Industry Overview Guido M. Schuster Senior Director SIP Solutions 3Com, USA

Overview  Market and Utility —IP Centrex Opportunity —Fundamental Value Proposition  Small Business Market Research —Economics —Replacement Cycle —Adoption Criteria  ISP Market Research —Economics —Distribution Model —Cash Flow Model  Summary

Industry Perspective - O(3 years) Market ConsumerSOEnterpriseLE LAN Utility Last Mile Long Distance New Services Wireless Long Distance Toll Bypass LAN PBX IP Centrex Services

IP Centrex Opportunities US Market Example 4000 ISPs 2,000,000 broadband homes 5,000,000 small broadband offices Business set phone and features Terminal Adapter based services Customer Reach

Fundamental Value Proposition Small Business Spending per Month per User Local$40 Long Distance$30$60 (lets get back to this) Enhanced Services$25 ISP$5$8 Tel. Equip (5 years) $10 $7 (no on premise PBX) Total$110$75 Small Business Spending W/ IP Centrex Savings = 32%

SIP Solutions provides small businesses a cost savings over traditional telephone systems Note: (1) Other includes installation, support, software upgrades, bandwidth cost for voice and maintenance (including moves, adds and changes) (2) Costs represent 5 year spending discounted back (1) Estimated Annual Cost Savings vs Multiline – 6% ($491) Estimated Annual Cost Savings vs. Multiline 41% ($7,726) Estimated Annual Cost Savings vs. PBX 35% ($12,474)

Current and Planned Phone Systems —Only half indicate full satisfaction with current phone systems —Key Dissatisfactions: lack of expandability limited feature set —1 in 4 Very Small Companies and 1 in 5 Small Companies are planning to install new phone systems within the next 12 months. —About 1 in 5 Very Small Companies appear to shift from Key Systems to PBX as they grow into Small Companies % of Small Offices Plan to change phone systems every year

Decision Criteria for Adoption for Small Business  Unaided Criteria of Adoption —Cost Savings required and number 1 criteria —Ease of Use and Simplicity —Time Savings and Productivity —Expandability —Simple set up and maintenance  Aided Criteria —One Bill —One place to check messages (UMS) —Call filtering based on personal information

Service Provider Financial Model Months before positive ROIC Variables of Model N = number of steady state customers m = phones per customer (4) s =service fee ($60) c = customer aquisiton cost ($150) f = fixed operational costs/month ($50000) I = one time investment ($800,000) p = client equip cost ($395)

Financial Model for Distribution Channel (ISP) in Wholesale Case US Market Example 4000 ISPs Wholesale Network Provider small broadband offices Customer Reach - sell CPE - sell Service Equipment Vendor Equipment sold via SP Channel Wholesale Service including Billing and Customer Service $$ $

Service Provider can achieve Positive Cash Flow Year 1 Ramp up from 500 subscribers in Q1 to 10,000 in Q8 Conservative Business Case Channel Partner Complete Service

Summary  Market and Utility —IP Centrex Opportunity —Fundamental Value Proposition  Small Business Market Research —Economics —Replacement Cycle —Adoption Criteria  ISP Market Research —Economics —Distribution Model —Cash Flow Model

Industry Overview Guido M. Schuster Senior Director SIP Solutions 3Com, USA