling Mobile Operators are willing to enter into partnerships (MVNO) Dual Mode hand-sets are now coming into the market 36% of personal cell phone calls made from home With 15% worldwide market penetration FMC revenue potential is $15 Billion

October 10-13, 2006 San Diego Convention Center, San Diego California Fixed Mobile Convergence Strategy MSO need to offer wireless service to complete their offering of bundled services ‘quad play’ MSO lack both wireless network access and expertise Clear strategy is to partner with wireless service providers Recent announcement of Sprint/Comcast/Cox/Time Warner joint venture –allows cable MSOs to offer co-branded mobile service –Mobile service providers can offer cable content –Single bill for all bundled services –Additional MSOs looking to join partnership –Partnership covers 67% of North American cable subscribers

October 10-13, 2006 San Diego Convention Center, San Diego California Fixed Mobile Convergence Strategy…Cont. Partnership goes beyond bundled services, it is the ability to offer users true mobility so that they have anywhere, anytime access to everything –Programming of DVR from cell-phone –‘Roam to home’ capability –Unified messaging –Cable content access from mobile handset Joint venture needs to create new high-end services rather than gaining pricing leverage through increased economies of scale

October 10-13, 2006 San Diego Convention Center, San Diego California MSOs Offering VoIP MSOSubscribers2004,Q3 Adds Time Warner854,000240,000 Cablevision601,208122,851 Cox130,00040,000 Videotron96,00054,200 Charter89,90022,100 Comcast83,00046,000 Shaw68,00036,000 Rogers18,100 Other40,00010,000 TOTAL1,980,208589,251 Source: Kinetic Strategies Estimates, Company Reports

October 10-13, 2006 San Diego Convention Center, San Diego California How Big is the VoIP Service Market Between 2005 and 2009, VoIP service revenue will grow from: –$2.6 billion to $13.3 billion in North America – $2.3 billion to $12.7 billion in Europe – $4.2 billion to $12.9 billion in Asia Pacific Percent of VoIP service revenue coming from residential vs. business customers: –51% in North America –72% in Europe –83% in Asia Pacific Source: Infonetics Estimates

October 10-13, 2006 San Diego Convention Center, San Diego California VoIP Service Market…Cont. Worldwide VoIP subscribers expected to be 47 million in 2006 –Vonage leads in North American residential/SOHO VoIP subscriber market share, but is down from 34% in 2004 to 27% in 2005, resulting from fierce competition from cable MSOs, traditional telcos, and low-cost new entrants –Cable companies continue pushing to increase VoIP subscriber share: Cablevision and Time Warner Cable each have double-digit share and combined have 39% of all North American residential VoIP subscribers –AT&T, Comcast, and Cox are the only other providers with North American VoIP subscriber share greater than 3%

October 10-13, 2006 San Diego Convention Center, San Diego California Market Growth PSTN voice revenues expected to decline to $500 billion by 2011, representing a decrease of 16.7% from the total revenues at the end of VoIP telephony revenues expected to grow to more than $50 billion by 2011 (~20% per year) Worldwide mobile handsets sales continue to grow at greater than 20% per year (over 800 million units sold in 2005)

October 10-13, 2006 San Diego Convention Center, San Diego California Who are the Competition? Verizon –Revenue 22.7B in Q2’06, 35M retail wireline RGUs, 55M retail wireless RGUs, secured over 100 local video franchises AT&T/Cingular –Cingular - Revenue 8B in Q2’06, 57M RGUs –AT&T - Revenue 15B in Q2[06, 33M RGUs Skype (eBay) –Ebay - Revenue 1.4B in Q2’06 –Skype - 113M registered users Vonage –Revenue 143M in Q2’06, 1.8M RGUs Compared to Time Warner with revenue of 10.7B (4.7B from communications)and 23M RGUs (AOL) 11M RGUs (TWC)

October 10-13, 2006 San Diego Convention Center, San Diego California Voice over Broadband a threat? Currently Vonage has 1.6 million subscribers, mainly in North America Vonage lost $72m on revenue on revenue of $120m in Q1’06 For 2005, on revenue of $269.2m, Vonage lost of US$261.3 m Vonage unlikely to be able to compete with Skype and other P2P providers over the long run due to their inherent cost advantages and potential for improved quality

October 10-13, 2006 San Diego Convention Center, San Diego California The Regulation Factor Regulation, has demonstrated the ability to distort and affect the market dynamics in favor of certain service providers Telecommunications has typically been a highly regulated industry in the U.S. –The Telecommunications Act of 1994 Forced telephone companies to share lines with their competitors The stated intention of the Act was promotion of competition, but it is now widely regarded as a failure.

October 10-13, 2006 San Diego Convention Center, San Diego California The Regulation Factor…Cont. –HR 5252 (The COPE Act of 2006 The house rejected this act which was designed to protect net-neutrality, allow municipal broadband and ensure E911 service for VoIP customers Would have prevented Cable and Telephone companies from deploying discriminatory practices and cherry-pick markets –Universal Fund Subsidizes phone service in rural and low-income areas Currently only PSTN, DSL and Wireless providers required to contribute to fund FCC in favor of requiring VoIP providers to also contribute The evolution of regulation in the new area of VoIP has the ability to dramatically affect who succeeds in this market

October 10-13, 2006 San Diego Convention Center, San Diego California Who will Win? VoIP as a stand-alone business is transitional –Eventually voice will just become another form of data transported over the internet –P2P providers will need to offer additional services that customers are willing to pay for The winners will be the service providers that can offer a suite of integrated, synergistic services over their own access network –Telcos have the majority of the revenue stream today, but lack service bundling –MSOs have the service bundling, but lack the revenue stream MSOs will need to role out PacketCable 2.0 and deploy quad-play services quickly to capture market share before market window closes