Making Residential Broadband Profitable The Challenge For WISPs Sandy Teger and David Waks Co-Founders, BroadbandHomeCentral.com Broadband Wireless World 2003 April 10, 2003 Copyright © 2003

Slide 2 Summary Unserved markets are shrinking fast –Incumbent wireline providers – cable operators and ILECs – are filling in the holes –One or both will provide broadband in all but the smallest markets Profitability comes from Strategy and Execution We’re talking today about strategy –Choosing markets and segments –Differentiation

Copyright © 2003 Slide 3 About Us Sandy –18+ years with AT&T; multimedia strategy director Dave –Founder and R&D director, Prodigy Services Company Together as System Dynamics Inc. –Specialists in residential broadband –Consult for companies affected by residential broadband Projects have included strategy, business economics, competitive analysis –Research and write free monthly Internet newsletter Report on the Broadband Home –Operate BroadbandHomeCentral.com as industry resource –Organized and ran five BBH conferences

Copyright © 2003 Slide 4 The Residential Broadband Market – U.S. Broadband is growing, dial-up is declining –16.7 million residential broadband households YE 2002 –Dial-up access declined 10% in Dec. 02 (Nielsen/Netratings) Mostly cable (~2/3) and DSL (~1/3) – All others are small fraction Unserved market is shrinking –Declining percent of zip codes with zero high speed providers Dec. 9940% Dec. 0027% Dec. 0121% June 0216% (FCC Report 12/17/02 for 1 H02) Services moving into less densely populated areas –Increasing percent of least densely populated decile of zip codes with high-speed subscribers June 0137% June 0250%

Copyright © 2003 Slide 5 How Is Coverage Changing? Cable broadband coverage improving –Currently passes 98.6 million homes –NCTA says 85 million passed by cable modem service –Comcast says acquired AT&T systems will be 90% upgraded by end of 2003 –Adelphia’s new management fixing their systems DSL broadband coverage improving –Some ILECs previously avoided deploying via remote terminals Leverage on FCC –Recent FCC decision has changed ILECs investment decisions Verizon expanding by ~30% ; will be available to 80% of lines Incumbents trialing wireless technologies for expanding their coverage –Verizon trialing BeamReach in Fairfax County, VA –BellSouth trialing Navini in Daytona, FL.

Copyright © 2003 Slide 6 Wireline Price/Performance Getting Better ILECs cutting prices to blunt cable’s lead –SBC has cut from $50 to $40, now $35 for 12 months if buy package –Avg monthly DSL service price fell 9% in 2002 (Source: Current Analysis) Tiering -- introducing “broadband lite” at small increments over dial-up –GCI LiteSpeed$24.99 –Earthlink Plus$28.95

Copyright © 2003 Slide 7 More Applications and Content from Wireline Providers Photo services –Comcast – Snapfish –Verizon – Shutterfly Music –Listen.com has deals with RoadRunner, Charter, Optimum, Verizon, Sprint, Speakeasy Cable operators providing telephone services –Mostly circuit switched –VoIP coming in next year

Copyright © 2003 Slide 8 Sources of WISP Profitability Going Forward Focus on the “desperate unserved” (a shrinking market) Explore collaboration –Local ISPs –National ISPs (AOL, Earthlink, …) –System integrators –Wireline carriers: might prefer to work with you rather than rebuild networks Compete successfully –Against wireline carriers –Against other wireless providers

Copyright © 2003 Slide 9 Succeeding in Competitive Markets Differentiate to add value in competitive markets –Example: Clearwire adds portability — BellSouth and Comcast don’t offer it –Example: Xtratyme makes local community part of the process –Use nimbleness in packaging and customer service – s.a. combined offers for office and residence –Leverage customer and community relationships Focus on segments where incumbents are weak –Focus on SME, be opportunistic about residential Suppliers innovating -- find new capabilities to differentiate your service –Portability and mobility Government wants competition—use any advantage you can get from them

Copyright © 2003 Slide 10 Competitive Strategy: Porter’s “Five Forces” Model

Copyright © 2003 Slide 11 Profitability: Porter Had It Right “Industry profitability is a function of industry structure.” Strength with respect to customers –Value to buyers –Differentiation –Switching costs Strength with respect to suppliers –Availability –Substitutes available Competition –Growth rate of industry –Existing and potential competitors –Entry barriers –Government policies

Copyright © 2003 Slide 12 Profitability In Competitive Markets First : Choose your strategy –Cost leadership –Differentiation –Focus – on what you can do better than anyone else –… Then : Execute well

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